“As an expert on the causes of the Great Depression, I’m sure Ben never imagined that he would be part of a team responsible for preventing another,” Obama said. “But because of his background, his temperament, his courage, and his creativity, that’s exactly what he has helped to achieve.”

But a second term for Bernanke didn’t inspire the same reaction from everyone. Via Real Time Economics, here’s Andrew Leonard at Salon:

Maybe Obama realizes that the really hard part is only just beginning. Unwinding the vast expansion of the Fed’s balance sheet and figuring out how to tighten the screws on the money supply without plunging the country into an another economic contraction will be a tremendous challenge. Why saddle that grief on some up-and-coming Democratic economist? It’s Bernanke’s mess. Let him clean it up.

Michael Shedlock was much harder on Bernanke, contending that he launched a self-promotional media blitz that led to his successful reappointment. He also included a video compilation of inaccurate statements Bernanke has made about the economy in the past.

Unfortunately, Bernanke’s win is everyone else’s loss.

Many economists included in the Real Times Economics roundup generally supported Bernanke’s reappointment, however. One of the more balanced views came from Calculated Risk, summing up the pros and cons of Bernanke’s tenure:

As Fed Governor Bernanke supported the flawed policies of Alan Greenspan – he never recognized the housing bubble or the lack of oversight – and there is no question, as Fed Chairman, Bernanke was slow to understand the credit and housing problems. And I’d prefer someone with better forecasting skills.

However once Bernanke started to understand the problem, he was very effective at providing liquidity for the markets. The financial system faced both a liquidity and a solvency crisis, and it is the Fed’s role to provide appropriate liquidity. Bernanke met that challenge, and I think he is a solid choice for a 2nd term (not my first choice, but solid).

Bernanke’s nomination still requires Senate approval, and he’s likely to get tough questions from senators about the Fed’s actions and its expansion of power during the crisis, Bloomberg noted. But Bernanke will very likely be approved, given the almost universal agreement that while he may not have been perfect, he probably did enough to stave off an even more severe financial meltdown. And in a crisis like this, keeping things from getting even worse than they already are is considered a measure of success.

A sampling of the lyrics:

When Paul goes on The NewsHour,
To talk to old Jim Lehrer
He looks so sad and crestfallen
It’s more than I can bear

I guess Krugman can add “inspirational source for artists” to his list of accomplishments. How many other economists have been the subject of songs and music videos? It seems that Krugman’s consistently negative outlook for the economy — a recent New York Times column entitled “That ’30s Show” warned President Obama that he needs a bigger stimulus plan “or you’ll be facing your own personal 1937″  — strikes a chord with artists. And their audiences.

Some economists can look for all the green shoots they want. People don’t have to buy it. Krugman’s more pessimistic views are the ones catching the imagination.

We tend to think of the Depression as a time when families pulled together to survive huge job losses. The divorce rate, which had been rising slowly since the Civil War, suddenly dropped in 1930, the year after the Depression began. By 1932, when nearly one-quarter of the work force was unemployed, it had declined by around 25 percent from 1929. But this does not mean that people were suddenly happier with their marriages. Rather, with incomes plummeting and insecure jobs, unhappy couples often couldn’t afford to divorce. They feared that neither spouse would be able to manage alone.

Today, given the job losses of the past year, fewer unhappy couples will risk starting separate households. Furthermore, the housing market meltdown will make it more difficult for them to finance their separations by selling their homes.

Before this gets cast as a positive development, however, Cherlin, a sociology professor at Johns Hopkins University, points out that the family unity is only temporary. When hard times end, so do troubled marriages, in many cases. For example, the divorce rate began to rise in 1934, when employment began to increase.

Millions of American families may now be in the initial stage of their responses to the current crisis, working together and supporting one another through the early months of unemployment. During the Depression this stage seemed to last a year at most. Today, it might last longer. Wives now share with their husbands the burden of earning money, and the government provides more assistance.

But history suggests that this response will be temporary. By 1940 the divorce rate was higher than before the Depression, as if a pent-up demand was finally being satisfied. The Depression destroyed the inner life of many married couples, but it was years before they could afford to file for divorce.

Cherlin suggest the same trend could play out this time around, as families feel financial stress, or lose their homes, or their jobs. Just because couples are sticking together now doesn’t mean the togetherness will continue after the economy picks up. When it comes to families surviving an economic downturn, as history shows, green shoots aren’t always a sign of better times ahead.

