Health care reform is necessary, and House Democrats should vote for it because it’s best for the nation.

They should also remember the political lessons of history. To paraphrase Mark Twain, history doesn’t repeat itself but it does rhyme. As the White House and the House Democratic leadership try to line up 216 votes to pass health care reform — and as Republicans, aided by the National Association of Manufacturers and abetted by fierce partisans like Newt Gingrich, try to kill it – I can’t help thinking back to 1994 when the lineup was much the same.

Back in 2004, on the heels of the Fed’s tightening cycle, Ben Bernanke gave a speech in defense of “gradualism”—the idea that, under normal circumstances, economies are better served when central banks adjust their policy rates gradually, moving in a series of moderate steps in the same direction.

When former Morgan Stanley chief Asian economist Andy Xie comments on the United States, he focuses on a bailout nation keen on perpetuating a bubble economy predicated on malinvestment and overconsumption. 

To be sure, the U.S. government deficit is shocking; but it's not anymore shocking than the recession through which we have all lived. Tax receipts plummeted (see the second chart from this post) and spending on cyclical social programs (like unemployment benefits) is surging. This adds up to an exponentially rising budget deficit, and thus an increasing debt burden.

Senator Dodd’s financial reform bill will be introduced in the Senate Banking Committee today.  Unfortunately, on the major issue – too big to fail financial institutions that caused the 2008-09 crisis and that will likely trigger the next meltdown – there is nothing meaningful in the proposed legislation.

Summary:  Hard times might lie ahead, forcing difficult choices.   We must clearly understand our alternatives, and their history.  IMO only clarity of thought and resolute wills will see us through the next decade.  How to manage public finances might be our greatest challenge.

Why do we continue down a path which almost certainly ends badly?  Since President Reagan we — citizens, voters — have indulged in an orgy of deficit spending — plus writing ourselves promises of vast future benefits.  The reasons are complex and many.  One is a belief that governments are reliable.  Governments — real governments, of developed nation — do not default.  Or so we believe.

For nearly two years now we have waited for a speech.  We need a simple speech and a direct speech – most of all a political speech – about what exactly happened to our financial system, and therefore to our economy, and what we must do to make sure it can never happen again.

Any day now, the Obama administration will announce $4.35 billion in extra federal funds for under-performing public schools. That’s fine, but relative to the financial squeeze all the nation’s public schools now face it’s a cruel joke.

Calculated Risk directed us to a lesser known economic indicator, real personal income less transfer payments, a measure intended to strip out some of the impact of automatic stabilizers in the personal income data.  I found it an interesting series to play with.  Eyeballing the series, it looked like we were well below trend.  How low?  And how does the trend evolve over time?