The Titanic sails at dawn - politics, economics & culture
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| "Congress won't work for the people!" |
Sometimes they become battles over the cultural and social anxieties that ordinary Americans suffer. Other times they are showdowns about middle-class anxieties when the free market fails. Normally, in the former sort of election, Republicans win. In the latter, Democrats do — as we saw in 2008, when the tide turned after John McCain said “the fundamentals of the economy are strong.
The President is sounding like a fighter these days. He even says he’ll be proposing a jobs bill in September – and if Republicans don’t go along he’ll fight for it through Election Day (or beyond)...
REPRESENTATIVE Michele Bachmann, a candidate for the Republican presidential nomination, is getting a lot of flack for this statement:
"The day that the president became president gasoline was $1.79 a gallon. Look at what it is today," she says on tape at an event in Greenville, S.C., as chronicled by Politico. "Under President Bachmann, you will see gasoline come down below $2 a gallon again. That will happen."How on earth could she accomplish this, the critics ask. Where will she find the new supply? But supply is only one half of the equation. Petrol plunged from above $4 a gallon in July of 2008 to below $2 a gallon in January of 2009 thanks to the impact of economic collapse on oil demand. Ms Bachmann, meanwhile, was a strong opponent of an increase in the debt ceiling. Failure to raise the debt ceiling would have produced an immediate cut in government spending of 44%, leading to a larger output decline than was observed in 2008. Personally, I have total confidence that Ms Bachmann can bring back cheap petroleum, one way or another.
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| Milton Friedman can kiss gun-totin' Guv's butt! |
What potential policy maneuver is a major presidential candidate calling "almost treasonous"? Is it a) going to war without explicit authorization from Congress, b) doing nothing about the 15 million unemployed even as their temporary joblessness hardens into a structural disadvantage, or c) purchasing long-term Treasury debt in order to push interest rates down?
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| Can't Democrats get out in front of this guy? |
There’s an article in today’s NYT on the economic debate within the White House. The print version—not the online one—contains this quote from an admin official:
“It would be political folly to make the argument that government spending equals jobs.”
While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.
(F)iscal stimulus can help a depressed economy recover — an idea supported by new studies of the 2009 stimulus package. Additional short-run tax cuts or increases in government investment would help deal with our unemployment crisis.
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| The Good Old Days! |
In a column in The Financial Times this week, Ken Rogoff, the Harvard economist, suggested central bankers consider “the option of trying to achieve some modest deleveraging through moderate inflation of, say, 4 to 6 percent for several years.”
Mr. Rogoff conceded that “any inflation above 2 percent may seem anathema to those who still remember the anti-inflation wars of the 1970s and 1980s.”...
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| Grover Norquist rules our world. |
Pre-crisis, America, and to a large extent the world economy, was sustained by a bubble. The breaking of the bubble has left a legacy of excess leverage and real estate. Consumption will therefore remain weak and austerity on both sides of the Atlantic now ensures the state will not fill the void. Given this, it is not surprising that companies are unwilling to invest – even those that can get access to capital…
You might have thought it obvious that the stock market would go down after S&P downgraded US government debt. The bad news about US debt made investors worry, and worried investors are usually less enthusiastic about holding stocks.
But there is something wrong with this view.
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| The GOP: flying on a wing-nut and a prayer. |
Amid all the debt hysteria, it’s worth taking a look at the actual arithmetic here — because what this arithmetic says is that the size of the deficit in the next year or two hardly matters for the US fiscal position — and in fact the size over the next decade is barely significant.
S&P has downgraded the U.S. because it doesn’t think we’re on track to reduce the nation’s debt enough to satisfy S&P — and we’re not doing it in a way S&P prefers.
Here’s what S&P said: “The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.” S&P also blames what it considers to be weakened “effectiveness, stability, and predictability” of U.S. policy making and political institutions.
Pardon me for asking, but who gave Standard & Poor’s the authority to tell America how much debt it has to shed, and how?
