This should come as no surprise to regualar readers of this site, but there’s a new survey just out from the Public Religion Research Institute that shows once again that the supposed antipathy of the Christian Right and the Tea Party Movement is a chimera. Among self-described Tea Party Movement members:

* Nearly half (47%) also say they are part of the religious right or conservative Christian movement. Among the more than 8-in-10 (81%) who identify as Christian within the Tea Party movement, 57% also consider themselves part of the Christian conservative movement.
* They make up just 11% of the adult population–half the size of the conservative Christian movement (22%).
* They are mostly social conservatives, not libertarians on social issues. Nearly two-thirds (63%) say abortion should be illegal in all or most cases, and less than 1-in-5 (18%) support allowing gay and lesbian couples to marry.
*They are largely Republican partisans. More than three-quarters say they identify with (48%) or lean towards (28%) the Republican Party. More than 8-in-10 (83%) say they are voting for or leaning towards Republican candidates in their districts, and nearly three-quarters (74%) of this group report usually supporting Republican candidates.

The Tea Party Movement is largely a radicalized cohort of Republican voters who are by no means libertarians or anything else new under the sun. They are just a lot noisier now, and have a new set of props and some rhetoric borrowed from several very old strains of conservative extremism. They aren’t going away any time soon, but nor did they come out of nowhere in response to the policies of Barack Obama. We all need to get used to it.

This item by TDS Co-Editor William Galston is cross-posted from The New Republic.
The United States is in a fiscal bind. Last week saw the release of two reports which vividly illustrate the policy dilemma we face–but they also point to a strategy we could use to overcome it.
The first appeared on September 28, when CBO Director Doug Elmendorf presented an analysis of our fiscal policy choices before the Senate Budget Committee. Among his key findings: Cutting taxes is good for the economy in the short-term but bad in the long run. Making all the Bush tax cuts permanent, as Republicans are demanding, would increase real GNP between 0.5 and 1.4 percent in 2011 and 2012 but would decrease it between 1.1 and 1.6 percent in 2020. Making the cuts permanent for individuals with incomes of $200,000 or less, and married couples with incomes of $250,000 or less, would increase real GNP between 0.4 and 1.1 percent in 2011 and 2012 but decrease it between 0.9 and 1.3 percent in 2020.
It turns out, however, that we need not choose between the next two years and the next decade. CBO finds that a temporary extension of the tax cuts delivers about two-thirds of the short-term benefits provided by permanent extension–0.3 to 0.9 percent gains in real GNP if tax cuts are extended through 2012 for everyone, and 0.2 to 0.7 percent if the upper incomes are excluded–with much smaller negative effects (around 0.3 percent losses) than do the permanent extensions.
Then, on October 1, the IMF published its latest world economic outlook. Chapter 3 of this report examines the macroeconomic effect of deficit-reduction plans (“fiscal consolidation”) in 33 advanced economies. The key finding: While deficit reduction typically reduces GDP and job growth in the short-term, it boosts them in the long-term. A fiscal consolidation plan equal to 1 percent of GDP reduces GDP by about 0.5 percent within two years and raises the unemployment rate by 0.3 percentage point while domestic demand–consumption and investment–falls by about 1 percent. In the long-term, however, the IMF study finds that “for every 10 percentage point fall in the debt-to-GDP ratio, output rises by about 1.4 percent in the long term.”
Granted, these reports are not uncontroversial. The IMF’s claim that fiscal consolidation is contractionary in the short term is contested by scholars such as Alberto Alesina and Silvia Ardagna who find the opposite, using a different methodology. And some staunch Keynesians do not believe that there is a significant relation between debt-to-GDP ratios and economic growth, at least during the next decade. Still, it is suggestive that these two high-quality reports point in the same direction.
Consistent with the thrust of both the CBO and IMF reports, Maya MacGuineas and I have just issued a 10-year budget outline that reduces the debt to GDP ratio in 2020 from a projected 90 percent to 60 percent while maintaining a broadly stimulative policy between now and 2012. We do this with a 50/50 mix of program spending cuts and revenue increases, phased in over time so that the impact on the deficit is backloaded. If the IMF estimates are right, this would boost America’s GDP by about $900 billion in 2020–almost $3,000 per person–without undermining an economic recovery now proceeding painfully slowly.
These findings have an obvious bearing on the issues that American policymakers will soon be forced to engage. Between now and the end of the year, two blue-ribbon fiscal commissions will issue their recommendations. By next February, the president will offer his 2012 budget proposals to a new Congress, whose political balance will differ significantly from its predecessor.
Most pundits predict little except gridlock over the next two years, and they may be right. Between now and the next presidential election, we will find out whether two political parties who disagree sharply about the proper role of government can come together to promote the long-term national interest. But the rest of the world won’t be standing still just because we are, and every year of inaction imposes a cost on our future.

