Not more than a few weeks ago, there were skeptics who weren’t sure that this “Cash for Clunkers” program would work. But I’m happy to report that it has succeeded well beyond our expectations and all expectations, and we’re already seeing a dramatic increase in showroom traffic at local car dealers.

Republicans, unsurprisingly, are upset. Arizona representative Jeff Flake complained that the government is picking “winners.” Well, sorry Jeff, but your party lost the election, Michigan has 15.2 percent unemployment and the U.S. government has invested billions in Chrysler and GM. If you are striving, a la Keynes, to juice demand by getting consumers to open up their wallets, why not encourage them to spend on products that will help out the nation’s most depressed region, thus dovetailing with other government support of the auto industry? That just seems smart.

Environmentalists are unhappy, however, because the original guidelines for the program were so watered down that it’s all too possible to buy a new car that has only marginal fuel economy improvements over the old clunker. People are buying new Ford trucks to replace their old ones, instead of Priuses in exchange for Hummers. Or so we hear from anecdotal reports — we don’t have good data yet on the breakdown of the new purchases, which has led to some Senators declaring that they won’t vote to authorize funding unless the environmental rules are tightened, or there is evidence that the program is working as planned.

As Senator Claire McCaskill, D-Mo. tweeted this morning:

Want to study & read what House passed yesterday.We’ll not consider in Senate till next week.Also want details of how program is working.C4C

The most hilarious aspect of this are right-wing attempts to depict Cash for Clunkers as an unmitigated failure that should be a case lesson in why we don’t want the government running health care. Instapundit is exhibit A: Glenn Reynolds cherrypicks a few paragraphs detailing some technical problems implementing the program from a Minneapolis-St. Paul StarTribune article that mostly documents how popular Cash for Clunkers is, in the service of a clumsy partisan attack.

“Producers can’t catch a break under this Administration,” concludes Reynolds, in a mind-boggling display of blind obstinacy. The problems “producers” — in this case, car dealerships — are having are a direct result of the success of the program. There’s so much demand, that government is having a hard time processing reimburses of the $4500 credit that goes towards the purchase of a new car. The “producers” are also worried that because demand has already sucked down the initial $1 billion of funding provided, they might be left holding the bag for cars that consumers have already bought, if the program closes down abruptly.

Congress is not going to let that happen. Even if Cash for Clunkers is providing only marginal environmental benefits, it is clearly exerting a stimulative effect on the economy, automakers, and, eventually, recession-hammered Midwestern states. That’s a winning trifecta for the Obama administration. I would be shocked if the Senate doesn’t fall into line with the House.

UPDATE: FreeExchange begs to differ, calling Cash for Clunkers a waste and a “policy blunder.”

And that’s probably a good thing. For reasons that only became clear in retrospect, HTWW wandered a long way from its early day obsessions, when I was looking for connections between all kinds of disparate phenomena and attempting to weave them into one reasonably coherent narrative. But one thing led to another. My background in China studies encouraged me to keep a close eye on the economic relationship between China and the U.S. When I realized during the housing boom that that relationship could basically be described as Americans pulling cash out of their homes to buy stuff from China, I started wondering what would happen to the global economy if there was a housing bust. And not too long after I started worrying about the state of the U.S. housing market, it started to crash. Right place, right time, I guess.

When the economy became the big story of the 2008 presidential campaign, Washington politics and economic policy became my beat, and I’ve never been able to get away since. How the World Works eventually became How Washington Doesn’t Work.

Was the experiment a success? I’d give it a mixed grade. Traffic grew steadily throughout the blog’s tenure (and peaked, actually, during the recent debt ceiling nuttiness), but there are definite limitations to how deeply you can report or think or how much you can craft your prose when you are attempting to post three times or more per day. When I was learning new things, the pace was fine — invigorating, even — but when I found myself simply reacting to news events with insta-analysis, and repeating myself over and over again, it became considerably less satisfying.

I’m sure I’ll still be doing plenty of quick response items, however — the Internet rewards a good rant, delivered in a timely fashion, and I do like getting my dander up. But nonetheless, it’s time for a reboot! How the World Works is done.

The statement released by the Federal Open Market Committee was the most downbeat of the entire year to date. After months of telling us that the slowdown was caused by temporary factors that would ameliorate before the end of the year, the Fed was forced to acknowledge that there are “significant downside risks to the economic outlook.”