Source: BEAHow is this picture consistent with an economy and job market hovering at stall speed? A lot of these firms are able to sell into (and create jobs in) foreign, emerging markets, where growth has been reliably solid in recent years. Others have found ways to squeeze productivity gains out of their incumbent workforce, able to meet current levels of weak demand without adding workers.The only thing that will get these guys off of their piles of cash is a steady increase in domestic demand - and I don't see that coming soon without the government doing a major jump-start. An infrastructure bank that could begin to green-light immediate repairs and large-scale new initiatives - something that both the labor unions and the Chamber of Commerce have come to agree on - is the only politically feasible proposal in this direction I've seen to date.
It has been three decades since the United States suffered a recession that followed on the heels of the previous one. But it could be happening again. The unrelenting negative economic news of the past two weeks has painted a picture of a United States economy that fell further and recovered less than we had thought.On the heels of the Obama White House's former Council of Economic Advisors' head Larry Summers giving us a one-in-three chance of a double dip into another full recession, Business Week offers this bit of gloom from President Reagan's old CEA chief, along with worries of our current Fed chairman:
“This economy is really balanced on the edge,” Harvard University economist Martin Feldstein said in a Bloomberg TV interview on Aug. 2. “There’s now a 50 percent chance that we could slide into a new recession.” Even Federal Reserve Chairman Ben Bernanke has referred in speeches to the risk of an economic stall...Ezra Klein looks behind the Dow Jones drop, at the much more alarming weaknesses not just in our economy but in our politics - and an inability to conduct an even minimally informed public conversation on the problems we face:
... the Dow Jones isn’t diving because spending has risen, deficits have grown or stimulus policy has changed. It’s diving because of forces Washington can’t control, and in many cases, doesn’t understand very well. How many members of Congress do you think could give a coherent account of what has happened to oil or steel prices over the last three years? Or what’s happening in the Eurozone? Or to the yuan?
A dramatic gap has opened between the economy as Washington sees it -- and wants to intervene in it -- and the economy that actually exists.
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| Mitch: "A snapshot, not a cartoon." |
Relief. There will be no default; no economy-damaging short-run austerity; no attack on the nation’s core social protection programs or universal health care; and no repeat, for at least 15 months, of the recent shabby spectacle. All of this was in doubt just a few days ago. It is no small thing for the administration to have reached an agreement that does no immediate harm. And it may well be that no better agreement was achievable given the political dynamics in Congress.Emphasis added!!! Where does Summers think we can go from here?
Cynicism. Objective observers would forecast larger U.S. budget deficits in the out-years than would have been predicted a few months ago. The economic forecast has deteriorated, and it is reasonable to estimate that even a half-a-percent reduction in growth averaged over 10 years adds more than a trillion dollars to the national debt in 2021...
Economic anxiety. The issues pressing the United States today are much more about jobs and a growth deficit than an excessive budget deficit... On the current policy path, it would be surprising if growth were rapid enough to reduce unemployment even to 8.5 percent by the end of 2012. A substantial withdrawal of fiscal stimulus will occur when the payroll tax cuts expire at the end of the year. With growth at less than 1 percent in the first half of this year, the economy is effectively at a stall... The indicators suggest that the economy has at least a 1-in-3 chance of falling back into recession if nothing new is done to raise demand and spur growth.
In February 1982, Susan Sontag made a fierce challenge to a left-wing audience gathered at New York’s Town Hall:
Imagine, if you will, someone who read only the Reader’s Digest between 1950 and 1970, and someone in the same period who read only The Nation or The New Statesman. Which reader would have been better informed about the realities of Communism? The answer, I think, should give us pause. Can it be that our enemies were right?Posing that question won Sontag only boos from an audience that the New York Times described as “startled.” Yet the question has only gained power over the intervening years. It contributed to the rise of a healthier, more realistic left much less tempted to make excuses for “progressive” dictatorships than the left of the last generation. If Hugo Chavez has any defenders on the contemporary American left, I haven’t heard of them.
Think of Susan Sontag as you absorb the horrifying revised estimates of the collapse of 2008 from the Commerce Department. Two years ago, Commerce estimated the decline of the US economy at -0.5% in the third quarter of 2008 and -3.8% in the fourth quarter. It now puts the damage at -3.7% and -8.9%: Great Depression territory.
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America wakes up this morning with the specter of a self-inflicted national default behind us, at least until 2013, according to the deal announced last night.