The decline in the gross domestic product reflected dwindling inventories and further problems in the housing sector, according to Bloomberg. And if all this isn’t scary enough, here’s more:

Should the economy shrink again in the second quarter as projected by economists surveyed this month by Bloomberg, the recession that began in December 2007 would be the longest since the Great Depression.

With fresh evidence of a contracting economy, that Great Depression reference seems a little too close for comfort these days.

If you read TWI nine weeks ago, you knew that Republicans were at a loss as to how to stop Democratic health care reforms. Want to find out if they’ve made progress? Check the update in yesterday’s Politico. And if you read TWI three weeks ago you found out about the just-introduced Parental Rights Amendment, which the Politico slightly oversold as “the new wedge issue” five days later.

The only relevant comparison is to Herbert Hoover… Beginning and ending in recession, the Bush presidency added a net of 407,000 private sector jobs over eight years, less than 51,000 a year, the worst eight-year record since 1927-35, which includes the first six years of the Great Depression.

By January 2009, the average workweek had fallen to 33.3 hours, the lowest since record keeping began in 1964.

From Jan. 31, 2001, through Jan. 31, 2009, 4.4 million manufacturing jobs, 26 percent of all of the manufacturing jobs in the United States, disappeared.

Buchanan’s solution to all of this: more economic protectionism, and expunging the “hoary myth that Reed Smoot and Willis Hawley caused the Great Depression.”

You remember the story: Monty Brewster (Richard Pryor) is forced to spend $30 million in 30 days in order to inherit $300 million from a rich old uncle he never knew he had. The catch is that he’s not allowed to own anything at the end of the 30 days, forcing him to find all sorts of creative ways to get rid of the cash.

Fast-forward 24 years. Economists are warning lawmakers that, unless Washington injects the economy with hundreds of billions of dollars quickly another Great Depression looms on the other side. Some are pushing for a spending package of $1 trillion, or seven percent of GDP.

Many of these experts agree that spending the money on public works projects like roads, bridges and sewers would provide the best “bang for the buck,” in terms of creating jobs and bolstering the larger economy. But there’s a snag: There simply aren’t enough “shovel-ready” infrastructure projects in the country to account for the levels of spending being suggested. In Rhode Island, for example, which has one of the highest unemployment rates in the country, only about $55 million in DOT projects are ready to launch immediately, according to a state Department of Transportation list compiled in October.

“There’s a limited amount you can spend quickly,” said Dean Baker, co-director of the Center for Economic and Policy Research, in a phone interview last week.

The situation has caused Obama’s economic team, like Monty Brewster, to search creative places to put the money — including a proposal for $300 billion in controversial tax cuts. Indeed, on Saturday, two members of that team — Christina Romer and Jared Bernstein — issued a report conceding as much:

Tax cuts, especially temporary ones, and fiscal relief to the states are likely to create fewer jobs than direct increases in government purchases. However, because there is a limit on how much government investment can be carried out efficiently in a short time frame, and because tax cuts and state relief can be implemented quickly, they are crucial elements of any package aimed at easing economic distress quickly.

The New York Times’ columnist Paul Krugman writes today that the downturn will likely last long enough that Obama and his team should not ignore longer-term projects as part of their stimulus strategy. But time, Krugman warns, is of the essence:

Right now the investment portion of the Obama plan is limited by a shortage of “shovel ready” projects, projects ready to go on short notice. A lot more investment can be under way by late 2010 or 2011 if Mr. Obama gives the go-ahead now — but if he waits too long before deciding, that window of opportunity will be gone.

In the film version, Brewster ultimately barrelled through the cash to win his inheritance. (I think he even won the girl in the process). We can only hope that Obama’s spending bill also meets its objectives.

The plan already has critics upset over the scale of government spending it involves. Including, somewhat surprisingly, over at the Wall Street Journal’s Real Time Economics blog, they don’t think Obama is going far enough.

If economists are that nervous about things, maybe we should all be. From the blog:

The problem is not that this stimulus is too large, but rather that the entire Obama strategy now seems to be insufficiently bold.

Economists at Real Time say the Federal Reserve should adopt an aggressive, pro-inflation policy that makes wages and prices rise rather than fall; that the government should push to recapitalize banks or take them over; and that government should take a leading role in refinancing mortgages and managing foreclosures. Add all that to a stimulus plan, and it should work, they say:

The current emphasis on fiscal stimulus as the primary means of recovery is reasonable if we think that deflation is unavoidable or that any kind of moderate inflation would be an unacceptable price to pay for avoiding the Second Great Depression. The potential problem lies in failing to create the necessary conditions — positive inflation expectations, a healthy banking system, and an end to the housing bloodbath — for the fiscal stimulus to be successful.

