Our guest blogger is Heather Boushey, Senior Economist at the Center for American Progress Action Fund.

Economist Paul Krugman highlights Raghuram Rajan arguing in today’s Financial Times that the Federal Reserve should begin raising interest rates because “the US had far too much productive capacity devoted to houses and cars, because consumers could obtain financing for them easily.” Essentially, Rajan is arguing that monetary tightening is necessary to shift resources out of the too-large housing and car sectors. Krugman points out that this makes no sense because most of the job losses during the Great Recession haven’t been in the construction sector:

OK, I actually haven’t taken cars into account; someone with more time can do that. But let’s look at the role of job losses in construction versus other sectors, since December 2007. It looks like this:

If high unemployment were largely about shifting workers out of an overblown construction sector, wouldn’t you expect job losses to be concentrated in that sector? Wouldn’t you expect employment elsewhere to be, if anything, rising? In fact, however, the vast majority of job losses have occurred in parts of the economy with little direct connection to the housing bubble. Yes, as a percentage job losses have been much larger in construction; but nothing in Rajan’s argument explains why we shouldn’t be using policy in an attempt to prevent vast job losses in parts of the economy that aren’t overblown.

Let me add a bit more meat to this story. In fact, the Great Recession has been more of an “equal opportunity” recession than other recent recessions (click here for a larger image):

Certainly, construction has lost a significant chunk of jobs, but other industries — manufacturing, professional and business services, transportation and warehousing, financial activities, leisure and hospitality, and information services — have all lost a larger share. Much of financial activities could be considered tied to the run-up and bust of the housing market, but all the others? This Great Recession has had fairly broad, widespread job losses across industry, which contradicts the idea that there’s one or two sectors that U.S. workers need to transition out of.

Both the Washington Post and the New York Times today have articles on Democrats and Republicans vying for to be seen as more supportive of small businesses. “At the core of some of the major policy fights in Washington these days is a ferocious competition between Republicans and Democrats over which party is the champion of America’s small businesses,” the Times wrote.

Republicans loudly claim that Democrats have “hit small business with a sledgehammer,” but when given the opportunity to provide tax credits and lending capacity to small businesses today, they instead chose obstruction. The Senate failed to invoke cloture on a bill creating a lending fund for small businesses and providing those businesses with a series of tax credits, on a 58-42 vote. All Republicans voted against the bill (and Senate Majority Leader Harry Reid (D-NV) switched his vote at the last moment as a procedural matter, which allows him to bring the bill up again later).

For months, Republicans in the Senate have been bogging down this particular bill by threatening to attach a cut in the estate tax to it, which would benefit just the richest 0.25 percent of households in the country. And at the same time, the GOP has been waging an intense campaign to extend the Bush tax cuts for the wealthy, because they falsely claim that a failure to do so would be a blow to small businesses.

But as Dylan Matthews pointed out, IRS data shows that “the filers reporting small business income who would be affected by letting the tax cuts expire come disproportionately from the ranks of the super-rich.” In fact, the Tax Policy Center has made the case that the Bush tax cuts actually harm small businesses, because their cost of capital goes up as the deficit increases, and the cuts made the tax code more corporation-friendly:

While the 2001-2003 tax cuts were described as “pro-entrepreneur,” a recent study found that the majority of taxpayers would see their tax burden rise, once the eventual financing of the cuts was taken into account. Specifically, the study found that 72 percent of taxpayers with business income would be worse off if the tax cuts were eventually paid for by proportional financing, and that 58 percent of filers with business income would be worse off if the cuts were eventually paid for with equal-dollar financing.

Even those Republicans who supported the small business lending bill — like Sen. George LeMieux (R-FL) and Sen. Olympia Snowe (R-ME) — voted against it today, claiming that they didn’t have ample opportunity to attach amendments. So in the end, Senate Republicans had the chance to do something helpful for small businesses, but decided obstruction was the more productive route.

According to the latest data from RealtyTrac, “foreclosures rose in three of every four large U.S. metro areas in this year’s first half,” providing yet another piece of proof that the foreclosure crisis is far from over. “More than 3 million households are seen getting at least one foreclosure notice this year, and this record will be surpassed slightly at the peak of next year,” RealtryTrac estimated.

