Joel Kotkin has a great piece on how Obama can still save his presidency. The bit on jobs is particularly good:

The key rule of Chicago politics is delivering the spoils to supporters, and Obama’s stimulus program essentially fills this prescription. The stimulus’s biggest winners are such core backers as public employees, universities and rent-seeking businesses who leverage their access to government largesse, mostly by investing in nominally “green” industries. Roughly half the jobs saved form the ranks of teachers, a highly organized core constituency for the president and a mainstay of the political machine that supports the Democratic Party.

The other winners: big investment banks and private investment funds. People forget that Obama, even running against a sitting New York senator, emerged as an early favorite among the hedge fund grandees. As The New York Times’ Andrew Sorkin put it back in April, “Mr. Obama might be struggling with the blue-collar vote in Pennsylvania, but he has nailed the hedge fund vote.”

The Chicago approach works better in a closed political system controlled by a few powerbrokers than in a massive continental economy like the U.S. Health care and education, which depend on government largesse, are surviving.

But the critical production side of the economy that generates good blue-collar jobs – like agriculture, manufacturing and construction – is getting the least from the stimulus.

These industries need more large-scale infrastructure spending, as well as more focused skills training and initiatives to free capital for politically unconnected entrepreneurial businesses. Instead, productive industries face the prospect of more regulation while capital for small businesses continues to dry up.

Those in post-industrial bastions tied to speculative capital – think Manhattan and the Hamptons – are the ones most benefiting from Obamanomics. College towns like Cambridge, Mass., Madison, Wis., Berkeley, Calif., and Palo Alto, Calif., will also prosper, becoming even richer and more self-important. It seems, then, that Obama has done best for elite graduates of Harvard and Stanford and other members of the “creative class.”

The rest of America, however, is still waiting for a real sustained recovery. Industrial and office properties remain widely abandoned not only in Detroit but Silicon Valley. The future sustainability of our economy depends mostly on what happens to those who previously staffed these facilities – those who produced actual goods and services – not just on a relative handful of people working at Google or the national laboratories. In other words, we need jobs for machinists, welders and marketers as well as scientists with Ph.D’s.

Scott Grannis, the Calafia Beach Pundit, outlines a different “stimulus path”:

Meanwhile, though, the unemployment rate is going to remain uncomfortably high, especially for all those politicians who argued so fervently early this year that dumping a trillion dollars of tax rebates, transfer payments, make-work projects and general government largess into the economy over a period of years would guarantee a quick economic turnaround. As the evidence accumulates, we see instead that it would have been far better to just let the economy follow its own course. Better still, we could have used the money in a much more intelligent fashion by making permanent cuts in marginal tax rates that would have quickly resulted in more work and more investment.

Michael Mandel of BW doesn’t think the Oracle’s purchase of Burlington Northern Santa Fe should be interpreted as a positive economic sign:

Let’s take a look at what Burlington Northern carries. Its major freight revenues (as of 2008) come from coal (23% of revenues); agricultural products (20%); international intermodal shipments of consumer products, which is probably mostly imports (16%); construction and building products (14%); and petroleum products (4%).

In essence, Buffett is betting that the next ten years will look a lot like the last ten: A lot of growth in imports, construction, energy and agricultural products. If he thought that innovation was going to be the driver of the next ten years—biotech, energy, and infotech—he wouldn’t be buying Burlington Northern.

I’m not saying that Buffett is wrong. His skepticism about the tech sector in the late 1990s, and innovation in general, turned out to be right on the mark. Berkshire Hathaway stock over the past decade has risen by 84%, whil the S&P 500 is down by 18%.

But his “all-in wager on the economic future of the United States” paints a remarkably gloomy picture of where we are heading.

Which one do you believe? John Hussman sketches them out:

1) One possibility, which is clearly the one that Wall Street has subscribed to, is that the recent downturn was a standard, if somewhat more severe than normal, post-war recession; that the market’s recent strength is an indication that it is looking forward to a full “V-shaped” recovery, and that the positive print for third-quarter GDP is a signal that the recession is officially over. Applying the post-war norms for stock market performance following the end of a recession, the implications are for further market strength and the elongation of the recent advance into a multi-year bull market.

2) The alternate possibility, which is the one that I personally subscribe to, is that the recent downturn was the initial phase of a more prolonged deleveraging cycle; that the advance we’ve observed in recent months most likely represents mean-reversion – qualitatively and quantitatively similar to the large and often abruptly terminated “clearing rallies” of past post-crash markets; that major credit losses are continuing quietly but are going unreported thanks to changes in accounting rules by the FASB this past spring, which allowed for “substantial discretion” in accounting for loan losses and deterioration in the value of securitized mortgages; that a huge second-wave of mortgage losses can be expected from a reset schedule on Alt-A and Option-ARMs that has just started (following a lull in the reset schedule since March) and will continue into 2010 and 2011; that intrinsiceconomic activity remains abysmal; that recent GDP growth is an artifact of massive fiscal stimulus that is unlikely to have sustained follow-through; and that recent market valuations are not representative of those observed at the end of most post-war recessions, but are instead similar to those observed at major market peaks prior to the mid-1990’s.