That is unequivocally a good thing for our economy not to mention our national sanity. It’s a good thing in the same way that ceasing to bang yourself on the head with a hammer would be a good thing.
But really, what the h-e-double-hockey-sticks (sorry, I’ve got young kids) was that about??!!
If your conclusion is that Democrats got rolled because the President is a lousy negotiator, I disagree.
Not on his negotiating skills…as someone said in comments, I wouldn’t want him in the auto showroom with me when I’m bargaining for a better price. I disagree that better negotiating skills would have made a big difference. The problem goes much deeper.
If Obama wins reelection, he can refuse to extend any tax cuts on income over $250,000. That will prompt Republicans to refuse to extend tax cuts on any income under $250,000 (as they signaled last December, and in keeping with their longstanding priorities, which deem the middle class tax cuts mere sweetener to get the tax cuts for the rich they really want.) Then the tax cuts expire while Obama blames Republicans for holding the (popular) universal tax cuts hostage to the (unpopular) tax cuts that only benefit the rich.Assuming the economy has limped into some sort of recovery track by 2013, allowing an automatic default to Clinton-era tax rates would be the simplest path in returning to sane fiscal policy.
Last week brought the disconcerting news that the economy grew no faster than the population during the first six months of the year, in part because of spending cuts by state and local governments. Now the federal government is cutting, too.
“Unemployment will be higher than it would have been otherwise,” Mohamed El-Erian, chief executive of the bond investment firm Pimco, said Sunday on ABC. “Growth will be lower than it would be otherwise. And inequality will be worse than it would be otherwise.”
He added, “We have a very weak economy, so withdrawing more spending at this stage will make it even weaker.”
What Republicans have just gotten away with calls our whole system of government into question. After all, how can American democracy work if whichever party is most prepared to be ruthless, to threaten the nation’s economic security, gets to dictate policy? And the answer is, maybe it can’t.
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| A moment of great opportunity? |
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| Ridin' the Crazy Train! |
...Washington is currently consumed in an acrimonious debate over whether to raise the debt ceiling. There is no agreement about whether to do so or how, but both parties appear to accept the logic that the United States is suffering from an unacceptably high level of government debt and that further debt will doom the U.S. to generations of decline. Judging by polling data, large swaths of the country agree. Nonetheless, that consensus is wrong...
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| Where the hell is "Harvey"? |
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| Another fine Murdoch enterprise |
I used to write editorials for the Wall Street Journal myself, 20 years ago now.
So I’m well aware of the challenge faced by those assigned to compose these documents. The strict demands of the paper’s ideology do not always lie smoothly over the rocky outcroppings of reality. It can take considerable skill to match the two together.
“A review of the spending and tax data at the federal, state, and local level suggests that a significant part of the weakness in economic activity in 2011 so far is due to fiscal retrenchment. In the first quarter, the Commerce Department estimates that spending cuts at the federal, state, and local level subtracted 1.2 percentage points from the annualized pace of real GDP growth; moreover, the expiration of the “Making Work Pay” federal tax cut and hikes in state taxes probably offset most, if not all, of the boost to disposable income from the temporary payroll tax cut.
In the second quarter, the fiscal policy impact was probably smaller, but still negative. Indeed, monthly data on defense spending, state and local employment, and state and local construction all show a clear downward trend for 2011 so far.”Let's repeat that. According to Wall Street giant Goldman Sachs' research: "A review of the spending and tax data at the federal, state, and local level suggests that a significant part of the weakness in economic activity in 2011 so far is due to fiscal retrenchment."
Read the entire TPM piece by Thomas Lane HERE for a good, relatively brief backgrounder on our current political - and economic - quagmire.Whatever the outcome of Thursday's projected House vote on Speaker Boehner's debt plan, this process has already ended the political life of one prominent member of the Washington establishment: John Maynard Keynes.
Are reports of his death exaggerated?
True, Keynes died in 1946. But his ghost hovered over America's economic debate until pretty much Monday night. At that time, in their ostensibly dueling speeches, both President Obama and House Speaker Boehner embraced the language of "austerity" and performed an unwitting exorcism...
On Monday night even House Minority Leader Nancy Pelosi - for so long demonized by the right as the smiling face of big government - released a pro-austerity statement. That's a clear sign which way the wind is blowing.