The slow but consistently mounting number of foreclosures is, sadly, warranting little attention from lawmakers. And the Obama administration’s signature foreclosure prevention program, the Home Affordable Modification Program (HAMP), has fallen flat on its face. The latest report shows that fewer than 400,000 homeowners have received permanent modifications. In fact, more homeowners (520,814) have fallen out of the program than have had their mortgage modified.

HAMP has suffered from a series of design flaws, but one of the biggest is that there’s simply no incentive for banks to make a wide effort at implementing modifications, as the program contains no stick to force a bank’s hand. In fact, at this point, Democratic lawmakers have been reduced to asking banks if they would deign to pick up the pace of modifications on their own:

In a letter Tuesday, [Sen. Sherrod] Brown (D-OH) stated that a number of constituents have contacted his office saying banks are offering limited assistance in helping them restructure their home loans. The senator used the letter to call on banks to do more to help these individuals. “It is in the best interest of your banks to work with responsible borrowers to help them stay in their homes or find other alternatives to foreclosure,” Brown wrote.

As Elizabeth Warren, Chair of the TARP Oversight Panel, said, “for every family that Treasury has helped into a sustainable mortgage modification, ten other families have lost their homes to foreclosure. Foreclosures show no clear signs of abating.” Atrios added, “HAMP was announced with great fanfare, a big budget, and a promise that the program could help millions of homeowners. Instead it’s mostly gouged desperate people, extracting a few more mortgage payments out of them while doing little to help them.”

Treasury has been reluctant to implement substantial changes to the HAMP program, but states across the country are trying other approaches to stem the foreclosure tide, including mediation programs that compel banks to meet with a homeowner before finalizing a foreclosure. And it remains the case that the failure to get a handle on the housing crisis will impair an economic recovery.

Academy Award-winning actress and New Orleans resident Sandra Bullock has severed her involvement in a campaign to call attention to the BP spill, after learning from ThinkProgress that it was a greenwashing effort by the oil industry. Bullock is prominently featured in the Restore the Gulf campaign, run by Women of the Storm and sponsored by America’s Wetland Foundation.

In an online video with other major celebrities, Bullock called for American people to “speak up” and “sign the petition” for Congress and President Obama at the campaign website, which demands that “a plan to restore America’s Gulf be fully funded and implemented for me and future generations.” The YouTube video makes her the face of the campaign:

Unbeknownst to Bullock, America’s Wetland Foundation is a front group established by Shell Oil in 2002 and funded by the American Petroleum Institute, BP, and a host of other oil companies. Women of the Storm was established after Hurricane Katrina by Anne Milling, the wife of America’s Wetland chairman R. King Milling, who is part of Gov. Bobby Jindal’s (R-LA) team to lift the offshore drilling moratorium. This greenwashing campaign, first uncovered by DeSmogBlog.com’s Brendan Demelle, subtly includes mentions of “safe domestic energy” and oil industry factoids, while implying that American taxpayers, not the unmentioned oil industry, should pay for restoring the region BP has poisoned.

Sandra Bullock’s publicist tells ThinkProgress the actress was never informed of the campaign’s big oil ties. In a statement issued to ThinkProgress, Bullock’s representatives indicated they would immediately ask “for her participation in the PSA be removed until the facts can be determined”:

Ms. Bullock was originally contacted through her attorney to be a part of the PSA in order to promote awareness of the oil spill in the Gulf of Mexico. At no time was she made aware that any organization, oil company or otherwise had influence over Women of the Storm or its message. We have immediately asked for her participation in the PSA be removed until the facts can be determined. Her commitment to the Gulf region has been apparent for many years and she will continue to pursue opportunities that will bring awareness and support to the plight of the Gulf region.

With its deep pockets, BP’s focus should be on supplying necessary funds to restore the Gulf region, not secretly supporting greenwashing campaigns to redirect blame. The people of the Gulf of Mexico don’t need the toxic influence of the oil industry, and the American people don’t need its toxic pollution.

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