So don’t just take Obama’s word for it today. When the WSJ economists start calling for bold action, you know things are bad.

President Franklin D. Roosevelt signs the Tennessee Valley Authority Act in 1933. (tva.gov)

President-elect Barack Obama is confronting a cascading economic crisis, which seems to worsen by the day, not the week. As venerable banking houses collapse, once-mighty industries teeter on the brink of oblivion and unemployment mounts, the air thickens with recollections of the Great Depression of the 1930s, and comparisons between Obama and President Franklin D. Roosevelt.

But let’s define our terms. So what exactly was the Great Depression, and what did FDR do about it?

Illustration by: Matt Mahurin

The short answer is: The Great Depression was a rare political opportunity, and Roosevelt made the most of it — to the nation’s lasting benefit.

A longer answer would acknowledge that the Great Depression was a catastrophic economic crisis that Roosevelt failed to resolve – at least not until World War II came along, some eight years after he took office.

A still longer answer would recognize the connection between FDR’s short-term economic policy failure and the New Deal’s long-term political success. Much misunderstanding surrounds this matter.

“At the heart of the New Deal,” the distinguished historian Richard Hofstadter once wrote, “there was not a philosophy but a temperament.” In a kind of caricature of Hofstadter’s view, a New York Times writer not long ago said that Roosevelt “threw a slew of policies at the wall, and whatever stuck became the New Deal.”

That accepted view of the New Deal — as a kind of harum-scarum frenzy of random, incoherent policies that failed to slay the Depression demon — has become deeply embedded in our national folklore. But it is woefully and mischievously mistaken.

The fact is that Roosevelt purposely forged in the crucible of the nation’s most harrowing economic crisis a set of reforms that cohered in a more systematic pattern than is dreamt of in most philosophies. The essential logic of that pattern fairly leaps from the pages of the historical record. It can be described in a single word: security.

A Great Depression bread line, as depicted at the FDR Memorial in Washington, DC (Flickr: Tony the Misfit)

It is altogether fitting and proper that the New Deal’s most durable and consequential reform bears that very word in its title: the Social Security Act of 1935. A even greater measure of security was the New Deal’s gift to millions of Americans — farmers and workers, immigrants and blue-bloods, children and the elderly, as well as countless industrialists, bankers, and merchants, not to mention enormous tracts of forest, prairie, and mountain.

Forget about the colorful creations of the decidedly frenzied and much ballyhooed Hundred Days — like the Civilian Conservation Corps and the National Industrial Recovery Act. Most of them were attended by much sound and fury, but signified little, and strutted the briefest of hours on history’s stage.

But all the New Deal reforms that endured – the Federal Deposit Insurance Corp., the Securities and Exchange Commission, the Federal Housing Administration, the National Labor Relations Board, the Fair Labor Standards Act and, above all, the Social Security Act — had a common cardinal purpose. Roosevelt’s goal was not simply to end the immediate crisis of the Great Depression, but to make life less risky, to temper for generations thereafter what FDR repeatedly called the “hazards and vicissitudes” of life.

The New Deal provided more assurance to bank depositors (FDIC), more reliable information to investors (SEC), more safety to lenders (FHA), more stability to relations between capital and labor (NLRB), more predictable wages to the most vulnerable workers (FLSA), and a safety net for both the unemployed and the elderly (Social Security).

Those innovations re-wove the very fabric of national life. They profoundly shaped the fates of Americans born long after the crisis of the Great Depression had passed. With the exception of the FDIC, none dates from 1933.

Had economic health been miraculously restored in the fabled Hundred Days, a swift return to business as usual might have meant politics as usual as well — and none of those landmark reforms would have come to pass. Indeed, there would have been no New Deal as we know it.

Roosevelt understood this. He was a deeply strategic political actor and an astute student of history. He keenly appreciated what the engines of history had wrought and what they might be made to yield in the uniquely enabling circumstance of the Depression.

FDR had sketched the broad outline of his grand design well before the Great Depression descended. Proposals for old-age pensions, for example, dated back to the platform of the Progressive Party in 1912, which nominated for president his beloved cousin and political role model, Theodore Roosevelt. FDR publicly endorsed the idea as early as 1930.

But FDR also told his fellow Democrats throughout the 1920s that his comprehensive reform agenda must wait “until the Republicans had led us into a serious period of depression and unemployment.” He eventually confronted a more dangerous depression than he could have anticipated — but he realized the opportunity that it afforded.