Buried in the new NBC-Wall Street Journal national survey is a very interesting finding:

The most popular political figure in the poll? It’s none other than former President Bill Clinton, whose favorable/unfavorable rating is 55-23.
By comparison, Obama’s is 47-41; former Arkansas Republican Gov. Mike Huckabee’s is 26-25; House Minority Leader John Boehner’s is 14-17; Senate Minority Leader Mitch McConnell’s is 12-18; former Massachusetts Republican Gov. Mitt Romney’s is 21-30; former Republican House Speaker Newt Gingrich’s is 24-35; Senate Majority Leader Harry Reid’s is 15-32; former Alaska Republican Gov. Sarah Palin’s is 30-48; and current House Speaker Nancy Pelosi’s is 22-50.

Any wonder that Democratic candidates are avid to get the Big Dog to campaign for them?
And amidst all the comparisons between 1994 and this midterm cycle, it´s worth remembering that the Barack Obama of the former year went on to be comfortably re-elected, and even after a scandal and an impeachment, is now very unpopular. Successful governing matters.

This item is a guest post from Heather Hurlburt, Executive Director of the National Security Network. The views therein are her own.
As a colleague and I have written previously for TDS, the GOP spent the summer using Islam-bashing to paper over a canyon-sized fissure on national security. But the word “fissur makes the problem sound neat and orderly, where what is going on beneath the surface is more of a free-for-all among old-fashioned realists, neocons, paleocons, Tea Partiers and libertarians.
Republicans can be found on at least two sides of every key national security issue we face — how to combat terrorism, how (and even whether) to combat the spread of weapons of mass destruction, how to conduct the war in Afghanistan, how to cope with untraditional threats such as climate change, how to work with and/or hedge against China and other ascendant powers. There is Senator McCain vs. Chairman Steele on Afghanistan; Senator Lugar vs. Governor Romney on arms control; Governor Palin vs. both Rand and Ron Paul on counter-terrorism.
Perhaps most fascinating – and most interesting for progressives thinking ahead to the problem of getting anything done in 2011 – is the crumbling of GOP unity on issues that have, in the past, been among the party’s biggest rhetorical cudgels. And it’s hard to think of a bigger one of those than the defense budget.
At a time when the Tea Party Movement has helped revive demands from the Right for a balanced federal budget, the largest single element of discretionary government spending is our defense budget. Its unfettered growth since 9-11 has left some inside the Pentagon, as well as many outside, uncomfortable; meanwhile, that growth has left key needs of our troops on the ground unfunded.
A number of centrist, conservative and libertarian defense intellectuals – such as Kori Schake of the Hoover Institution and Ben Friedman and Chris Preble of the CATO Institute — have spoken out in favor of spending cuts. They’ve been joined by mainstream media commentators such as TIME’s Fareed Zakaria (formerly of Newsweek). In Congress, Representatives Barney Frank and Ron Paul launched earlier this year a bipartisan Sustainable Defense Task Force (in which this author participated), which prepared a menu of $1 trillion in potential cuts over ten years. Against this backdrop, Defense Secretary Robert Gates has launched an initiative to rein in, if not actually reduce, overall spending.
That effort has produced anxiety in the military and consternation among some GOP thought leaders such as David Frum, Newt Gingrich and Mitt Romney. In the neoconservative wing of the GOP, support not only for existing defense spending, but for increased spending pegged to GDP growth, regardless of the threat landscape, is an article of faith.
