Ed Olsen, one of the nation's foremost housing experts, points out that it's much harder to stimulate housing than many people think because you have to take into account the rental market.

The primary effect of many proposals directed at the housing market would be to decrease the demand for rental units by about the same amount as they would increase the demand for owner-occupied units. This would be the effect of the proposed tax credits or loans at below-market interest rates to new homebuyers.

 …The impact of preventing foreclosures on housing prices is overstated for the same reason. The overwhelming majority of families who default on their mortgages move to another unit that they do not share with others. Therefore, preventing foreclosures would have little effect on the total demand for dwelling units and hence little overall effect on market prices.

 …Subprime mortgages did induce some people to buy houses beyond their means, and foreclosures would decrease the demand for the types of houses bought by these people. This would decrease the prices of similar houses. However, when they default on their mortgages, the families involved move to more modest houses or apartments, thereby increasing the demand for other types of units in other locations and the prices of units of these types. Preventing foreclosures would lead to higher prices for some properties and lower prices for others.

Read the whole thing (doc).

From Chris Blattman.  By my calculations (here and here) road traffic accidents account for about 1.68% of deaths in the United States so there is certainly room for improvement in low-income countries although it would be important to know whether it is the driving, the roads, or the health care most amenable to such improvement.

This paper integrates theories of political budget cycles with theories of tactical electoral redistribution to test for political capture in a novel way. Studying banks in India, I find that government-owned bank lending tracks the electoral cycle, with agricultural credit increasing by 5-10 percentage points in an election year. There is significant cross-sectional targeting, with large increases in districts in which the election is particularly close. This targeting does not occur in non-election years, or in private bank lending. I show capture is costly: elections affect loan repayment, and election year credit booms do not measurably affect agricultural output.

60 Minutes had a moving piece on Sunday about Wilmington, Ohio where thousands of people are losing their jobs due to the closure of the town's largest employer, DHL.  Many people had worked at the air distribution center for decades and through no fault of their own were losing their jobs, their health insurance and in one of the hardest losses of all, their community.  Barack Obama and John McCain both talked about Wilmington in their campaigns and yet for all their talk it's clear that neither monetary nor fiscal stimulus can do much for Wilmington.

One of the things that I do find very disturbing about this recession is that it is worldwide.  World trade may fall this year for the first time since 1982. As I argued earlier, the problem goes beyond any credit crunch, which according to the story below has been solved for trade.  The problem is a lack of demand.  Here is more frightening news on the trade front. 

Freight rates for containers shipped from Asia to Europe have fallen to zero for the first time since records began, underscoring the dramatic collapse in trade since the world economy buckled in October.

Trade data from Asia's export tigers has been disastrous over recent weeks, reflecting the collapse in US, UK and European markets.
Korea's exports fell 30pc in January compared to a year earlier. Exports have slumped 42pc in Taiwan and 27pc in Japan, according to the most recent monthly data. Even China has now started to see an outright contraction in shipments, led by steel, electronics and textiles.

A report by ING yesterday said shipping activity at US ports has suddenly dived. Outbound traffic from Long Beach and Los Angeles, America's two top ports, has fallen by 18pc year-on-year, a far more serious decline than anything seen in recent recessions.
"This is no regular cycle slowdown, but a complete collapse in foreign demand," said Lindsay Coburn, ING's trade consultant.

Idle ships are now stretched in rows outside Singapore's harbour, creating an eerie silhouette like a vast naval fleet at anchor. Shipping experts note the number of vessels moving around seem unusually high in the water, indicating low cargoes.

It became difficult for the shippers to obtain routine letters of credit at the height of financial crisis over the autumn, causing goods to pile up at ports even though there was a willing buyer at the other end. Analysts say this problem has been resolved, but the shipping industry has since been swamped by the global trade contraction.

A banker has absconded with 86 billion from Dynasty Banking.  Dynasty Banking?  Is that an obscure Icelandic bank?  Almost, it's a bank in the massive world of Eve Online.

Two years ago in a post called The Future of Macroeconomics I wrote the following:

The massive theft from Dynasty Banking is creating a bank run.  There is no FDIC in Eve Online but other banks have agreed to lend Dynasty cash if it is needed – no doubt they fear contagion.  No word yet on whether fiscal or monetary stimulus is planned but I will watch the experiment with interest.

