Brad DeLong tackles the future of the US budget and deficit, but doesn't place much faith in Congress for being able to manage it. He quotes Doug Elmendorf--Director of the Congressional Budget Office--and Matthew Yglesias as they discuss the nation's economic future and the politics that they believe gets in the way. All three focus on medium-term future, between 2012 and 2020. Elmendorf says that the debt-to-GDP will likely remain stable as "as long as output does not grow more slowly than projected and as long as congress observes PAYGO: as long as congress pays for whatever policy changes it makes." But, Yglesias corroborates Elmendorf's worry when he says, "The problem... isn’t... that we’re driving toward the edge of the cliff. The problem is... congress seems overwhelmingly likely to steer us [over the cliff]." DeLong adds that Congress could solve the problem "by simply saying no" to the President.

Barry Ritholtz poses a challenge to corporate governance, and agrees with Bloomberg’s David Reilly, who notes, “buried deep within the 1, 136-page, financial-reform legislation unveiled this week by Senate Banking Committee Chairman Christopher Dodd. It is a proposal to let shareholders nominate directors to corporate boards." Ritholtz says that the people who stand to lose the most in a company, don't have a say in the corporate governance. He writes, "..the biggest shareholders of public companies, the mutual funds who typically hold the vast majority of a firm’s stock on behalf of shareholders, refuses to engage in any corporate governance." Ritholtz acknowledges the changes in the Dodd proposal, and likes what he sees. "We have been forced into a situation that is intolerable — massive taxpayer bailouts of incompetent bankers, with AWOL Boards. Its hard to see how any change could make matters worse. It just might start improving things."

It seems that Paul Krugman has had enough of all the deficit talk. He says, "It’s truly amazing, and depressing, how completely deficit-phobia has swept the field in Washington." He acknowledges that "we’re going fairly deep into debt," but he says that it is not an unprecedented course and that the deficit likely to be incurred in the near future will be to help working Americans and to put many Americans back to work. He says, simply, "Anyway, the point is that the economy desperately needs more help — and yes, we can afford to provide it."

Felix Salmon weighs in on the continuing too-big-too-fail debate. He responds to one of today's posts in Economics of Contempt. The post asserts that many of the major banks didn't invest enough in their risk management systems. But it also points out that Goldman Sachs and JP Morgan did, claiming economies of scale at play. Salmon counters, saying that Goldman and JP aren't the biggest banks, ruling out economies of scale, and that Goldman actually made a mistake in it's decision to hold illiquid CDOs on its balance sheet. Salmon says, "Goldman’s shenanigans in the CDO market were an aberration, and were not something societally useful which sprang from being large." And, he concludes by recasting James Kwak's comment: "As James Kwak notes, economies of scale top out long before bank size does; beyond that, it’s all moral hazard."