One reason for concerns that any possible recovery may be less than robust is the continuing slowdown in consumer spending. And now there’s more evidence consumers aren’t going to be pulling out their wallets anytime soon and spending their way into an economic recovery. Via Mish’s Global Economic Trend Analysis, The Associated press reports that shoppers are chickening out in the checkout lines, leaving behind items they had planned on buying, just a short time earlier.

They’re leaving sweaters in the dress department, dumping cookies near the grocery cashier and waiting until the last minute to weigh wants versus needs. Online, shoppers are abandoning their virtual carts as they search for better deals.

People “want to be in the act of shopping, but they don’t want to be in the act of buying,” said Joel Bines, a director at AlixPartners, a turnaround consultant.

It’s more bad news for stores, of course.

It means more lost sales for stores at a time when there are already fewer customers because of the recession. For bricks-and-mortar shops already working with fewer staff, it also means more work because orphaned items have to be restocked.

Hard numbers are difficult to come by, but Burt P. Flickinger III, a retail consultant, estimates that in 25 percent of shoppers’ trips to the store, they’re ditching at least one item. In the recession of the early 1990s, it was 15 to 20 percent. In good times, it’s more like 10 percent.

Maybe you’ve done this yourself — you’ve gotten to the checkout line only to think twice, grab something from your basket, and dump it somewhere nearby. As the AP story points out, actual numbers on this trend are hard to come by. But think about it for a moment, and it makes sense — if you’re serious about cutting back on spending, you make these kinds of moves. And it’s also a sign of how much things have changed in the consumer psyche. Remember retail therapy? Shop until you drop? You don’t see those kinds of terms thrown around as much anymore. Shopping as entertainment just isn’t what it used to be, when you’ve had your hours at your job reduced or your neighbor’s house is in foreclosure.

With fears of a jobless recovery looming out there, it’s only logical that the latest consumer shopping trend would be leaving things behind — the stuff no one really needed in the first place.

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.

Krugman made those remarks at a speech in China today. He’s previously warned that the United States could go the way of Japan — but he said that stagnation could last a decade is a particularly dire warning.

“We’re doing half-measures that help the economy limp along without fully recovering, and we’re having measures that help the banks survive without really thriving,” Krugman said.

“We’re doing what the Japanese did in the nineties,” he told a small group of reporters during a visit to Beijing.

And here’s more:

Krugman said he expected little or no employment growth this year or next in the United States, where the jobless rate in April hit a 25-year high of 8.9 percent.

“A second stimulus is becoming clearly urgent. They need a very, very strong stimulus,” said Krugman, a Princeton University professor and a New York Times columnist.

He said stress tests carried out on 19 leading U.S. banks had bought time for the administration of Barack Obama, but they had not answered the key question of whether the banks have enough capital to fulfill their key role in the economy.

“It’s clear the administration won’t take radical action to strengthen the banks any time soon,” he said. To have done so would have meant temporarily nationalizing Citigroup and, perhaps, Bank of America, he said.

Krugman’s comments are quickly spreading around the blogosphere. Not everyone shares the more optimistic views of Federal Reserve Chairman Ben Bernanke, who said last week that the economy could pull out of recession by the end of this year, though economic activity would continue to be subpar — and that’s one reason why the Nobel Prize-winner’s warnings continue to resonate.

But in the financial blogosphere, many aren’t feeling much better about the banking system today. They think some of the stress tests’ worst-case scenarios were too optimistic, especially regarding commercial real estate. And they fear the results will give the government cover to hold back on more aggressive action, both on the banking system and on financial regulatory reform.

Paul Krugman, skeptical from the beginning, worries the results only confirm a strategy of muddling through the crisis:

The odds are that the financial system won’t function normally until the crucial players get much stronger financially than they are now. Yet the Obama administration has decided not to do anything dramatic to recapitalize the banks.

Can the economy recover even with weak banks? Maybe. Banks won’t be expanding credit any time soon, but government-backed lenders have stepped in to fill the gap. The Federal Reserve has expanded its credit by $1.2 trillion over the past year; Fannie Mae and Freddie Mac have become the principal sources of mortgage finance. So maybe we can let the economy fix the banks instead of the other way around.

But there are many things that could go wrong.

It’s not at all clear that credit from the Fed, Fannie and Freddie can fully substitute for a healthy banking system. If it can’t, the muddle-through strategy will turn out to be a recipe for a prolonged, Japanese-style era of high unemployment and weak growth.

Roger Ehrenberg at Information Arbitrage says a monster in the closet regarding the financial system still keeps him up at night:

The Administration and Congress have clearly taken the path of least resistance. Wiping out of the stockholders and unsecured bondholders of our largest financial institutions would have been a political nightmare, but it would have enabled the market to purge the excesses that our system has wrought over the past decade. An emphasis on generating comprehensive data and full transparency around toxic asset portfolios would have also helped in the process, creating a much clearer picture of ultimate ownership and a basis for working out the problem credits (and counterparties). This wouldn’t have produced nightmares, it would have yielded wakeful pain followed by catharsis and and way forward. The path taken looks and feels good today, but potential troubles lurk just below the surface.

And the Wall Street Journal gives the tests a B-minus:

To give a sustained boost to investor confidence, the tests needed demonstrable rigor. They achieved that up to a point. While worst-case loss rates look tough, certain loan portfolios — in particular commercial real estate — at some banks seem to have gotten off lightly. Meanwhile, the tests’ numbers for underlying earnings — which are needed to offset soaring credit losses — could turn out to be optimistic in some cases.