So the Fed took action, and while the steps it unveiled were more aggressive than most people expected, and certainly constituted a rebuke to GOP congressional leaders who were telling it not to do anything, the strategy isn’t going to be enough to make a significant difference. That’s a downer: When you acknowledge seriously deteriorating conditions but take insufficient action to address them, you inject more fear into the markets.

So what exactly did the Fed do? What is Operation Twist?

There are two key elements.

First, the Fed announced that, over the next nine months, it would sell $400 billion worth of short-term government securities and buy $400 billion worth of long-term government securities. This doesn’t change the overall Fed balance sheet, so it can’t be caricatured as “printing money.” But what it does do is change the average length of duration of the securities that the Fed is holding.

And that, in turn, means that there will be fewer long-term securities available on the open market for other investors to buy. Scarcity will increase demand, and in consequence, the yields on those bonds — the interest rates that the U.S. government has to offer to attract buyers — will fall. This will effectively lower borrowing costs throughout the entire country. And theoretically, that should stimulate economic activity.

Second, the Fed announced that it would reinvest the cash from expiring mortgage-backed securities into new mortgage-backed securities. This represents a reversal of the Fed’s previous strategy, which was to allow its huge portfolio of mortgage-backed securities to gradually shrink. The result of this reversal should be downward pressure on mortgage interest rates, which would, again theoretically, result in an upsurge in refinancing and a boost to the housing market.

Economists generally agree that these moves will have some impact. The problem is that they just don’t expect it to be very large. Borrowing costs are already very low, but gunshy banks just aren’t willing to make loans, no matter how cheap the cost of capital. The main problem afflicting the U.S. economy is a massive shortfall of demand, and tinkering at the margins with interest rates isn’t going to change much. As Paul Krugman pithily put it, the Fed’s action is like “using a water pistol to stop a charging rhino.”

However, the fact that the Fed felt compelled to make these moves, even after receiving a letter from the Republican congressional leadership demanding that it take no “extraordinary interventions” in the economy, and in the context of Republican presidential candidates declaring that such intervention is “treason,” is all the proof we need that the U.S. economy is in trouble.

What the Fed announced yesterday is hardly “treason,” by any sane interpretation. One could even argue that it doesn’t measure up to the level of “extraordinary.”

But it’s also not enough to cure what ails us, and that’s why markets are plummeting.

Facebook also added a “Ticker” at the top right hand side of the page, which provided a real-time Twitter-like stream of status updates from all my friends. When I first checked it, it was packed with complaints about the new interface change. Judging solely from comments from my friends, people don’t want Facebook deciding what’s most important, Facebook’s suggestions were wrong, irrelevant and insulting, and why oh why oh why can’t Facebook leave a good thing alone?

Oh, and people hate change. And, goddammit, they’re switching to Google+ (which conveniently opened its doors to the general public today), or Twitter, or giving up on the Internet altogether.

When you disgruntle nearly a billion people, it becomes fairly big news, right away: The biggest tech news sites were on the story in nanoseconds. Moments after I encountered the interface change, TechCrunch was offering the almost instantaneously obsolete “How to Go Back to the Previous Facebook Interface (While You Still Can)” while Gizmodo ambitiously promised Everything You Need to Know About the New Facebook Update.

Experienced users of Facebook nearly collapsed from the overwhelming déjà vu. More than any other consumer-facing company, Facebook routinely makes fairly major tweaks to its user interface in ways that surprise and discomfit and piss off its users. But so far, at least, the users always get over it. The pattern is set in stone. First there’s a big uproar, then a flurry of suggested workarounds that will either revert the changes back to the idyllic past or otherwise nullify the most outrageous new abuses of our sensibilities. Some of these workarounds work, and some don’t. Occasionally Facebook rolls back some particularly egregious privacy violation. But usually, the uproar soon subsides. We return to our gossip, snark and embarrassing family photos. And Facebook continues its inexorable growth.

We don’t ultimately leave for a very simple reason: The golden fetters of the network effect. We’re locked in by the comprehensiveness of the Facebook universe. We might look longingly at Google+, but is that where the birth of a friend’s new baby will get announced? Is that where your sister will post the picture of the lewd nun?

The dynamic is beyond irritating: The fact that Facebook user complaints never amount to anything much probably emboldens Facebook in its behavior.