(A new) report by the National Employment Law Project, a liberal research and advocacy group, found that while 60 percent of the jobs lost during the downturn were in midwage occupations, 73 percent of the jobs added since the recession ended had been in lower-wage occupations, like cashier, stocking clerk or food preparation worker.
According to the report, “The Good Jobs Deficit,” the number of jobs in midwage and high-wage occupations remains significantly below the prerecession peak, while the number of jobs in lower-wage occupations has climbed back close to its former peak.
Source: National Employment Law Project analysis of Current Population SurveyNet change in occupational employment during and after the Great Recession.
“During the Great Recession, employment losses occurred across the board, but were concentrated in midwage occupations,” the report said. “But in the weak recovery to date, employment growth has been concentrated in lower-wage occupations, with minimal growth in midwage occupations and net losses in higher-wage occupations.”And for those low wage workers, there's additional bad news:
For workers in lower-wage occupations, median wages fell 2.3 percent after inflation — partly because many of the newer workers hired had lower wages than others in that group. For workers in midwage occupations, wages slipped by 0.9 percent, while there was some good news for workers in higher-wage occupations — their wages rose by 0.9 percent.It looks like the carving out of the middle-class and the rise in income inequality continues apace...
Bloomberg, via New Deal 2.0House Speaker John Boehner often attacks the spendthrift ways of Washington.
“In Washington, more spending and more debt is business as usual,” the Republican leader from Ohio said in a televised address yesterday amid debate over the U.S. debt. “I’ve got news for Washington - those days are over.”
Yet the speaker, House Majority Leader Eric Cantor, House Budget Chairman Paul Ryan and Senate Minority Leader Mitch McConnell all voted for major drivers of the nation’s debt during the past decade: Wars in Afghanistan and Iraq, the 2001 and 2003 Bush tax cuts and Medicare prescription drug benefits. They also voted for the Troubled Asset Relief Program, or TARP, that rescued financial institutions and the auto industry.
Together, according to data compiled by Bloomberg News, these initiatives added $3.4 trillion to the nation’s accumulated debt and to its current annual budget deficit of $1.5 trillion.
"Titanic" offers Jon Stewart's recent "tax day" response to this bit of demagogic, right-wing nonsense that is a staple of the FOXoids (a false assertion that's doubly shocking dressed up in the cloak of "Christianity," which is rooted in the belief that privileges of the wealthy are, if anything, an impediment to their salvation and that "the least among you" are favored in the eyes of God):Yesterday famed "Christian" pastor Rick Warren, wealthy author and megachurch leader (considered one of the most influential evangelicals in the US), tweeted the following:
Jesus breaking up a Rick Warren book signing
HALF of America pays NO taxes. Zero. So they're happy for tax rates to be raised on the other half that DOES pay any taxes.After a firestorm ignited decrying this egregious mix of selfishness and ignorance, Mr. Warren deleted his tweet. But the screenshot is preserved for Internet eternity.
We now live in parallel universes.
For 37 years, the debt ceiling has provided an easy way for the party which isn’t in the White House to posture politically against the party which is in the White House. Even Barack Obama voted against raising it, once. Every one of the dozens of times the debt ceiling was reached, there was a small but non-zero probability that something disastrous would happen. And each time, disaster was, predictably, averted. It’s a classic sign of how tail risks are treacherous and breed invidious complacency…
And now we’re paying the price. It’s increasingly looking like the best-case scenario is that America simply loses its triple-A credit rating — something which in and of itself will be pointless, dangerous, unnecessarily expensive and potentially catastrophic. The worst-case scenario, of course, is an outright default.
The lion’s share of the blame here belongs with the Republicans in general, the House Republicans in particular, and the Tea Party caucus within the House Republicans most of all. But it’s not like these people’s existence or intransigence was any great secret. And so the White House tactics over the course of the past few months look dangerously naive…
Mathew Yglesias:
CBPP Analysis of John Boehner’s Plan: The Center on Budget and Policy Priorities concludes that if enacted, John Boehner’s debt ceiling plan “could well produce the greatest increase in poverty and hardship produced by any law in modern U.S. history.”