And FT’s Alphaville has a complete roundup of other reactions. As Krugman says, let the muddling through begin.

Traditionally, leaks to the press come from officials trying to curry favor with journalists, who will treat them favorably in the future. (See Woodward, Bob.) But that’s kind of hard to see as a motive in the case of the relevant economic officials here — possible, or maybe it’s people on the political side of the White House, but it doesn’t feel right.

Alternatively, there’s Yves Smith’s version: these are all trial balloons to see how outsiders will react to different stress reports.

But that just adds to the bad feeling about all this. Even Brad DeLong, who has been relatively sympathetic to the administration here, is disturbed by the idea that regulators are negotiating with the banks about the test results. Now it seems as if the report’s contents may also be dictated by what, based on the response to leaks, the informed public is willing to swallow. (”Would you believe it if we say Citi is fine? OK, what if we say they need $5 billion? Not enough? How about 10?”)

It does make you wonder if the fix is in, even before the results of the stress tests are out.

His reasoning is quite simple, though it’s been strangely absent from the climate debate. Cap-and-trade won’t take effect until at least 2012, meaning that higher electricity costs won’t kick in for several years. But business investment will, since industries will begin the transition to cleaner means of production in anticipation of the legislation’s onset:

Right now, the biggest problem facing our economy is plunging business investment. Businesses see no reason to invest, since they’re awash in excess capacity, thanks to the housing bust and weak consumer demand.

But suppose that Congress were to mandate gradually tightening emission limits, starting two or three years from now. This would have no immediate effect on prices. It would, however, create major incentives for new investment — investment in low-emission power plants, in energy-efficient factories and more.

As a result, cap-and-trade could help pull us out of the recession in the short term, while its moderate negative economic impact wouldn’t take effect until we’re in a better position to cope with it. It’s a compelling argument — but given conservatives’ strong distaste for Krugman, don’t expect it to have too profound an effect on the debate over climate change legislation.

Krugman won a Nobel Prize; Geithner uses Turbo Tax, as the song points out.

But now that Geithner’s toxic assets plan is garnering some good reviews, it may be time for a followup.

Enjoy! (Video after the jump.)

By the way, The Times’ Freakonomics blog notes that Krugman hasn’t yet commented on the song.

From the story headlined “Obama Dials Down Wall Street Criticism:”

Treasury Secretary Timothy Geithner and his colleagues worked the phones to try to line up support on Wall Street for the plan announced Monday. They told executives they don’t favor using the tax code to retroactively penalize specific individuals who had received bonuses, according to people familiar with the calls. They asked officials to sign on “in pencil, not ink,” and to “validate” or “express support” for the plan, these people say.

Do you think the bankers thanked President Obama officials for their tacit support amid the AIG firestorm? You must be new in town.

Some bankers say they turned the conversations into complaints about the antibonus crusade consuming Capitol Hill. Some have begun “slow-walking” the information previously sought by Treasury for stress-testing financial institutions, three bankers say, and considered seeking capital from hedge funds and private-equity funds so they could return federal bailout money, thereby escaping federal restrictions.

This is the capitalist version of a labor union’s sit-down strike: show up for work but don’t do what the boss says. The message is: protect our bonuses — because without us, you can’t make policy.

Like it or not, Obama gets the message and agrees.

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Now the U.S. government is in talks to significantly expand its ownership of Citi, the Wall Street Journal reports. And Shedlock, who writes the widely read Mish’s Global Economic Trend Analysis blog, thinks that move can’t come too soon.

From Shedlock:

Citigroup is a black hole, sucking in every dollar thrown at it and it still wants more. No amount seems enough to save it. Taxpayers have already guaranteed a whopping $300 billion dollars worth of Citigroup debt. Now, two months later, Citigroup is begging for still more capital, pretending that will save it.

And Treasury Secretary Timothy Geithner isn’t helping, Shedlock says:

Not only is Citigroup a black hole from which no taxpayer dollars can escape, but Geithner’s brain is a black hole from which no intelligent thought can escape.

How the hell can you preserve a system this way? The answer is you can’t. Nonetheless the Obama administration tries to end bank nationalization talk.

That isn’t working. Calls for nationalization keep growing, with everyone from Nobel Prize-winning economist Paul Krugman to former Federal Reserve Chairman Alan Greenspan joining the chorus. Shedlock points out that plenty of questions about nationalization remain, but there’s little doubt it’s the direction we’re headed in. There’s just no other choice. From Shedlock:

Geithner is attempting to bail out his banking buddies, no more, no less, and he does not give a damn what it costs taxpayers to do so. And while everyone and their brother has hopped on the Nationalization Train (please see The Nationalization Train Has Left The Station), I think there are at a bare minimum a half dozen questions that need to be addressed first (please see Nationalization Revisited).

Citigroup is struggling to remain independent even as it knows full well, that without still more government intervention, it is worthless. In fact, Citigroup is less than worthless because without more taxpayer cash infusions it cannot survive.

To hell with Citigroup. Bust it up and sell it. It’s the best possible outcome for everyone involved.

With banks facing stress tests this week that will reveal more about their bottom lines, look for nationalization in some form to become an accepted strategy. They’ll call it something else to make it more acceptable, like preprivatization. As Shedlock pointed out last year, the entire banking system is insolvent, not just Citigroup. It really doesn’t matter what they call it anymore. Nationalizing the banks may be the only thing left to do.

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.