But amid all of our grumbling, we should probably be paying closer attention. Because Facebook is clearly up to something. On the one hand, it seems like Facebook is intent on imitating or co-opting everything its competitors are up to. The recent introduction of Friends Lists and the Subscribe button enable far more granular control of what you see in your News feed (and what your friends see from you). That seems like a clear response to Google+. The Ticker, as already mentioned, reeks of Twitter.

And there’s clearly more of the same (that is to say, constant discombobulating change) coming down the pike. The trade press is rife with rumors of even more significant changes to Facebook that could be rolled out as soon as Thursday at Facebook’s f8 developer conference. Details are sketchy, but the gist seems to be that Facebook wants to become the place where you consume and purchase all kinds of media — music, video, et cetera.

And that may offer a hint as to what Facebook is trying to achieve with its emphasis on deciding for you what you see when you log in. If Top Stories are determined by popularity — how many comments or “likes” they get from your friends, how much they’re shared — then anything viral will quickly move up the rankings. Facebook, in effect, will be broadcasting those Top Stories to you. If the goal is to encourage on-site e-commerce, prominently flaunting what users are excited about might be one way to achieve that.

I’m sure we’ll all be annoyed when these changes arrive. And at some point, maybe we’ll be so annoyed that we really do leave. Nothing lasts forever on the Internet — the social media universe is littered with the corpses of once-mighty networks that failed to innovate or evolve as fast as new competitors.

Which, of course, is another reason why Facebook can never stand still. To survive, it must annoy.

My first reaction to that title was a semi-serious, Wait, why is that an either-or question? Can’t they do both? It is something of a stretch to question whether Google is “serving consumers.” Google’s success is built on the bedrock of giving consumers exactly what they want, better and faster than anyone else. And for free! That’s a pretty good deal, and I and millions of others are happy to take advantage of it multiple times a day. I personally made my peace long ago with the fact that Google knows an uncomfortably large amount of information about how I live my life via the combined power of Gmail, Search, Google Reader, Google+ and other services. My bottom line? The price — zero — is right.

In the past, the fact that Google has refrained from digging its pound of flesh — à la Microsoft — out of my hide has encouraged me to take a skeptical stance about the merits of Google antitrust enforcement. Back in the good old days of the epic antitrust showdown between the Clinton Justice Department and Microsoft, my feelings were different, even though, superficially, the circumstances seem pretty similar. In the ’90s, a hugely profitable tech company was obviously leveraging its control over the PC operating system to crush competitors and promote its own products. Today, a hugely profitable tech company is suspected of leveraging its dominant share of the search market to do exactly the same thing.

But we would all do well to recall that after President Bush took office, the Justice Department dropped its suit. Microsoft ended up losing its unrivaled supremacy over the tech ecology, not through the pressure of regulators, but because competitors like Apple made better products and upstarts like Google took advantage of the opportunities presented by the Internet to grab consumer attention. It’s tough to stay at the top in the age of the Internet. Remember Friendster? MySpace? Google is obviously self-serving when it notes, in its perhaps overly defensive Guide to the Senate Judiciary Hearing, that users “can switch with just one click,” but that doesn’t mean it isn’t true. Facebook, alone, is a bigger threat to Google every single day than any single company posed to Microsoft in its heyday.

Nonetheless, constant scrutiny and pressure from regulators is not out of place. The online search marketplace is continuing to evolve quickly, providing new opportunities for mischief. To take just one recent example, just two days before Schmidt’s testimony, Google announced a new product: Google Wallet. It will be interesting to see whether any senators quiz Schmidt on the provocative implications of this newest offering. Because if you think it through, nothing Google has done recently makes it easier to understand how Google can use its power over search to steer consumer behavior.

Google Wallet is the latest entry in a market space crowded with big financial institutions, tiny start-ups and great technological ferment. The goal is to make it easy to use your phone to pay for products at the retail establishment of your choice. No more labored effort swiping a plastic card. Just click — and cha-ching.

Google Wallet won’t be an instantaneous 800-pound gorilla. The service will only be available on the Sprint Nexus S and a limited number of retailers. But even if it might seem ridiculous to think that what the modern capitalist world needs right now is a way to make purchasing stuff even easier, there is still good reason to assume that sooner or later most smartphones will offer mobile payment services. Consumers might not crave the option — but advertisers and search providers certainly do.

SearchEngineLand’s Greg Sterling theorizes that mobile payment systems open up the possibility of creating a “closed loop” that stretches from online-intent-to-buy to advertisement to offline-purchase. That’s kind of a big deal.

