The Titanic sails at dawn - politics, economics & culture
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.