The Chinese character for “crisis,” we are told, is a melding of the characters for “danger” and “opportunity.” FDR did not read Chinese, but he appreciated the logic of that etymology.

In his extraordinary second Inaugural Address, delivered Jan. 20, 1937, Roosevelt crowed about the actually quite modest recovery since 1933. “Our progress out of the depression is obvious,” he said. Then he added something altogether novel in the annals of presidential addresses: “Such symptoms of prosperity may become portents of disaster!” Roosevelt went on to describe the “one-third of a nation ill-housed, ill-clad, ill-nourished,” whose plight made a mockery of the American dream.

The context made it clear that he was not then speaking about the victims of the transient depression crisis, which he saw as ending, but about the accumulated social and human deficits spawned by more than a century of let-‘er-rip, swashbuckling, unregulated American capitalism — deficits not yet fully redeemed.

Solving that problem was what he meant when he said that “this generation of Americans has a rendezvous with destiny.”

“We are going to make a country,” Roosevelt once remarked, “in which no one is left out.”

In that unadorned sentence, Roosevelt summed up his highest purposes and his lasting accomplishments. The New Deal’s legacy was to give countless Americans, who until then had never had much of it, a strong sense of security. And with it, Roosevelt gave them a deeper sense of having a stake in their country and a bond with their countrymen.

Obama’s chief of staff, Rahm Emanuel, seems to have taken this essential history lesson on board. “You don’t ever want a crisis to go to waste,” he said recently. “It’s an opportunity to do important things that you would otherwise avoid.”

Like Roosevelt, Obama faces an urgent economic crisis. Like Roosevelt, Obama must use the (now considerably greater) powers of government to restore economic health. But like Roosevelt, Obama will ultimately be judged not simply on whether or how he ended this crisis, but on how he used it.

We have our own accumulated social and human deficits. Some, like the lack of universal health care, have been begging for attention since Roosevelt’s time. Others, including a crumbling infrastructure, struggling public schools, climate change, energy dependence, environmental degradation, widening income disparity and illegal immigration, have been festering merely for the last several decades.

If this generation is to have its own rendezvous with destiny, and if Obama wants to stand in FDR’s company, those matters can no longer be avoided.

David M. Kennedy is the Donald J. McLachlan Professor of History at Stanford University. He won the 2000 Pulitzer Prize for History for “Freedom From Fear: The American People in Depression and War, 1929-1945.”

The collapsed I-35W bridge in Minnesota (Flickr: TimDan2)

This is the second part in a three-part series on a new economic stimulus package. For the first part, see “Can Green Industry Save the Economy?”

The nation’s infrastructure is crumbling; its economy is sputtering, and deficits, for the moment, appear no barrier to government spending.

That trifecta, in the eyes of many economists, state officials and federal lawmakers, marks the perfect opening for Washington to tackle the trillions of dollars in road, bridge and other infrastructure projects that have been neglected for years. Not only would new investment in these areas strengthen the country’s structural backbone, these experts argue, it would replace lost jobs and help the country climb out of the current recession.

Less than a month after Congress bailed out Wall Street on borrowed cash, the chorus is rising to provide similar help to Main Street.

Illustration by: Matt Mahurin

“There is nothing more important than this infrastructure investment,” New Jersey Gov. Jon S. Corzine (D), a former executive at Goldman Sachs, said during testimony before the House Transportation and Infrastructure Committee Wednesday. “This time of adversity should be translated into a time of opportunity.”

The message is sure to inspire Democratic leaders, who are hoping to pump billions into infrastructure projects as part of a new stimulus package expected to surface next month. But passage is no sure thing. Senate Republicans killed, and the White House threatened to veto, a $58-billion stimulus bill passed by the House in September — largely because it contained vast new infrastructure spending.

What looms in November might be the final ideological battle between the outgoing President George W. Bush and the Democratic Congress. Still, as each day brings new evidence of economic decline, Democratic leaders appear more and more confident they can win the fight over a large stimulus bill. Infrastructure funding — which could replace thousands of local jobs lost in the downturn — seems increasingly to be driving the debate.

“There is a backlog,” said Rep. James Oberstar (D-Minn.), chairman of the Transportation and Infrastructure Committee. “There is a demand. There is a hunger. There is a need to invest. Our cities are crying out.”

Oberstar said he would work with Republicans on his panel to craft an infrastructure plan for the House to consider when Congress returns to Washington on Nov. 17, for a lame-duck session.

