Last week’s stream of economic data points to the emergence of a great divide. On the positive side, annualized third-quarter GDP was up 3.5 percent compared to the prior quarter. (Keep in mind that this is an "advance" estimate from the Dept. of Commerce. Stay tuned for revisions.)  But consumer spending for September fell 0.5 percent. That’s the biggest dip since December 2008 when we were in the midst of the financial crisis. More

Bruce Bartlett is a man of strong opinions. A supply-side economist even before the Reagan Revolution, he served in two Republican administrations and then as a policy wonk and gadfly at conservative think tanks. But in recent years he's gotten fed up with Republicans who've turned supply-side economics into a crude and sometimes cynical faith in tax cuts as the solution to whatever ails us. Meanwhile, many conservatives have gotten fed up with him: his highly critical book on George W. Bush got him fired from the conservative think tank he was working at a couple of years ago.

I spoke with him recently about his new book The New American Economy, which among other things suggests that we could learn a thing or two from economist John Maynard Keynes — yep, the guy who thought government spending was the only way to pull economies out of deep depressions. The interview, which appears in the November issue of Money, has just been posted online.

We were only able to fit a portion of our wide-ranging discussion into the tight confines of the print magazine, so I thought I'd share some more of it here on the blog. More

Catastrophes or triumphs can define generations. If you're part of "The Greatest Generation," a moniker coined by Tom Brokaw, the Great Depression and World War II molded your early life. And those first 30 years of deprivation and struggle probably influence your decisions now.

Today's Millennials (roughly, Americans born after 1980) haven't had a world war to contend with. But as we speak, their worldviews are being shaped by the most severe recession since the 1930s. Where could that lead?
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When the Obama Administration announced the Making Home Affordable program in February, it estimated that the refinancing part of the program, known as HARP, could help as many as four million to five million homeowners with little or no equity (and even up to 5% underwater) refinance into less costly loans. So far it hasn’t exactly played out to expectations. Through July just 60,000 or so homeowners have landed a refi through HARP.

That makes it unlikely that HARP will come anywhere close to delivering on the administration’s goal by the time the program’s current authorization runs out in June 2010. (Its sister program, Home Affordable Modification Program, or HAMP, is authorized through 2012.)

While Treasury has the power to extend HARP past next year's deadline — which won't really help unless Treasury can also arm-twist lenders into doing these deals — a handful of other crisis-induced rule changes will need  Congressional action to be extended beyond this year. More

Opening the August credit card statement is going to send the blood pressure of some Chase customers skyward.  For the second time this year the bank has changed up the rules for how it calculates the minimum payment due for certain customers, increasing the rate from  2% of the outstanding balance to 5%.  If you’re carrying a $5,000 balance that means your required minimum payment went from $100 in July to $250 this month.

That move, in turn, has raised some serious hackles. Over at about.com the call to action is to file a complaint with the Federal Trade Commission over this “unfair practice.”

Hmmm. Unfair? I’m not so sure. Unfriendly, absolutely. There is no question that tightening the payment screws at a time when unemployment is at a 25-year high and furloughs are the hot new employment trend isn’t exactly consumer-friendly. Yet there is indeed a residual benefit for cardholders. Increasing the minimum payment rate by 150%  means Chase customers will pay off their debt a whole lot faster. That’s a boon for their personal balance sheet as well as saving a bundle in interest costs. While I don’t believe for one second that Chase’s motivation is to help its customers — this is all about Chase reducing its risk — I think Curtis Arnold over at CardRatings.com got it right by tagging the change a case of “tough love.” What's your take? The poll is open.

Demand for airline travel has fallen for the last 13 months, but experts think the drop has finally bottomed out: “[I]nvestors bet the falloff in demand had reached a trough, with no where to go but up,” The Wall Street Journal reported earlier this week. In response, stocks prices are up slightly. Bloomberg’s U.S. Airline Index grew 4%, a ten-year high. Year-over-year traffic is still declining, but not as rapidly as it has been (At United, for example, traffic fell 12.5% in May and 7.5% in June, but only 4% in July.).

This is good news for those who hold airline stocks, but for the rest of us, the news is less uplifting. Fuel prices are down, but beginning August 14 American will raise its checked-baggage fee to $20 for the first item and $30 for the second. This fee hike puts American in line with Continental, Delta, United, and US Airways, all of which have recently increased fees. You can save $5 from the latter four airlines if you pay online, but American doesn’t offer that discount. These fees bring in big revenues for airline companies: In the first quarter of 2009 alone, US air carriers charged $566 million in baggage fees — more than four times what they collected in the corresponding period in 2008 (the major airlines started instituting these new bag fees later in the year). You can avoid bag fees by flying Southwest and JetBlue, but these low-cost airlines may not always fly exactly where you want.

More upsetting is that the price hike comes shortly after the Bureau of Travel Statistics reported that airlines overall on-time performance has decreased.

The domestic on-time rate for July was 76.1% overall. (Compare that to September 2002, the most punctual month in the last 15 years, when nearly 88% of flights came in on time. Hawaiian and Alaska were on-time the most, with 93% and 85% respectively. Coming in last were Comair and Frontier, with 68% and 60%. The stat that surprised me most was this one: On average, airlines canceled only 1.5% of their domestic flights. I might be unlucky, but that number feels like it's been higher for me.

Question: The stock market wiped out my elderly parents' savings. My two sisters and I now have to help with their bills. How should we divide them, given that some of us have more money and some of us have more kids?

