The new Chief of Staff lays out some legislative strategy:

Emanuel rejected the idea of tying a pending economic stimulus plan to a proposed free-trade agreement with Colombia in order to win President George W. Bush’s support during a post-election lame duck session of Congress.

“You don’t link those essential needs to some other trade deal,” he said. “The lame duck is for immediate things — that’s what should be the focus right now.”

Krugman laid out the correct strategy for dealing with President Lame Duck yesterday. Congressional leaders should completely ignore Bush, and without seeking his input or approval write and pass a stimulus package that, among other things, includes a generous amount of aid to state and local governments to forestall the need for cutbacks on their end. Second, you hope enough members of congress vote for it to override a veto. If that does work, then third you hope the president signs it. If that doesn’t work, then the president-elect promises to sign a repassed version of the law with equivalent state and local aid as soon as he takes office. Since state and local officials will know the money is coming one way or another, they can start doing their budget planning as if Bush had signed the bill even if he vetoes it.

I don’t think I would agree with all the conclusions he draws from this, but Dean Baker makes the excellent point that there’s a lot more than a “credit crunch” going on to explain the onset of recession — the simple effect of asset prices tumbling is to make people reduce their spending and therefore the economy contracts:

This is truly incredible. Homeowners have lost more than $5 trillion in housing wealth. There is a very well established wealth effect whereby $1 of housing wealth is estimated as leading to 5 to 6 cents of annual consumption. This implies that the loss of wealth to date would cause consumption to fall by $250 billion to $300 billion annually (1.7 percent to 2.0 percent of GDP). If you add in the loss of around $6 trillion in stock wealth, with an estimated wealth effect of 3-4 cents on the dollar, then you get an additional decline of $180 billion to $240 billion in annual consumption (1.2 percent to 1.6 percent of GDP).

These are huge falls in consumption that would lead to a very serious recession, like the one we are seeing. This would be predicted even if all our banks were fully solvent and in top flight financial shape. Even the soundest bank does not make loans to borrowers who it does not think can pay the loans back (except during times of irrational exuberance).

To argue from the personal case, as you may recall I bought a condo recently. Obviously, to make the downpayment and meet my closing costs I was going to need to liquidate some of my savings in the stock market. I had planned to sell more stock over and above that in order to get cash to buy furniture and other moving-related expenses. But because of what was happening in the stock market it was an inopportune time to be selling shares so I sold fewer than I’d planned and bought cheaper furniture, figuring I might just buy nicer stuff later on if at some future point the animal spirits of the market drove my net worth up. Thus someone missed the chance to sell me a coffee table (pictured above) that I liked very much but that cost a lot of money. Their loss was Ikea’s gain, but that kind of decision drives GDP down.

Ed Glaeser does excellent economics work that often translates into puzzlingly disappointing op-eds, but this column on the vital importance teacher quality and offering a few ideas about how to get it is spot-on. President-Elect Obama has often spoken along the same lines as Glaeser in terms of paying teachers more, and then screening out ineffective ones more rigorously. Obviously, the devil is in the details, but it’s very important for the long-run fate of the economy to see some movement on this.

New York Times: “At the same time, [Obama's] team is tamping down expectations of instant action by discouraging talk of a 100-day program.”

This seems sensible. Sometimes talk of a new takeover seems to forget that you actually get to stay in office for all 1,460 days of your term. Clearly, I think there’s reason to believe that the odd-numbered years are more conducive to legislating than are the election years so there’s some reason to act quickly. But a lot of the stimulus/budget talk, for example, seems not to notice that you can do a stimulus/recovery initiative in the fourteenth day of your administration and then if it works shift to addressing longer-term budget issues in month fourteen. You don’t need to arrive in January of 2009 with full-formed solutions to every problem. FDR’s first 100 days was an unusual, dare we say unique, situation and it would be unwise to expect its replication.

It seems that Democratic congressional leaders are not so interested in what I think and thus are plowing ahead with plans to press for federal aid to auto companies.

The general misguidedness of this aside, it seems to me that one should at least be looking for some kind of political quid pro quo here. Right now in the House of Representatives there’s a looming battle between Henry Waxman and the incumbent Chair of the House Energy and Commerce committee. The battle lines are being drawn along liberal/moderate lines at the moment, but historically Dingell’s been a pretty solidly progressive legislator. But he’s also from Michigan. And like a lot of Michigan legislators, he’s reluctant to endorse climate change legislation that is seen as bad by influential home state industries. Now I don’t care who gets to chair the committee at the end of the day, but I really do care about taking action on carbon emissions as soon as possible. It seems to me that it’s a mistake for the leadership to do a huge favor to the auto industry, to Michigan, and to Michigan-based politicians while at the same time the industry is lobying against key leadership priorities on energy and the environment.