If this is not enough to boggle your mind, Eve Online is in fact an Icelandic firm!  Which explains why the money in Eve is called ISK, also the code for the Iceland Krona.  To bring the story full circle the Icelandic banking collapse is causing problems for the developer.

"The present currency restrictions are putting us in a straitjacket.
We are in talks with the government, but if we can't let capital in, we
might be compelled to leave Iceland, even though this would be against
our wishes."

EVE currently has around 300K subscribers.

Gudmundsson's comments come after those of CCP CEO Hilmar Petursson,
who told Edge in October following the banking collapse, "I’m fortunate
that CCP has hardly been affected by the economic crisis here. We now
have to take advantage of our status as a global company and maintain
our diversified banking relationships."

CCP also has offices in Atlanta and Shanghai.

Finally, in other news, we have this:

Royal Khanid Navy Grand Admiral Zidares Khanid this morning released a
statement claiming that Khanid Kingdom forces yesterday attacked
thirty-three separate Blood Raider Covenant targets – ranging from
unmanned installations to fully-defended outposts – in what the release
terms “an effort to strike a blow against the spreading blight of
willful heresy.”

Just thought you would want to know. Does your head hurt yet?

Thanks to Roger Avalos for the pointer.

Matt Ygelsias asks what’s the
stimulus-skeptics’ alternative prescription?  Tyler offers his recommendations below.  I'm somewhat less of a skeptic about fiscal policy than Tyler – there is a good case for moving up useful infrastructure spending (both public and private) today – but I agree with Tyler that it is too early to think that monetary policy is ineffective.  M1 is rising sharply, M2 is up.  Monetary policy works with lags.  As to what to do instead I have offered a number of possibilities including:

1) Investment Tax Credit Unlike traditional fiscal policy an investment tax credit cannot be
fully crowded out and it works best when it is expected to be
temporary. Cuts in income taxes stimulate the least when they are
expected to be temporary.  But in contrast, an investment tax credit
stimulates the most when it is expected to be temporary because a temporary
credit must be used now or lost while a permanent credit gives you the
option to wait.

2)  A supply side stimulus: The IRS knows how much income that each taxpayer reported last
year.  So let's cut everyone's marginal tax rate based on last year's
income.  In other words, suppose that last year Joe earned $66,520
which puts him in a 25% tax bracket.  Joe's tax schedule this year will
be exactly the same as last year except for every dollar earned above
$66,520 the tax rate drops

to 15%.   We do this for all
taxpayers so that each taxpayer has their own schedule and for each
taxpayer there is a decreasing marginal tax rate.Note that this plan increases the incentive to work and it doesn't
increase the deficit.  In fact, the Tabarrok plan increases tax
revenues!  The key is a marginal tax cut with a different margin for
every taxpayer based upon last year's return.

3). A cut in the payroll tax ala Singapore.  If employment is down reduce the cost of employing labor.  This policy has lot to recommend it because unlike a fiscal stimulus it lets the reallocation process work towards its long run equilibrium.  A construction stimulus, for example, pushes people into construction (or keeps them there) when perhaps labor could ultimately be more productive in other sectors of the economy.  The payroll tax cut enhances this reallocation effort it doesn't impede it.

4)  Don't Panic.  This is the policy that has cured most recessions.  The do anything and do it now mindset feeds panic.  I do think this recession will be longer than average and quite deep, it is a concern that it is worldwide.  But recessions are normal and we have unemployment insurance and other assistance programs to help people through tough times.  The economy will recover and its very possible to make things worse by trying to make things better.

Here are a few key graphs from Time Magazine's cover story.  Read them carefully.

Did the last line give it away?  The article is describing the recession of 1991, an unusually mild recession that preceeded one of the biggest expansions in American history.

Thanks to Roger Congleton for the link.

Linda Bilmes presented an interesting paper (not online) at the AEAs looking at the fiscal stimulus in light of Katrina, Iraq and the Big Dig.  Here are some key grafs:

Bilmes is the co-author with Joseph Stiglitz of The Three Trillion Dollar War.