Answer: Hold on. Before you divvy the bills, there's a lot more to consider than bank accounts and kids. What if, for example, one sister is providing most of your parents' day-to-day care? Or one of you previously received large gifts of money from your parents? Or the only reason one of you can't contribute is that she's a spendthrift? To equitably apportion your folks' expenses, you need to put everything on the table. More

Do recessions ruin friendships? That's the premise of an interesting, if rather depressing, post by Emily Bazelon on the XX Blog. Class differences can wreak havoc on relationships even in good times, she notes, in all sorts of subtle and not-so subtle ways: Inviting someone to dinner at a fancy restaurant can be tricky if you don't know whether he or she can afford it. (You may recall the movie Friends With Money, starring Jennifer Aniston as the friend without.)

"We often sidestep relationships in which spending habits don’t match up exactly," Bazelon writes, "to spare ourselves feelings of inadequacy or insensitivity, those awkward breaches that make intimacy feel like work."

But recession — and its concomitant layoffs, pay freezes and general economic disquietude — can upset even these carefully-calibrated relationships. When one friend loses a job, she notes, "the sudden uneven footing isn’t easy to negotiate." Quoting from numerous — sometimes sad, sometimes bitter — emails she got on the subject from her readers, Bazelon sketches out the "collateral damage" the recession has inflicted upon relationships.

One reader moved into her parents' house to help them pay the mortgage after her dad's salary was cut; her friends back where she used to live blame her for the new distance (literally) in their relationships. Another reader lamented the loss of “the accidental friendships of proximity" she'd had at her former job, which she lost in the spring.

Of course, such friends are practically the dictionary definition of "fair-weather friends." Unfortunately, as I think Bazelon's article makes pretty clear, virtually everyone has casual friends who fit into that category; it's just that in good times we have the luxury of pretending that they're something more.

Even worse, Bazelon notes. the hard times are straining even the closest of friendships: It's hard to find things to talk about when one person's life is a mess and the other's is going swimmingly.

If all this has made you feel broke and lonely, I'd recommend you not read this blog post about a study finding that those with the most friends at school ended up making the most money as adults, with each "extra friend" adding an extra 2% in salary.

Has the recession put a strain on your friendships?

When Archie and Edith sang "mister, we could use a man like Herbert Hoover again" at the start of every episode of All in the Family, it was supposed to be a joke: no one but a reactionary old coot would feel actual nostalgia for the president who turned a stock market crash into the Great Depression.

But these days, there are a lot of politicians who are singing that same old song, though thankfully not literally — Edith's voice was bad enough. In the wake of the biggest financial mess since the Depression, John McCain and other Republicans on the Hill are calling for a spending freeze; a new coalition of conservative Democrats are talking balanced budgets, and South Carolina Gov. Mark Sanford says he want to use stimulus money not to stimulate, but to pay down debt, thus defeating the whole point of the stimulus in the first place.

So what rationale do these neo-Hooverians give for rejecting the stimulus? They claim that the New Deal "didn't work" back then, and that it won't work now, and (showing considerable imagination, if nothing else) they argue that Hoover failed not because he stood pat but because he was a secret New Dealer before the New Deal was even a gleam in Roosevelt's eye. Behind these odd notions lies an odd book: Amity Shlaes "The Forgotten Man: A New History of the Great Depression.

Bad ideas like these deserve a good debunker, and we've got one in the form of The New Republic's Jonathan Chait. In a long but rewarding review essay, Chait takes apart the curious arguments of the neo-Hooverians-who-won't-even-admit-they're-Hooverians-in-the-first-place.

At the most basic level, he points out, they confuse what's good for an individual's budget with what's good for society: "When people worry about losing their jobs, they sensibly cut back on their spending. But that decision, in turn, reduces demand for goods and services, which results in reduced income or lost jobs for other workers. Keynes called this phenomenon 'the paradox of thrift': what makes sense for individuals turns into a disaster for society as a whole."

In such a situation — the situation we were in back in 1932, and the situation we're in now — with everyone from big corporations to bankers to journalists sitting on their wallets, the only entity that can spend enough to bring back demand is the government. The main problem with the New Deal wasn't that it went too far; it was that it didn't go far enough. While the New Deal did stimulate the economy, it was war spending that finally pulled the country out of the Depression for good. As for Hoover's alleged New Dealishness, please: while Hoover launched a few programs that superficially resembled Roosevelt's later ventures, they were poorly funded and in reality did very little.

Those who misremember history are condemned to repeat it.

– David Futrelle

by JEANNE FLEMING, PH.D. and LEONARD SCHWARZ

Question: Dennis and I were hoping to retire this summer, but with the stock market slide, we now have to continue working. Until we replenish our nest egg, we’d like to cut back on giving to the local food bank, but we fear it will fold if we don’t make our annual, substantial gift. What should we do?

Answer: Tough times mean tough decisions. But this one, though unpleasant, is easy: Your first obligation is to put your own financial house in order. As deserving as the food bank is, you are no longer in a position to give them a large donation if your savings have shrunk to the point that you need to postpone your retirement. Charitable giving is an important part of the social contract, but – to paraphrase Justice Goldberg — the social contract is not a suicide pact.

What you should do, though, is tell the folks who run the food bank that they won’t be able to count on you for an anchor donation this year, and tell them now. They need as much time as possible to find replacement funds and/or to figure out how best to cut back their services.

You may find that the food bank staff isn’t that surprised to learn you’re downsizing this year’s check. The world of worthy causes has not failed to take note of what’s happening in the economy, and we assure you that belt-tightening is as much a theme of their conferences, journals and board meetings as it is a topic of your – and many other families’ – kitchen table conversations.

Questions? Email Money Magazine’s ethicists – authors of “Isn’t It Their Turn to Pick Up the Check?” (Free Press) – at FlemingandSchwarz@right-thing.net.