Even in a time of pinched budgets, the time-tested GOP arguments remain for unscrutinized high defense spending. The Heritage Foundation wonders, “Should the defense of their freedom be sacrificed to liberal lawmakers’ pet causes and to runaway automatic spending on Social Security, Medicare and Medicaid?” The Wall Street Journal editorial page posits that, “We learned on 9/11 that 3% isn’t nearly enough to maintain our commitments and fight a war on terror.” (As though a few more battleships or more nuclear weapons would have prevented 9/11.)
But how does the GOP square this circle with the parts of the party whose main focus is scaling back government and reducing the deficit? The same way they’ve addressed all the other internecine squabbles: intro Sarah Palin. As Josh Rogin has written, Palin is the “Tea Party’s Hawk.” Her message is this: When it comes to scaling back government, everything is on the table — except defense spending of course. That massaged position is an example of why Palin–or “Palinism”–is the glue that bonds the neocons and the more libertarian, deficit-conscious Tea Partiers together on defense spending. Palin’s position, though, is antithetical, or should be, to the libertarians and deficit hawks.
The specifics of the neocon defense budget position provides a ripe opportunity to incense the deficit hawks: Since neocons want to peg defense spending to a certain percentage of GDP, they’re essentially calling for an ever-expanding budget – not just refusing to cut the budget but a legislated, entitled, ever-increasing block of spending, Medicare for the Pentagon. By the unavoidable arithmetic of the federal budget, that means major and unpopular cuts in the actual Medicare program, along with radical changes in other strongly popular domestic priorities from Social Security to environmental protection, particularly at a time when Republicans not only oppose tax increases but are demanding new tax cuts.
Smart GOP strategists know that the contradictions between their positions on defense spending and the budget deficit make them vulnerable. Perhaps recognizing that anti-spending works much better as rhetoric than reality, Republicans did block Congress from creating a Deficit Reduction Commission, which the President ultimately created instead by executive order, but with merely the power to recommend. Reflexive GOP support for ever-higher defense spending is gradually coming underassault from within by Republicans Rep. Walter Jones and Sen. Tom Coburn, among others. When and if specific cuts are proposed, Members of Congress can be expected to engage in ugly bipartisan food-fighting to protect their local prerogatives. And this will only further confuse the GOP deficit-cutting message.
A muddied message from the extreme factions of the GOP will set the stage for a genuinely bipartisan effort to lead on principle and put Pentagon spending in a framework constrained both by our economic circumstances and the objectives we as a society wish to use our military to accomplish – both areas in which public opinion puts neoconservatives at a disadvantage and blunts arguments they have traditionally used on Democrats. It will also further dishearten libertarians, old-fashioned conservatives who favor a smaller military footprint, and Tea-Party-esque supporters who are dismayed by government bloat, waste and corruption wherever it resides.
Of course, there is an alternative – that GOP strategists recognize the perils of their conflicting positions, , and create a situation wherein the two parties find themselves competing to capture the experts and reform and rationalize our Pentagon spending. After all, the 60th anniversary of President Eisenhower’s farewell warning against the excesses of a military-industrial complex arrives next January–not a bad time to start taking it seriously.