Here’s how it could work. Suppose you are wandering San Francisco’s Chinatown looking for a Buddha pendant. You pull out your Android smartphone and enter “Buddha pendant” in the Google query box. Your GPS-enabled phone knows exactly where you are, and Google Maps pops up with a list of nearby retail establishments that offer more Buddhas than you can shake a joss stick at. Even better, a text ad appears at the top of your screen offering you a discount if you purchase your Buddha at the Buddhas-R-Us around the corner. A couple minutes later, you are waving your Google Wallet at a barcoded Avalokiteshvara and clicking the cha-ching button.

As a consumer, I might find this experience pretty neat. As an advertiser, I’d be extraordinarily happy with the ability to exquisitely judge the impact of targeted ads on offline consumer activity. But the potential for trouble is also obviously great. Whose ads get served and what retail outlets get promoted? What if the best selection of cheap Buddha pendants is at some tiny outlet that doesn’t steer any advertising dollars to Google at all?

The integration of Google-owned services into Google search results has clearly hurt some competitors of Google. Google Maps offers a terrific example. When Google started including a Google Maps thumbnail at the top of its search results for relevant queries, Yahoo’s MapQuest service saw its traffic crash. MapQuest is now a has-been.

The story is complicated by the fact that, in my view, at least, Google Maps was a far superior product to MapQuest. So I was delighted when Google started integrating Google Maps into its search results. It made my life better, even as it made Yahoo’s worse. Consumers were served and competitors were threatened.

But the closer the lines get drawn between search-advertisement-and-purchase, the more opportunities there will be for crossing the line inappropriately. There are enough blemishes on Google’s record to make any unthinking trust in its “Don’t Be Evil” mantra more than a little unwise. Will it serve me if Yelp and Kayak and Shopzilla all go the way of MapQuest, unable to compete with Google’s dominance over mobile search? Probably not. 

Break up Google? Not necessary, yet. But watch ‘em like a hawk? Absolutely.

She shakes her head as if in disbelief at how short-sighted the American political establishment has become. Her point is obvious, and oft-repeated during the course of our interview: In a globalized world, the U.S. economy will not thrive unless we get serious about targeting strategically important sectors of the economy. The rest of the world is playing the economic development game for keeps, while the U.S. seems willing to abandon the board all together.

“We operate as though we are not in a global economy,” says Granholm. “In theory, free markets and laissez faire make perfect sense, but in practice, our competitors are eating us for lunch.”

Granholm should know. As governor of Michigan from 2002 to 2010, she presided over a state that can lay as good a claim as any to the unhappy title “Most Beaten Up by Globalization.” In her new book, “A Governor’s Story: The Fight for Jobs and America’s Economic Future,” a sprightly political memoir co-written with her husband, Dan Mulhern, she tells a foreboding story of constant crisis and economic disaster. Hardly a day goes by, it seems, without another company announcing it is moving its operations to Mexico or China or some other country where the labor is cheap and the government stands ready to help. No matter how hard she works, Granholm finds herself more or less powerless to resist the changing tide.

Michigan never really recovered from the 2001-02 recession, says Granholm, who is currently spending a year teaching at the U.C. Berkeley School of Law while regrouping from her travails. Governor of Michigan was a tough gig, a job that gives her a lot of “empathy” for what President Obama is currently going through at the federal level. As unemployment steadily ticked up through the 2000s, state tax revenues correspondingly fell, a victim of the economy and a staggered set of tax cuts bequeathed to her by her predecessor. Every year of her tenure brought with it another huge budget fight with a Republican-dominated state Legislature. The result: Government shrank even as the state’s economic circumstances worsened. Finally, the Great Recession slammed in, pushing the auto industry to the brink of complete destruction and forcing the unemployment rate up to a miserable 14.1 percent by August 2009.

It’s a grim story, but Granholm does her best to conclude her narrative on a hopeful note. After the 2008 presidential election, reinforcements arrived. The Obama administration saved the auto industry and the stimulus package resulted in at least a dozen new high-technology, green-energy-related start-ups; lithium-ion battery factories sprouted up in Michigan like bamboo shoots after a spring rain.

Michigan’s unemployment rate proceeded to fall “six times faster” than the national average, boasts Granholm. Without the federal help, she believes Michigan’s unemployment would currently be over 20 percent.

