The Great Recession in pictures

The Center on Budget and Policy Priorities has produced a useful feature called The Legacy of the Great Recession, which presents some of the key features of the current situation in pictures. Above is a chart showing the estimated effect of the Recovery Act on employment.

It’s also worth contemplating an older article, from September 2009, entitled Top 1 Percent of Americans Reaped Two-Thirds of Income Gains in Last Economic Expansion.

Ruin porn?

I was taken aback recently to be told by Arts & Letters Daily that my fascination with urban decay, as photographed by people like Jose Gaytan and Nathan Kensinger, means that I am indulging in “ruin porn”—or, as the linked article calls it, ”economic disaster porn.”

According to Noreen Malone, “photosets of blighted places have been, and were described variously as wonderful, as beautiful, as stunning, as shocking, as sad. They are all of those things, and so I suppose they are good art. But they are rotten photojournalism.”

True, I suppose. But then, that’s not what they were intended to be. And even if they are not intended to generate help for devastated areas, I think they do dramatize the devastation. At any rate, I doubt they are doing any actual harm. I find it hard to picture anyone actually impeding economic aid and development because he likes the way the light falls through a collapsed roof, or the colors of the giant gas bubbles rising up in the Gowanus Canal.

Did Piranesi worry about this? Or Shelley, contemplating those vast and trunkless legs of stone? Or the other romantic poets as they mooned around the Roman Forum and Colosseum? Perhaps there’s a statute of limitations, and it becomes okay to enjoy ruins once the people who lived in them have been gone for a certain length of time. 

It’s the regulation (redux)

The recent report by the Financial Crisis Inquiry Commission makes the same point that Paul Krugman has made repeatedly, and that the documentary Inside Job makes in its opening sequence on Iceland.

The financial meltdown of 2008 (and counting) was caused largely by a failure of regulation—and not, for instance, by the efforts of Fannie and Freddie to expand homeownership.

The majority report finds fault with two Fed chairmen: Alan Greenspan, who led the central bank as the housing bubble expanded, and his successor, Ben S. Bernanke, who did not foresee the crisis but played a crucial role in the response. It criticizes Mr. Greenspan for advocating deregulation and cites a “pivotal failure to stem the flow of toxic mortgages” under his leadership as a “prime example” of negligence....

Democrats also come under fire. The decision in 2000 to shield the exotic financial instruments known as over-the-counter derivatives from regulation, made during the last year of President Bill Clinton’s term, is called “a key turning point in the march toward the financial crisis."…

The report could reignite debate over the influence of Wall Street; it says regulators “lacked the political will” to scrutinize and hold accountable the institutions they were supposed to oversee. The financial industry spent $2.7 billion on lobbying from 1999 to 2008, while individuals and committees affiliated with it made more than $1 billion in campaign contributions.

The report does knock down — at least partly — several early theories for the financial crisis. It says the low interest rates brought about by the Fed after the 2001 recession; Fannie Mae and Freddie Mac, the mortgage finance giants; and the “aggressive homeownership goals” set by the government as part of a “philosophy of opportunity” were not major culprits.

Alan Shrugged

Alan Shrugged is a lively and accessible biography of Alan Greenspan by Jerome Tuccille, author of books on Rupert Murdoch, Donald Trump, and the Gallo wine family. It paints a picture of a man considerably more engaging and complex than the jowly sphinx who made so many delphic pronouncements as chairman of the Federal Reserve. Tuccille discusses his childhood in New York City (Harry Belafonte was a year behind him in high school), his early career as a jazz clarinetist and tenor sax player, and his close but wary association with Ayn Rand and her circle of Objectivists.

Despite his hard-shell economic beliefs (he favored a return to the gold standard and opposed the progressive income tax and antitrust regulations), Greenspan proved to have extraordinary political instincts that enabled him to retain his integrity as chairman of the Fed while giving (or seeming to give) the current administration what it wanted. A lifelong Republican, he even found it easier to deal with the Clinton White House than that of George H.W. Bush.

Toward the end of the book, the author quotes a banker as saying, “The Fed does not follow a ... rule that can be written down as an equation or formula.” The author says that “it is critical that someone of Alan’s stature and intellect remain at the helm of the nation’s most important financial institution.”

Yet much earlier in the book, Tuccille discusses a formula that, even if Greenspan didn’t follow it, predicted his behavior almost as well as if he had. Is it really possible that all the number crunching and political maneuvering that goes into the proper regulation of interest rates could be done this simply? The rule was proposed by economist John B. Taylor, once a colleague of Greenspan’s at the economic forecasting firm Townsend-Greenspan.

Forget the money supply, the relative strength of the dollar, and the latest consumer confidence readings.... Replace them instead with Taylor’s simple rule: If inflation is one percentage point above the Fed’s goal, short-term rates should be lifted 1.5 percentage points to keep inflation from accelerating. Conversely, if the economy’s total output is one percentage point below full capacity during a recession, short-term rates should be lowered by half a percentage point. That’s all that economists, and Federal Reserve chairmen, needed to know about keeping the economy on track with steady growth and low inflation, according to Taylor....

Decades later, when the economic history of the final decades of the twentieth century was written, Taylor would enjoy the last word. A graph of where a key short-term rate, the federal funds rate, would have been had the Federal Reserve followed the Taylor Rule showed it to be almost exactly where it actually was before and during Alan Greenspan’s tenure at the helm of the Federal Reserve. Alan has always maintained that his digestion of thousands upon thousands of arcane economic numbers drove his forecasts and policy recommendations—which, of course, was a lot better for business. However, he behaved as though he were following Taylor’s simple rule to the letter.

Wealth real and imagined

I first heard about this story from the tweet of a friend now studying at Wharton, which linked here.

This morning the story was covered on NPR’s Morning Edition.

The upshot—made even more graphic by this, uh, graphic—is that wealth is far more concentrated in this country than most people realize. The richest 20% of the people have about 85% of the total wealth. The share of the bottom two quintiles, on the other hand, is so minuscule that it’s practically invisible on the bar chart.

What’s more, when you ask people what distribution of wealth they would prefer, then men, women, Democrats, Republicans, the rich and the poor all favor a much more even distribution than actually exists. Those with the highest income think the rich deserve a bigger slice of the pie, but the slice they suggest is less than 40%—not even half of what the top quintile actually owns.