So to remedy this, the Republicans keep pushing … tax credits to encourage people to buy more homes.

Economist’s View has a roundup of reactions.

From Tyler Cowen:

I’m not sure I understand the proposal, but here is what the NYT says:

The Senate on Wednesday voted to expand the economic stimulus package with a tax credit for homebuyers of up to $15,000, a provision championed by Republicans as addressing a root cause of the recession.

Like Arnold Kling, I wish to shift the economy out of housing, not into it again. I also believe that the supply of homes is relatively elastic right now.  The tax credit will subsidize the new buyers without propping up the price of homes.  Demand will go up, supply will go up, price will stay more or less on the same trajectory, and banks won’t be any healthier.  The subsidy goes to new home buyers and why should we be helping them above all others?  Aren’t they relatively wealthy on average?  (Not that there’s anything wrong with that.)  Aren’t some of them the dreaded “flippers” and speculators for that matter?  (Can we really enforce the primary residence requirement?)  Do we really want to push people into being less diversified and less geographically mobile in the labor market?

And from Ed Glaeser in the Wall Street Journal:

We are in the ruins of a housing market made worse by subsidized lending. The government has no business egging people on to borrow as much as possible to bet on housing prices. There is plenty of room to criticize the current stimulus plan, but Republicans need to adopt Ronald Reagan or Dwight D. Eisenhower, not Harold Ickes, as their intellectual role model.

It’s possible the only thing that may fix the housing market will be the pain of its correction. Bubbles have to burst eventually. Stimulating housing demand makes no sense, yet Republicans cling to tax cuts as if they are some magical cure-all. They are about the last thing a housing market that remains overpriced and overbuilt needs right now.

From the Financial Times:

The revival of these trade practices, used rarely in the last 20 years and usually by nations subject to international embargoes and the old communist bloc, is a result of the countries’ failure to secure trade financing as bank lending has dried up.

The countries have not disclosed the value of any deals, and some have refused even to confirm their existence. Officials estimated that they ranged from $5m for smaller contracts to more than $500m for the biggest.

Josette Sheeran, head of the United Nations’ World Food Programme, said senior government officials, including heads of state, had told the WFP they were facing “difficulties” obtaining credit to purchase food. “This could be a big problem,” she told the Financial Times.

The return of bartering reminds us that this is a truly global financial crisis — and less prosperous countries that are already struggling will face even tougher times. While it’s clear the Obama administration has quite enough on its plate, it’s also true that other countries are looking to the United States for leadership in dealing with the crisis, and hoping we can pull the rest of the world out of it, as Bloomberg noted recently. That’s a tall order, and it’s not clear that even the most powerful nation in the world has the ability to do that.

For us, a credit crisis means cutting back on consumer spending and trips to the mall.  For poorer countries, it means struggling to find ways to pay for rice or vegetable oil, and to keep their people from starving.

Does Barack Obama understand the seriousness of the economic crisis? Yesterday, he laid out his economic agenda, and it was filled with all sorts of important exhortations and proscriptions. He appropriately condemned the “anything goes” policies of the last administration. He declared that government is now the solution to our woes, not the problem. Still, I worry that the president elect is underestimating the problem he and the country faces.

We may not simply be facing a steep recession like that of the early 1980s, from which we can extricate ourselves in a year or two, but something resembling the Great Depression of the 1930s. For starters, the current crisis is global, which means that one part of the world can’t lift the other out of its misery; everyone will go down together, which is what happened in the 1930s. Secondly, the downturn has combined an unusual decline in the real economy–employment in durable-goods manufacturing fell by 21.9 percent from 2000 to 2008–with a financial crash precipitated by the bursting of the housing bubble. The bubble resulted from an attempt to sustain growth and employment in the face of an underlying decline, which, too, is what happened in the late 1920s.

Over the past six decades, policymakers have used some tactics from the Great Depression to quell recessions–such as spending on roads and bridges to create jobs, transferring payments to raise consumer demand, and infusing money into the credit system. But these stopgap measures, which are at the heart of Obama’s recovery program, may prove inadequate.

For one thing, Judis says infrastructure spending won’t be enough. The United States, he says, could do things like invest in high-speed rail transportation. Yes, it would be expensive, but it also would create good-paying jobs, revive American industry and improve the country’s trade imbalance.

Judis and others are thinking big, and they want Obama to do the same. The fight over the stimulus package, at its heart, isn’t a typical Washington back-and-forth over tax cuts or power plays. The stakes are much, much higher. It’s become increasingly clear that putting together the most effective stimulus package – right here, right now – is all about the economy’s survival, not political posturing. To Judis and others, Obama needs to transcend politics on this one, and take the kind of immediate, dramatic steps that this crisis requires. Falling short means the kind of economic failure none of us will want to live with, no matter what side of the aisle we’re on.

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.

From Baker:

The media seem to have largely overlooked the Citigroup tax credit in their discussion of the latest items in President [-elect Barack] Obama’s stimulus proposal. According to the Washington Post, the proposal will allow companies to write off current losses against taxes paid over the last 4-5 years, not just 2 years, as in current law.

There are relatively few companies that could benefit from this tax break since most companies will not have losses so large that they would need more than two years of tax payments to balance them against. But, really big losers, like Robert Rubin’s Citigroup, and other badly failing financial institutions, are losing much more money in 2008 and 2009 than they earned in 2006 and 2007.

And why would such a tax break be part of the stimulus plan? Note that earlier mention of Rubin, Baker says:

Did the political connections of Robert Rubin and others in the financial industry have anything to do with the decision of Obama’s economic team to be so generous to them? I don’t have an answer to that question, but the media should be asking it.

Consider it asked.