There’s a lesson there, she is convinced: Activist government can make a difference:

“I want my experience at Michigan,” she says, “to be the empirical evidence of what works and what doesn’t work.”

Granholm sports the easy confidence and bonhomie of a practiced politician, joking about how nice it is to relax in jeans and tennis shoes, and interspersing her comments with a barking laugh and sardonic “whatever’s.” But even for the most skilled politician, making the case that Michigan’s example is a model for the rest of the nation is more than a little strained. Michigan’s unemployment rate is still 11.2 percent, the third highest of any state in the country, and it’s been ticking up for four straight months. After Granholm was forced out of the governor’s office by term limits in 2010, a Republican landslide increased GOP state legislative majorities and brought in a conservative governor.

Nationally speaking, the general public appears to view further stimulus with skepticism and Republicans have already declared the president’s new jobs plan dead on arrival. Less than two years removed from aggressive government intervention in the Michigan economy, Granholm’s prescription for more of the same on a nationwide level already seems a non-starter. In fact, I tell the governor that after covering how the political process and economic policy have intersected in the U.S. over the last five years, I am increasingly convinced that our political system simply isn’t capable of smart, sustained industrial policy. China pulls it off because it’s a one-party, essentially totalitarian state. But if we’ve learned anything about the U.S. over the last five years, it’s that Congress is effectively incapable of efficient government.

“Well, then, we will just continue to lose jobs,” says Granholm. “An unemployment rate of 10 percent and higher will be a norm for us.”

One of Granholm’s critical points is that states simply don’t have the resources to compete against other countries. What they end up doing is simply stealing jobs from each other — a zero-sum game for the nation as a whole in which everyone races to the bottom trying to create favorable investment climates. Even worse, while American workers will inevitably have to accept lower salaries and benefits in a globalized world, the U.S. will never be able to offer a labor supply that comes as cheaply as what’s available on the global market. The best bet, Granholm is convinced, is to leverage American skills in targeted sectors that make strategic sense.

But what about the Rick Perry prescription, I ask the governor. Low taxes, small government, low regulation and weak unions? Texas created a lot of jobs in the last 10 years, while Michigan was hemorrhaging. Given that reality, how can Granholm make the case that she has the best answer for how to boost job creation?

Granholm leans her head back and laughs. “That’s just bull!” she explodes, unable to restrain her mirth. Michigan’s experiment with tax cuts and smaller government was a resounding failure, she declares.

“I listed the bill numbers of all the tax cuts I signed as governor in the book for a reason. Ninety-nine of them! Big ones, small ones, targeted — whatever! If you think that small government and tax cuts are the way you are going to grow the economy, Michigan’s unemployment rate should be the lowest in the country, because I cut more than any state in the nation by far! We also cut more government employees than any state in the country. Our corporate tax burden dropped the greatest of any state in the country.”

“Rick Perry, interestingly enough, took all of his stimulus money and invested it and grew the public sector in Texas. Texas’ public sector actually grew the most during the past decade and Michigan’s got cut the most during the past decade. And Texas has the best job creation and Michigan had the worst. What does that tell you?”

Voters are unhappy, she concedes, because unemployment is high. But the best way to address their unhappiness, she believes, is to do exactly what President Obama is doing “right now.”

“He is going to the people and he is providing them with a contrast. His effort to get compromise has not worked with this crop of Republicans, but this current Jobs Act has elements that Republicans themselves have proposed. When citizens see that Congress is not willing to support even those solutions that they have previously signed off on or endorsed then he will be able to make the contrast very clear.”

Granholm sees a potential parallel to her own reelection in 2006, when unemployment was rising and Michigan voters were convinced that the state’s economy was on the wrong track. She faced a rich businessman, Dick DeVos, who styled himself as a turnaround specialist — much like Mitt Romney, “only richer.” But after Granholm succeeded in drawing a stark contrast between herself and DeVos, she ended up winning by 14 points.

I observe that Granholm appears to be assuming Romney will be the nominee. What about Rick Perry, currently on top of almost every poll?

Eyes sparkling, Granholm rubs her hands with gusto, imitating herself imitating the Chinese official so gleeful at America’s failure to target renewable energy. “From your mouth to god’s ears,” she says.

“Obviously I am biased,” she says, “but Perry is just so far out of the mainstream in terms of Michigan and the industrial Midwest. I don’t see how that works.”