That sounds to me like something that would create strong incentives to not be poor and, indeed, to fully incentive richness. Consequently, we’ll have massive economic growth. Right?Think of all the old people who will be willing to do odd jobs, whatever, in order to pay for health care. No more free-riding from grandma and grandpa to slow the economy down.
(A)ccording to many reports, the president offered both means-testing of Medicare benefits and a rise in the age of Medicare eligibility. The first would be bad policy; the second would be terrible policy. And it would almost surely be terrible politics, too.
The crucial thing to remember, when we talk about Medicare, is that our goal isn’t, or at least shouldn’t be, defined in terms of some arbitrary number. Our goal should be, instead, to give Americans the health care they need at a price the country can afford. And throwing Americans in their mid-60s off Medicare moves us away from that goal, not toward it.
With President Obama and Republican leaders calling for cutting the budget by trillions over the next 10 years, it is worth asking how we got here — from healthy surpluses at the end of the Clinton era, and the promise of future surpluses, to nine straight years of deficits, including the $1.3 trillion shortfall in 2010. The answer is largely the Bush-era tax cuts, war spending in Iraq and Afghanistan, and recessions.
Despite what antigovernment conservatives say, non-defense discretionary spending on areas like foreign aid, education and food safety was not a driving factor in creating the deficits. In fact, such spending, accounting for only 15 percent of the budget, has been basically flat as a share of the economy for decades. Cutting it simply will not fill the deficit hole.
The very idea that Social Security might be on the chopping block in order to pay the ransom Republicans are demanding reveals both the cravenness of their demands and the callowness of the opposition to those demands.
In a former life I was a trustee of the Social Security trust fund. So let me set the record straight.
Social Security isn’t responsible for the federal deficit. Just the opposite. Until last year Social Security took in more payroll taxes than it paid out in benefits. It lent the surpluses to the rest of the government.
Now that Social Security has started to pay out more than it takes in, Social Security can simply collect what the rest of the government owes it. This will keep it fully solvent for the next 26 years.
But why should there even be a problem 26 years from now? Back in 1983, Alan Greenspan’s Social Security commission was supposed to have fixed the system for good – by gradually increasing payroll taxes and raising the retirement age. (Early boomers like me can start collecting full benefits at age 66; late boomers born after 1960 will have to wait until they’re 67.)
Greenspan’s commission must have failed to predict something. What?
(A)ccording to (an eye-opening report for the Council on Foreign Relations by Michael Spence, a Nobel laureate, and Sandile Hlatshwayo) close to 98 percent of the 27.3 million new jobs in the American economy in the last two decades were created in the nontradable sectors (those sectors whose output is not traded across international borders), led by government and health care in first and second place.
These two sectors alone accounted for 40 percent of the total job growth over the last two decades. They were followed by retailing and construction, both of which grew on the back of heavy debt financing and a real-estate bubble.
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| Trumpelicious |
(T)his administration is the greatest wet blanket to business, and progress and job creation in my lifetime. And I can prove it and I could spend the next 3 hours giving you examples of all of us in this market place that are frightened to death about all the new regulations, our healthcare costs escalate, regulations coming from left and right. A President that seems -- that keeps using that word redistribution. Well, my customers and the companies that provide the vitality for the hospitality and restaurant industry, in the United States of America, they are frightened of this administration… And those of us who have business opportunities and the capital to do it are going to sit in fear of the President… it's Obama that's responsible for this fear in America. The guy keeps making speeches about redistribution, and maybe we ought to do something to businesses that don't invest or holding too much money. We haven't heard that kind of talk except from pure socialists. Everybody's afraid of the government, and there's no need to soft peddling it, it's the truth. It is the truth.Wynn on the "delicious" worker's - and capitalist - paradise that is the People's Republic of China:
September will be our fifth anniversary in the People's Republic of China in Macau, and we love it there. We are so grateful to be part of that market and to be allowed to participate in that community. We find the political environment, the regulatory environment, the human resource environment that we're in to be absolutely delicious. Life is quite straightforward in China. The government is predictable. Our employees are eminently trainable. They're anxious to please.Obama's USA = a climate of "fear." PRC = "delicious" political and human resource environment. The guy is, not to put too fine a point on it, a complete idiot. Or something...