This item by TDS Co-Editor William Galston is cross-posted from The New Republic.
The other shoe has now dropped in the current round of Israeli-Palestinian peace talks. In place of the partial freeze set to expire by the end of this month, Prime Minister Netanyahu intends to adopt more limited restraints on construction in the West Bank. Ha’aretz reports that Netanyahu will be going to Sharm El Sheik tomorrow with a proposal identical to one negotiated between his predecessor, Ehud Olmert, and the Bush administration: no construction in Arab neighborhoods of East Jerusalem; construction in isolated settlements only in built-up areas; and construction in the large settlement blocs near, as well as within, existing perimeters. (This last provision turned out to permit thousands of new housing units in Ma’aleh Adumim, Beitar Ilit, Modi’in Ilit, and Gush Etzion.)
While Netanyahu seems to be gambling that the Palestinians won’t respond to this “back to the future” proposal by pulling out of the talks, the basis for his optimism is unclear. In the wake of the Obama administration’s call early in 2009 for a complete freeze, the Israeli government eventually adopted the partial freeze now set to expire in less than three weeks. It took nearly a year of negotiations brokered by George Mitchell and Tony Blair before the Palestinians were willing to join face-to-face talks on that basis. The Palestinians have repeatedly said that they can accept nothing less, and that if the Israelis retrench further, Abbas and his team will quit the talks. At this point, there’s no reason not to take them at their word. After all, they were more reluctant than were the Israelis to return to direct talks in the first place.
So what’s the way forward? In recent months, Israeli officials have indicated privately their hope that if the Palestinians receive concessions in other areas–such as checkpoints and other restrictive security measures–that improve daily life on the West Bank, the freeze issue can be sidestepped. No doubt they will explore the viability of such an approach behind the scenes.
The other possibility is a somewhat grander bargain. At the cabinet meeting preceding the latest announcement, Netanyahu reportedly remarked, “We are saying that the solution is two states for two peoples. To my regret, I am still not hearing the phrase ‘two states for two peoples’ from the Palestinians. I am hearing them say ‘two states,’ but I am not hearing them recognize two states for two peoples.” This raises an intriguing possibility. Suppose the Prime Minister were to challenge President Abbas: “You want a wider freeze? Well, there’s something I’d like from you–namely, a recognition of the ‘two states for two peoples’ principle as the basis for further negotiations. Your need and my need rise or fall together.”
The objections to this strategy are obvious. First, the Palestinians might well reject it. True, but so what? If they did, Israel at least would be on the record as having shown flexibility on a matter of core concern. Second, whatever its fate, any offer along those lines might well spark an Israeli cabinet crisis. It probably would. But at some point Netanyahu will have to acknowledge that if he truly wants peace, he’ll need a different coalition–namely, the one that should have formed two years ago. Otherwise put: The decision that the current coalition must be preserved at all costs would represent the clearest possible evidence that this round of negotiations isn’t serious.
Well, speaking as an American Jew and as a sincere friend of Israel, I hope it is serious. If the negotiations end without result, I want it to be clear to the United States (and to those portions of the world that have kept an open mind) that the failure was not Israel’s fault. “A decent Respect to the Opinions of Mankind” was more than a throwaway phrase in 1776, and it still is.

Those Democrats who think all the polling data is pointing in the wrong direction should read Sean Trende’s analysis today at the conservative-tilting RealClearPolitics site. It’s not all good news for Democrats, but it’s better than what you often read. Check this out, omitting the DE and NH races we’ve already talked about extensively here recently:

Connecticut Senate – Many race watchers had pegged the Connecticut Senate race as an “upset special.” After all, Attorney General Richard Blumenthal had committed what looked a self-inflicted wound when it was discovered that he had exaggerated his military service. Republican Linda McMahon was far from an ideal candidate, but she was the consummate political outsider in an outsider year, and she had infinite funds to spend on New York media. Rasmussen Reports showed a steadily tightening race, and Democrats became increasingly concerned.
So it had to come as a bit of a relief to Democrats when Rasmussen Reports showed Blumenthal back over 50 percent, and expanding his lead from 7 points to 9 points. He leads 53 percent to 44 percent. This could be statistical noise, but it also could be a signal that Blumenthal has bottomed out, and that McMahon has peaked after solidifying the 44 percent of voters that cast ballots for George W. Bush in 2004. Blumenthal leads by 9.5 points in the RCP Average.
South Dakota At Large – Herseth Sandlin was one of those members that observers were increasingly writing off for dead. She was consistently in the low forties in polling and her opponent, Kristi Noem, was above 50 percent. That’s a kiss of death for an incumbent. But Rasmussen Report’s latest polling shows those numbers reversing now, with Herseth Sandlin at 47 percent and Noem at 45 percent. This comes as Herseth Sandlin starts her ad buy, and as Noem has come under fire for her numerous speeding tickets (the last occupant of the seat resigned after a manslaughter conviction for killing someone while driving). There is a special importance here, because this has been a major Democratic talking point: that once Republicans’ records come under scrutiny, Democrats will rebound.
Nevada 3rd District – Likewise, Dina Titus (abetted by outside groups) has begun her ad barrage against her Republican opponent, Joe Heck. She’s increased her lead to 47/43, from 43/42. She’s still under 50 percent, and she’d like to see a bigger return on a one million dollar investment. But being an incumbent at 47 percent is much better than being one at 43 percent.
Iowa 3rd District – Leonard Boswell likewise looked like a dead man walking, having trailed his GOP opponent by double digits in several polls. Now, an independent polling firm, Voter/Consumer Research (commissioned by a conservative group), shows the Congressman leading his GOP opponent 48 percent to 39 percent. This comes as reports surfaced that the GOP’er, Brad Zaun, had shown up outside an ex-girlfriend’s house in the middle of the night and shouted obscenities at her and her new boyfriend. A word of caution: This was a poll of 300 adults; still, it is somewhat inconsistent with the earlier likely voter polls showing Zaun up by ten points and above 50 percent. There was a subsample of “certain-to-vote” voters that showed a 47.3-41.3 percent Boswell lead, but the margin of error here was likely huge.
Florida Governor – Sunshine/VSS polled the Florida Governor’s race, and finds Democrat Alex Sink leading Republican Rick Scott by two points, 44 to 42 percent. This is good news for Sink, because Sunshine/VSS also polled the Florida Senate race, and found Marco Rubio leading that three-way race by a fourteen point margin, the highest margin of any recent pollster. If we assume that this sample is on the high end for Republicans, then this confirms Sink’s lead. She leads by 4.2 in the RCP Average.
Nevada Senate – Harry Reid’s resurrection from the dead continues. Mason Dixon shows him doubling his lead over Republican Sharron Angle to two points. Okay, I’m being somewhat facetious, but the fact that Rasmussen Reports showed a 5-point swing last week suggests that Reid really could once again be opening this race up. He leads by 2.7 points in the RCP Average….
Oklahoma 2nd District – Dan Boren had shown some real weakness in earlier PPP polling, coming in right around 50 percent. This was terrible news for Democrats, suggesting that even very conservative Democrats could be in trouble this time around. He recently released a poll showing him leading his GOP opponent 65 percent to 31 percent. Even accounting for the fact that this is a campaign poll, it suggests that he is increasingly out of the woods.

Trende goes on to note unhappier polling news for Democrats in Pennsylvania, Oregon, North Carolina and Michigan (and potentially bad news in Iowa), but at a time when the zeigeist suggests an undifferentiated pro-GOP tsunami, it’s good to know that actual data indicates that candidate quality, message, and effort matter for Democrats.

This item by TDS Co-Editor William Galston is cross-posted from The New Republic.
Ben Bernanke’s “unusually uncertain” may be for our times what Alan Greenspan’s “irrational exuberance” was to the late 1990s–a phrase that captures the dominant mood without providing much policy guidance.
As dissent continued to rise in the ranks of the usually united Federal Reserve Board, unusual uncertainty reigned supreme at the annual Jackson Hole meeting. While the Reinhart-Rogoff thesis that downturns induced by financial collapses differ significantly from traditional cyclical downturns was broadly accepted, there was no agreement on their generalization (based on a large number of historical cases) that public debt-to-GDP ratios above 90 percent necessarily slow economic growth. Indiana University economist Eric Leeper’s call to focus more on fiscal challenges induced by demographic shifts was challenged by CBO director Doug Elmendorf (not exactly a fiscal dove himself): “Fiscal policy is intrinsically about distributional choices. … There is no scientific basis for saying how large the government deficit should be–any more than what my level of savings should be.”
As a non-economist and puzzled citizen, I find Elmendorf’s statement astounding and disturbing. Is it really true that we can say nothing valid about the relationship between the size of deficits in specific circumstances and the level of economic activity? If so, what is the basis for supporting (or, for that matter, opposing) fiscal stimulus during downturns? To say that the issue is “distributional” means that fiscal policy affects how the pie is divided, not the size of the pie. If so, the conservative critique would seem to have some merit: A “stimulus package” simply takes away from some groups and gives to others–usually core members of the political majority. (This is not to say that the distributional consequences of fiscal policy–or any other policy–are matters about which we should be morally indifferent.)
What makes this episode so baffling is that, less than a month ago, the CBO published an Issue Brief (with Elmendorf’s signature affixed) entitled “Federal Debt and the Risk of a Fiscal Crisis.” The minimally alert reader will find the following on the first page:

Although deficits during or shortly after a recession generally hasten economic recovery, persistent deficits and continually mounting debt would have several negative economic consequences for the United States. … A growing portion of people’s savings would go to purchase government debt rather than toward investments in productive capital goods such as factories and computers; that “crowding out” of investment would lead to lower output and incomes than would otherwise occur.

A bit later on, but still on the first page, we read:

[A] growing level of federal debt would also increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government’s ability to manage its budget, and the government would thereby lose its ability to borrow at affordable rates.

I can’t speak for anyone else, but to me these two quotations (and there are many others to the same effect) don’t sound like “distributional” observations. They are, rather, predictions about the consequences of excessive debt accumulation for the performance of the economy as a whole. If so, what’s the basis for Elmendorf’s disagreement with Leeper?
I may be making too much out of quotations drawn from much more extensive discussions. Or my emphasis may be wrong. If Elmendorf’s point is that fiscal policy can’t be conducted with “scientific” precision, who would disagree? It involves complex judgments about quantities, timing, and the responses of key actions in specific situations that are bound to have some unique features. The challenge is to get the broad thrust of fiscal policy pushing in the right direction at the right time, which means assessing the shifting balance between risks and opportunities. That’s what I took the CBO’s July Issue Brief to be doing.
We may well be in a Bernankean moment of unusual uncertainty, but there’s no need to make it worse with superfluous uncertainty. Will the real Doug Elmendorf please stand up and clarify?

Just in case you missed it, CBS hired an aerial photography company to take aerial pictures of the Beckapalloza and then give the photos to three different photo analysts to do independent crowd estimates.

The firm came up with a consensus estimate of around 80-90,000 people which is a great deal less than a simple glance at the Washington Post crowd photos would suggest. The difference may be accounted for by the fact that a substantial number of the people at the event were sitting in lounge chairs or otherwise picnicking, which would create a much more spread out crowd along the sides of the mall than a packed in, everybody standing event. This would not be easily detected in standard long-distance crowd photos but would be visible in large scale blow-ups with magnifying glasses and grid lines.

In any event, the organizers only pulled a permit for 300,000 people which suggests that they knew from the number of busses Freedomworks had chartered and other sources that the attendance would be unlikely to actually come close to that number — not to mention the 500,000 to a million numbers conservative boosters are now bouncing around (in fact, if the number of chartered busses and parked cars yesterday indicated that three to four hundred thousand people had been wandering around D.C., you can bet your bananas we would have heard about it by now)  

The significant fact is that CBS estimated attendance of slightly less than 100,000 is not substantially different than the number that it was estimated showed up last September for the 9/12 rally. It suggests that while the Freedomworks/Fox machine has clearly succeeded in creating a reliable, rotating cadre of demonstrators it can pull out for events, it has not been able to generate a steadily growing army.

The people who came to yesterday’s rather peculiar revival meeting/pep rally are likely to be a somewhat different group than those who would have come to another raw-meat anti-Obama- fest like last Septembers’ protest. But it’s beginning to appear that that with both kinds of conservative audiences, Freedomworks/FOX may have reached a plateau in the numbers it can currently pull for either kind of hootenanny.

There are two more big conservative events scheduled for later this fall. The attendance at those events will help to clarify the picture.

In the welter of confusion and misinformation that has characterized the “ground zero mosque” brouhaha, it’s kind of important to isolate the extent to which Americans actually seem to hate Muslims.
That’s what Ron Brownstein’s done in his latest column, and it’s pretty clear there’s a partisan and ideological split at play here:

In a national Time magazine poll released last week, just under half of all Americans agreed that Islam is more likely than other faiths to promote violence against nonbelievers. But that number rose to 70 percent among Republicans and nearly three-fourths among conservatives. Fully 55 percent of all Americans said they believed that most U.S. Muslims are patriotic; but only 42 percent of Republicans and 38 percent of conservatives agreed. Perhaps most strikingly, 43 percent of conservatives and a 48 percent plurality of Republicans said Muslims should not be allowed to run for president. Only about one-fourth of Democrats and independents agreed.

