Just a few quick, disjointed thoughts on the bailout, a plan that I, like others, view as fundamentally flawed.

First, the chutzpah of Paulson and the administration is astounding. They're saying to Congress, "you'd better do this quick, without conditions, or else!"

Hold on a second. The Treasury and the firms they are representing do not, I repeat, do not, have the bargaining clout here. We--the taxpayers and their reps--do. They're coming to us saying, "we've screwed up and need you to pick up the pieces to the tune of $700 billion." And they've got the brass ones to try to muscle us around about it?!? If Pelosi and company can't get the spine to ignore this muscle play and craft a better plan, then they're not doing their jobs.

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Look for this obituary in tomorrow's paper:

Trickle-down economics died yesterday morning at 10AM. The cause of death was a data release from the US Census Bureau, but trickle-down had been ailing from lack of empirical support for decades. Also known as "supply-side economics," trickle-down was the love child of Ronald Reagan, Arthur Laffer, and Jude Wanniski. It is survived by Larry Kudlow and Co., and the editorial page of the Wall St. Journal.

That's what you should see, but you probably won't. Let me explain.

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David's answer to my question made a lot of sense. I want to pick up on one part of it: expanding the labor movement, and to put in a plug for a law that could make an important difference in realizing the goal.

David stresses the critical role labor has played in progressive politics. There are good local examples with pretty high visibility, like living wage laws, that typically have labor activists somewhere in the mix. Wal-Mart Watch, a project started by the Service Employees International Union, has had great success in forcing better compensation and labor practices at that retail behemoth. And on the economic front, the union advantage in terms of wages, benefits, vacations, etc., are well known and thoroughly documented (though what with globalization and the long-term slide in union membership, even unions' bargaining power ain't what it used to be).

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I think it was the British comedian Alexei Sayle who used to do this routine riffing off of Tracy Chapman's song about revolution. He'd play it for awhile, and then stop it suddenly right when Tracy was singing "there's a revolution coming." And he'd shout, in a very uppercrust accent, "No, there's not!"

I thought about that when I read David's post, but he's the guy that's been going around with his ears close to the ground, and he's got very acute hearing for this kind of thing. So if says something is percolating, I believe him.

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David Brooks made an important mistake in his Tuesday column about Barack Obama's fund raising. He writes: "If Obama's tax plans go through, those affluent donors could wind up giving over 50 percent of their income to the federal government."

According to the non-partisan Tax Policy Center's analysis of Obama's tax plan, the correct share for the richest 1 percent of households--those with income above $600,000--is 36 percent; for the for the richest 0.1 percent, above $2.9 million, the rate would be 39 percent. Note also that since these estimates include taxes remitted by corporations, the actual tax returns that these households fill out would find them paying less than 30 percent of their income in taxes. Even with Senator Obama's proposal to raise Social Security taxes on those with earnings above $250,000, a proposal for which he has yet to specify a rate, tax liabilities of the affluent would still be far below 50 percent of their income.

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Today's retail sales report for May revealed a much better-then-expected jump of 1%, the best monthly showing in six months (year-over-year growth of 2.5% is still sluggish). It wasn't just spending on gas either (core sales, ex-autos, ex-gas were also up 1%).

Given what we know about incomes and the job market right now (and what we know ain't pretty), the sales report strongly suggests folks are spending their rebate checks. Yes, I know there's too much spending and too little saving in our economy, but at a time like this, with the economy growing well below trend, we really need folks to kick up their consumer spending (it's 70% of the economy!), most usefully on non-imports (i.e., not just on gasoline).

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Thanks much to Arianna Huffington for inviting me to respond to her posts this week.

First, let me say that Right is Wrong is an important and enlightening read. Many of us are already there in terms of the book's main message (see title), but what I'm finding indispensable is its collection of pointed examples of just how out of touch the right has been for lo these many years. My latest favorite--somehow I missed this one in real time--was Bush's erstwhile Treasury Sec'y, John Snow, saying that the best remedy for the damage from Katrina was to make the Bush tax cuts permanent (see pg. 253).

That's some real chutzpah. It's also mindless, callous, and infuriating.

Now, on to Arianna's first post re the role of the fear card in 2008.

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Sweltering DC humidity arrived on schedule this morning, but it brought with it a truly lousy jobs report. I give the full low-down here, but the punchline is that the unemployment rate leapt up a big half-percent in May, from 5% to 5.5%, the largest monthly increase since the mid-1980s, and the highest unemployment rate since late 2004. Payrolls contracted for the fifth month in a row, down 49,000, led by job losses in most industries, including construction, factories, offices, and retailers.

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Robert Samuelson's oped in today's WaPo is workin' my last good nerve.

The basic argument is that a cap-and-trade carbon tax is anti-growth, and he cites lots of numbers to make it sound terribly expensive and painful. But what Samuelson fails to do, and this is far too common in this work, is to consider the benefits side of the equation.

When assessing environmental policies, if you fail to consider the economic costs of doing nothing, everything sounds horribly expensive and distortionary. That is, you can claim, as does Samuelson, that the cost of the tax on industry or households amounts to $X, and since you neglect to factor in any of the environmental benefits of X's impact, X ends up looking awfully problematic.