Some cold water via economist Dean Baker of the liberal Center for Economic and Policy Research:

While the growth shown in this report allows us to pronounce the recession ended, it does not provide much basis for optimism about the future. Consumption spending is virtually certain to shrink in future quarters. The same is true of structure investment and state and local government spending. We are unlikely to get much boost from the trade sector or much further boost from defense spending. The only sector that is likely to be a source of substantial growth in the next year is inventories, as the rundown eventually reaches an endpoint. However, with so much weakness elsewhere in the economy, inventories fluctuations will not turn the economy around.

That the US economy has stopped shrinking is certainly good news. But what kind of recovery is this? Strip out Cash for Clunkers and 3Q GDP growth came in at 1.6 percent. Also strip out slowing inventory cuts and GDP would have been just 0.6 percent. Then you have a report that the WH has overestimated the number of jobs created by the stimulus.

More from economist Robert Brusca:

1) But the fact is that inventories are still being cut, not being built up. Although less inventory cutting is a technical boost to GDP the fact of cutting tells us that the economy has not yet turned any corner very sharply.

2) Consumer spending spurted at a 3.4% pace this quarter, spurred important by cash for clunkers. But that program has come and gone and spending levels have SUNK BACK. So consumption is not yet on a strong sustainable expansion path.  … Cash for clunkers carried the quarter. It’s gone in Q4 and spending levels will recede, with GDP growth taking a hit. Will other spending pick up and compensate?

3) Business investment spending was a net negative this quarter and commercial real estate is under pressure – it will be no source of growth. Still business spending on equipment and software turned positive for the first time in six quarters.

4) Government spending rose by 2.3% the fifth highest rise in the last seven quarters. This is not a very good return on our stimulus monies spent. About three-quarters of a trillion dollars has been spent and with no discernable impact on GDP or on jobs.

OK, here is the USCOC’s basic position on climate change from recent congressional testimony:

The Chamber supports the goals of the Committee to lower concentrations of greenhouse gases in the atmosphere, become more energy efficient, and incentivize “green” energy technologies. The Chamber does not categorically support or oppose approaches such as cap and trade or carbon tax, but rather measures all climate legislation on a bill-by-bill basis against five core principles: any legislation or regulation introduced must (1) preserve American jobs and competitiveness of U.S. industry; (2) provide an international solution that includes developing nations; (3) promote accelerated development and deployment of greenhouse gas reduction technology; (4) reduce barriers to the development of climate-friendly energy sources; and (5) promote energy conservation and efficiency.

Me: One reason so many news organizations got suckered by yesterday’s phony press release is that it seemed pretty plausible that the Chamber would come out in favor of a carbon tax.  Plenty of pro-market folks have come out in favor of such a plan, especially if it was revenue neutral, perhaps offsetting payroll taxes.

The new Japanese government is redirecting the country’s stimulus plan (WSJ):

The Japanese government said Friday it will scrap part of the previous Cabinet’s stimulus package, freeing up 2.926 trillion yen ($32.38 billion) so that it can redirect the money toward more effective projects to stimulate growth.

Me:  For the cost of the remaining stimulus program in the US, you could cut the cap gains rate by 25 percent for a decade. (Plus it likely wouldn’t cost nearly that much.) Just an idea …

First this from Reuters:

In the first three quarters of this year, only 86 U.S. funds raised money, according to data compiled by the Venture Capital Journal and the National Venture Capital Association. It the trend is maintained, by year’s end there will be somewhere between 104 and 118 new funds. By comparison, even in the blackest days of the dot-com bust of 2001, investors averaged 234 funds a year.

And this from the NYTimes:

House Democrats are planning to renew their fight to raise interest on carried interest, the share of profits that buyout shops and venture capitalists receive after they successfully cash out of portfolio companies and return money to their investors.

Me: First, don’t expect the Senate to go along with this idea. Second, I don’t see how this helps America’s innovative capacity. Surely we don’t want Uncle Same to be the only source of venture capital. BTW, candidate Obama suggested creating something called a “Clean Technologies Venture Capital Fund” and investing $10 billion a year in emerging energy technologies.

Interestingly, a study by the University of British Columbia looked at the performance of the Canadian government’s venture capital efforts. It found that government venture capital isn’t nearly as successful as private venture capital.

Greg Mankiw does a good explaining the value-added tax. But this is ominous:

From a strictly economic standpoint, a VAT is great. It is essentially a flat consumption tax, like the so-called FairTax, but implemented in a way to reduce compliance problems. Because it is collected in stages along the chain of production, rather than all at the retail level, tax evasion is more difficult. … My bottom line: If I could replace our current tax system (including the personal income tax, corporate income tax, payroll tax, and estate tax) with a VAT, I would gladly do it.

Why do some conservatives hate the VAT? For political reasons. They fear it would be a new tax, hidden from many voters, used to expand government. They fear that rather than replacing our existing tax system, a VAT would add to it.  … Which brings us to Europe. Many European countries have both a VAT and a large government. But here is the hard question: which is cause and which is effect? Did the VAT cause government to become large, as VAT-opponents fear? Or did Europeans adopt large governments and then, needing to finance it, look for a relatively efficient way to raise a lot of revenue? I am inclined toward the latter hypothesis, but I will be the first to admit that it is entirely clear which way causation runs here.

Me: Want a VAT? First, put into place hard spending limits and spending reduction pathways, such a limiting spending growth to population growth + inflation or some such. And also get rid of the income tax.