Rep. James Oberstar (D-Minn.) (Flickr: BikePortland.org)

There’s broad evidence that the country’s infrastructure could use a makeover. For example, the steel and concrete keeping together the interstate highway system — once the envy of the world — is, on average, between 35 and 40 years old, reports the Economic Policy Institute, a liberal policy analysis group. Road congestion costs nearly $80 billion per year in frittered time and fuel, the Texas Transportation Institute says.

Overall, the American Society of Civil Engineers estimates that it would require $1.6 trillion to get the nation’s infrastructure in good (not great) working condition over the next five years.

A tragic symptom of Washington’s failure to keep up with infrastructure maintenance arrived last year, when an interstate bridge spanning the Mississippi River in Minneapolis collapsed during rush hour. Thirteen people were killed and 145 were injured.

Including infrastructure rehab in a stimulus bill makes sense, said Rep. Leonard Boswell (D-Iowa), because “we have to do it anyway.”

Opponents of using infrastructure funding as a stimulus measure approach from two different angles. First, they say the reliance on deficit spending is counterproductive. Second, they contend that infrastructure projects launch too slowly to provide a quick shot in the arm.

“Infrastructure spending is never an effective means to create rapid stimulus,” the White House proclaimed in its veto threat.

Yet many state and local officials argue that a great number of projects could begin almost immediately. Corzine, for example, said that New Jersey has roughly $1.5 billion in projects ready to start within 90 days. Jerry E. Abramson, mayor of Louisville, said the city has $250 million in unfunded infrastructure initiatives set to go within 120 days. Nationwide, state transportation departments have more than 3,000 projects, totaling $17.9 billion, ready to launch within 90 days, according to a survey conducted by the American Assn. of State Highway and Transportation Officials.

In addition, many economists say the current recession will last long enough that the timeline criticism is irrelevant. “That argument has no force now,” Paul Krugman, the Nobel prize-winning economist, wrote in his Oct. 16 New York Times column, “since the chances that this slump will be over anytime soon are virtually nil. So let’s get those projects rolling.”

On that theme, economists point out that labor markets rebound from economic slumps far more slowly than other indicators. During the recession of 2001, for example, it took 30 months for unemployment to bottom out, according to John Irons, policy director at the Economic Policy Institute. Four years passed before employment rates rose above pre-recession levels, he added.

Much of the job creation from infrastructure funding would target construction workers, who are now struggling from the shrinking housing market. But others would benefit as well. For every 1,000 jobs created in construction, Irons said, more than 600 are created “upstream” — including positions in manufacturing, retail, waste management and administration.

There is a psychological component to the strategy, as well. Infrastructure spending borrows lessons from the New Deal programs that helped position the country to climb out of the Great Depression. Schools and bridges, unlike credit default swaps, are tangible things — manifestations of the positive change the stimulus program is meant to bring about.

“People understand, if you build the roads, you put a shovel in someone’s hand, that creates a job,” Irons said. “People get it.”

With job creation comes consumer confidence — the sense that work is being done, roads are being built and progress is being made toward a more prosperous tomorrow. Furthermore, experts point out, those jobs remain in the United States. “You don’t build the road in front of your house with a call center in Bangalore,” Oberstar said.

The debate arrives as other countries are pumping money into infrastructure programs to stimulate economic activity amid the global financial crisis. China, for example, recently invested $280 billion to expand its rail system, according to reports.

Earlier this month, Congress acted swiftly to address the credit crisis, approving $700 billion to get the banks and other financial institutions lending again. But the rescue of the financial sector has overshadowed similar plans to help state and local governments, many of whom face severe budget troubles.

Indeed, a September hearing on infrastructure in the Senate Finance Committee was cancelled because the star witness, New York City Mayor Michael Bloomberg, was needed at home to tend to the Wall Street crisis. Now, many economists warn that even a gushing supply of available credit would do little good if there is no demand for it on Main Street.

Many Republicans, including Rep. John Mica (R-Fla.), the ranking member of the House infrastructure panel, are calling on Democrats to include a number of business tax cuts in the coming stimulus package. While industry would certainly accept the offer, one powerful voice in the business community told lawmakers Wednesday that, even armed with enormous tax cuts, the private sector can only do so much to stimulate the economy.

“You’re talking about big projects here that need public investment,” said John Engler, former Michigan GOP governor and now head of the National Assn. of Manufacturers. “We aren’t ever going to have a bunch of small businesses get together and build a road.”