Muslims should not be allowed to run for president?
Then again, this is the same Time poll in which a plurality of Republicans said Barack Obama is a Muslim. So I guess in their view you can’t have the First Amendment interfering with the God-given constitutional right to conservative rule.

This item by TDS Co-Editor William Galston is cross-posted from The New Republic.
Average Americans are noticing what wise economists have been arguing for quite some time: Bubble-driven economic downturns differ qualitatively from standard business-cycle recessions. Not only do they go deeper; GDP takes longer to rebound, and job creation proceeds more slowly.
The mechanism is straightforward. As the value of assets used as collateral collapses, so does borrowing. This depresses consumption, and the real economy dips, making it much harder for businesses and households to service the debts incurred during boom times. Household consumption remains sluggish until debt is reduced to a level that can comfortably be serviced out of current income, a process that cannot proceed without an increase in the household savings rate. The larger the debt overhang, the longer it will take to work off the excess.
As recent as the late 1990s, total household debt stood under $5 trillion, roughly 90 percent of disposable income. After a decade-long borrowing binge, debt peaked in late 2007 at about $12.5 trillion–a stunning 133 percent of disposable income. According to the latest report from the Federal Reserve Bank of New York, the total had declined to $11.7 trillion by the first quarter of 2010, a reduction of $812 billion (6.5 percent) from the peak. During the same period, not surprisingly, the household savings rate rose from 2 percent to more than 6 percent.
While these are sizeable changes, there is good reason to believe that the process of household debt reduction is still in an early stage. Writing for the Center for American Progress, Christian Weller points out that total debt now stands at 121.7 percent of disposable income, still higher than at any point before the second quarter of 2005. In an analysis published in May of 2009, the Federal Reserve Bank of San Francisco suggested that the household debt/disposable income ratio might well have to fall much farther, to around 100 percent, a process that could take much of the decade, even if the household savings rate were to rise to 10 percent.
This extended deleveraging would have a substantial effect on the economy. The FRBSF estimates that it would reduce annual consumption growth by three-fourths of a percentage point from the stable-savings baseline, which would “act as a near-term drag on overall economic activity, slowing the pace of recovery from recession.”
This is exactly what we’re now seeing. In a superb piece, the Washington Post’s Neil Irwin gets outside the Beltway and beyond its stale arguments to probe the real reasons companies aren’t hiring. His conclusion is worthy of extended quotation:

Many Democrats say the economy needs more stimulus. Business lobbyists and their Republican allies say it needs less regulation and lower taxes.
But here in the heartland of America, senior executives say neither side’s assessment fits.
They blame their profound caution on their view that U.S. consumers are destined to disappoint for many years. As a result, they say, the economy is unlikely to see the kind
of unbroken prosperity of the quarter-century that preceded the financial crisis. . . .
They see Americans for years ahead paying down debts incurred during the now-ended credit boom and adjusting spending to match their often-reduced income.
“It’s a different era,” says Daryl Dulaney, chief executive of Siemens Industry, which has 30,000 U.S. employees who make lighting systems for buildings and a wide rnage of other products. “Our hiring and investment decisions have to be prudent and reflect that.”

A different era … How long will it take our policy makers and political parties to absorb the implications of that stark, undeniable phrase? When they do, they will realize that we have only two strategic options: Either we accept years of sluggish growth and high unemployment, or we shift to a new model that mobilizes the record level of private capital now sitting on the sidelines for public investments that will boost economic activity and employment in the short term, and economic productivity and growth in the long term, while generating rates of return sufficient to interest investors.
This is why we need a national infrastructure bank as the linchpin of a public investment strategy driven by economic analysis rather than congressional politics. Rather than bridges to nowhere, we need a bridge to the future. It’s time for hide-bound appropriators to get out of the way.