Keynes is Our Co-Pilot

I've written in this blog about John Maynard Keynes before, indeed, TPBP was some months ahead of the general revival of Keynes in popular journalism.

This American Life has done a piece in which they interview prominent economists, some of whom are specifically applying Keynesian theory to Obama's bailout plan. As TAL often does, they compress into 7 minutes what I had to read some 1200 pages to get. The audio won't actually be available until 7pm Eastern.

The Crisis Explained, in Brief

PW mentioned last week an episode of NPR’s This American Life that dealt with the mortgage backed securities crisis from earlier in the year. That episode was so successful, both in terms of how clearly and succinctly it explained the crisis and the number of people who listened to it that they have done another episode, laying out the reasons for and possible ways ahead from the current credit crisis.

I listened to it this afternoon during a break at work. It’s an hour well worth your time. If you are at all confused by what’s been going on, why the bailout is important and other issues of the day (and I don’t know anyone who’s not), check it out. And really, you should be listening to This American Life anyways. It’s pretty awesome. They have streaming versions of all their episodes on their website, as well as a free weekly podcast available through iTunes.

Not Out of the Woods

So in another stunning victory for American politics, the House passed the "bailout" bill which was an irresponsible affront to free market capitalism at 700 billion, but became good policy with the addition of numerous absurd earmark spending amendments. The bill was then transported at something approaching light speed to Still President Bush, who signed it so rapidly that he probably didn't read it, and with that another roughly trillion dollars of debt was added to the federal budget.

One of the things which endeared Bill Clinton to me was his penchant for balanced budgets, surpluses even. Eight years of wild deficit spending are now bookended by another massive, emergency spending bill. The punditocracy have breathed a collective sigh of relief, and have returned home to see their pets, children, and significant others during daylight hours for the first time in two weeks. We've thrown a heap of money at the problem, and no doubt it is now solved.

But here's the thing- nobody, anywhere, knows if this will work. We are still improvising at a pace that doesn't allow for much reflection. Wall Street is having a hard time finding anyone to ring the bell opening the market on Monday, people not wanting to be associated with a possible ongoing disaster. But the stocks are only the surface ripples created by the monster lurking beneath the waves, the non-liquidity of the commercial paper markets. If you are one of the many still struggling to understand the madness of this debacle, I highly recommend this piece from This American Life, explaining the whole thing in a very approachable way.

Pay no attention to the screaming CNN headlines about the performance of Wall Street. Wait to see if banks resume loaning money to one another- that's the real, and only, marker of a resolution to yet another Republican-created disaster. And don't be astonished if we end up throwing another trillion at the beast two weeks from now.

Also, due to the rampant popularity of the radio piece linked above, it has become a daily podcast called Planet Money which you can get free from Itunes.