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As Jonathan Taplin's discusses in an earlier post, candidate McCain gave a big economics speech today. Allow me to elaborate on why this stuff should scare you.

First, the gas tax holiday is smart politics but lousy policy. As Taplin aptly described, high gas prices are sending an important economic signal and jamming that signal is ill-advised. On the other hand, as one of the commenters points out, this idea could really help some strapped families.

The problem is there's absolutely nothing to stop the oil companies from claiming a big chunk of this subsidy by raising the pretax price of gas at the pump. Prices go up in the summer anyway, and I'll bet you a gallon of premium that they go up even more than usual, such that some of that 18.4 cents/gallon ends up back in Exxon's wallet, not yours.

Which leaves us with a nice little transfer from taxpayers to oil companies. Nice work, John.

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The Great Merit Debate: OK, OK…mea culpa re the ambiguity of “merit.” I’m not trying to be elusive. I’m just trying to find words that work for lots of different readers from different walks of like.

Let me be, I hope, totally clear: for Brad, Alan, and any other economist, merit=marginal product. Thus, principle one is very simply arguing that while a central tenet of economics is that your income is equal to the marginal value you add to the economy, reality is otherwise. Your bargaining power—your ability to claim more than your marginal product or get stuck with less—is an ever-increasing determinant of economic outcomes.

The litany of “I see this here and there in today’s economy” in the earlier post responding to Alan was supposed to provide a bunch of examples, ones I don’t think Alan has addressed, but let me be more precise and try to draw Brad deeper into this too.

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Now that we’ve debated the principles of Crunch economics for a few days, I wanted to post one of the questions and answers that make up the core of the book. This one’s about globalization. It’s longer than most of the book’s Q&A discussions, but it’s not a simple topic and I try to add some nuance. See what you think.

Q: What’s so right and/or wrong about globalization? Am I really hurting American workers if I buy cheap imports? Should I feel lousy about this? Am I supposed to oppose trade deals? Isn’t our loss the gain of some poor person “over there” who probably needs the money even more than we do?

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Thanks to Alan Viard for a provocative analysis of the principles of Crunchian economics. Not surprisingly, we disagree on many fundamental points.

Alan found principle #1 ambiguous, and since it’s central to a) the book, and b) my understanding of the economy, let me repeat the principle and try to clarify.

#1: Economic outcomes are generally thought to be fair, in the sense that market forces dole out rewards to those who merit them. But that’s not always the case. Power, whether it’s based on political clout, wealth, class, race, or gender, is also a key determinant of who gets what.

This seems crystal clear to me, but maybe that’s because I view many of the economy’s outcomes through this lens. Simply put, I see evidence of large and growing gap between overall economic growth and the living standards of working families. And I see disproportionate power—not merit, not marginal product, not efficient resource allocation—as one driving force behind it.

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It’s great to have you here, Barbara, as you are always a voice of sanity in the wilderness. And thanks for getting us started—your entry raises great questions.

“Crunch” really does purport to be more about how the economy should work than about how it is working. And that’s important, because it’s pretty clear that it’s not working and has been broken for awhile. It has, as you say, “fallen down on the job.”

Right now, we see that through the lens of the housing meltdown, its spillovers into credit, financial, and now labor markets, and the resultant recession. But the distributional failure—the failure of growth to reach so many of those that helped to generate that growth—has been with us for most of the past few decades.

Of course, you’ve been writing about this market failure with great resonance for years.

I think there are two important questions to ponder: how did we get here and how do we get “back to the garden,” as we said in the ‘60s (that’s the 1960s, not the 1860s—we’re old, not ancient). I’ll address the how we got here question in this post and save the “where to from here” for a later one. But I’d love to hear your thoughts, Barbara, on both of these questions too.

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First, I want to thank TPM’s Andrew Golis for setting up this book club. Second, I want to thank Brad DeLong, Barbara Ehrenreich, and Alan Viard for agreeing to post along with me on “Crunch” over the next few days (Tyler Cowan is a “maybe”—I’m hoping he will post some responses too).

A bunch of “Crunch” is me answering real people’s questions about the economy—not wonk’s questions, but actual questions gathered from folks who are interested in matters economic but not necessarily schooled in them. The questions range from the definitional: “What’s GDP; how’s unemployment defined,” and “What does the Federal Reserve do, anyway?” and the timely: “What are bubbles and what is a recession?” There are behavioral questions, like “Should I give money to a homeless person or hire an undocumented worker?” as well as policy questions and solutions, like “Do other countries really spend less than we do on health care with better results?” or “Are budget deficits really a problem?”

And, of course, “Why do I feel so squeezed?”

Crunch is not Wikipedia, and the answers I provide are not simply descriptive or economic but are infused with “political economy,” which I describe as the intersection of economic rules and power. As you’ll see below, power plays a much more important role in my economic analysis than it did in my—or anyone else’s— economics education. And the reason for that is its dominant role in economic outcomes, especially those in recent years (and even in recent weeks).

In future postings, I’ll present questions and answers from the book, and I look forward to the posts from both my respondents and my follow cafe’ dwellers. But to get things started, I wanted to share an abridged version of the book’s introduction. Here, I lay out the paradigm within which I analyze the questions, problems, and solutions to the “Crunch.”

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