this morning (1/14/2009) on Terry Gross' Fresh Air on NPR from 9 to 10 AM (PST), Terry devoted most of the hour to interview of Dean Baker, of the Center for Economic and Policy Research and author of Plunder and Blunder: the Rise and Fall of the Bubble Economy. The show was billed as being about a November editorial that Baker wrote for [iThe Guardian[/i] in which he recommends that the Obama administration direct its Keynesian stimulus toward the medical sector (what we euphemistically term the "health" sector). However, the interview came to focus on broader issues of economic analysis as set forth in Plunder and Blunder.
One interesting point made by Baker, based on testimony of Paul O'Neill before Congress, is that tax breaks - and by extension untargeted "bail-outs" - to business can never be presumed to result in investment in the U.S. economy. Testimony cited by Baker was from O'Neill's confirmation hearing in 2001 as Bush's nominee for Treasury Secretary. O'Neill - one of Obama's economic brain trust during the campaign - had a falling out with Bush in 2002, became a critic of the administration (including on the issue of the Iraq intervention), and, resigned in 2002. Baker's testimony on how business treats tax cuts was based on his many years as CEO of Alcoa.
Terry Gross asked at what point he, Baker, became aware of the housing bubble. Baker said that it was in 2002, when Greenspan's testimony before Congress summarily rejected the idea of a housing bubble, indicating that there would be little in the way of either Fed or other governmental measures to moderate the dangerous trend. Baker explained that the housing bubble was clearly identifiable based on huge deviation already apparent in 2002 from long-term (century-long!) trends relating housing prices to the rate of inflation and also relating residential rents to housing prices.
Baker also expressed concern that two of the people named by Obama for top positions in the new administration, relating to the economy, were holdovers from the Clinton administration. In Baker's view. the Clinton administration bears as much responsibility for the housing market implosion as the Bush administration by setting up the housing bubble in the 1990's. The Bush administration basically inherited the potential mess but is also culpable by way of the inaction and denialism that characterized that administration on economic issues, in particular the matters of CDO's and related insurance-type derivatives.
Brief rundown and link to listen to the show as a podcast is available on-line.