Obama as "big spender" is right-wing fantasy

Paul Krugman debunks "the claim that Obama has presided over a vast expansion of government — a claim backed not by describing any specific programs, but by pointing to the share of federal spending in GDP."  As Krugman shows, an alleged huge growth of government spending under Obama is nothing more than the inevitable result of a serious, lingering depressed economy in which increasing numbers of citizens are forced into safety-net programs and GDP growth has plummeted:

Indeed, federal spending rose from 19.6% of GDP in 2007 to 23.8% in 2010 (it was briefly 25 in 2009, but that was a number distorted by the financial bailouts). So there has been a roughly 4 points of GDP rise in the spending share. What’s that about?

Well, part of the answer is that the ratio is up because the denominator is down. According to CBO estimates, in fiscal 2010 the economy operated about 7 percent below potential. This means that even if what the government was doing hadn’t changed, the federal spending share of GDP would have risen by 1.4 percentage points.

Then, look inside the budget data (pdf), specifically at Table E-10. You’ll see a surge in spending on “income security”; that’s basically unemployment insurance, food stamps, and similar items. In other words, spending on safety-net programs is up because the economy is depressed, and more people are falling into the safety net.

WCBBD?

"What Could Ben Bernanke Do?"

"I can't blame Occupy Wall St..."

UC Berkeley economist Brad DeLong puts himself in Ben Bernanke's shoes and comes up with a Fed strategy to...uh, maybe...help pull the country out of a deep ditch. Given that the Federal Reserve has autonomous power,  monetary policy is still feasible in the near term while every other path is "gridlocked" by dysfunctional and/or corrupted politics. Wonky but worthwhile suggestive commentary on a crucial piece of the economic puzzle:

(T)he Federal Reserve might be able to spark a real economic recovery by…

1. Announcing that it is going to keep short-term Treasury interest rates low not just as long as the economy is depressed but even afterwards when the economy has recovered and when it would normally be raising interest rates: that it is going to keep short-term Treasury interest rates low until it generates an inflationary boom, and that you had better start building capacity now to serve your customers during that inflationary boom or your competitors will do so and take your profits.

2. Not just announcing but actually bailing-in the taxpayers of the United States of America as the risk-bearing partners of American financial institutions: with the taxpayers as their risk-bearings partners, financial institutions that were previously tapped-out on their risk-bearing capacity will now have the ability and the incentive to make more loans at more attractive terms to more potentially-expanding businesses.

The perils of "too big to fail"

 Simon Johnson - former chief economist for the International Monetary Fund -  at NYTs "Economix" on the implications and perils of "too big to fail."  (One question as food for thought - if, as Johnson notes, banks are financed mostly by debt rather than equity, why are these institutions so beholden to stockholders, who aren't putting up much stake in the project relative to their ability to profit and the unprecedented "security" of their limited investment because of "too big to fail" ?):

In an interview with The New York Times in July, Sheila Bair, the departing chairwoman of the Federal Deposit Insurance Corporation, said of her experience over the last few years: “They would say, ‘You have to do this, or the system will go down.’ If I heard that once, I heard it a thousand times.”

No responsible official wants the entire financial system to crash; this would be incredibly disruptive to all Americans and potentially lead to a worldwide depression. Knowing this, many people who want bailouts on generous terms use “contagion fear” as part of their sales pitch.

How are we to know if a particular event, like deciding not to bail out a big bank, will lead to contagion that spreads to other financial markets? Contagion is the key issue.

"We are the 99.9%"

Paul Krugman suggests that the 99% "Big Tent" is actually a bit too small. It's the .1% - yes,  the one-tenth of one-percent, - who are the truly serious  malefactors in our contemporary economy and greatest beneficiaries in the income-inequality story. So, apparently,  we have extreme income inequality even at the upper end of extreme income inequality. Krugman's not exactly pulling out the violin to play a lament for the lower 90% of the top 1%, but his point amplifies the general case regarding what's happened in our economy:   

"(T)he 99 percent slogan aims too low. A large fraction of the top 1 percent’s gains have actually gone to an even smaller group, the top 0.1 percent — the richest one-thousandth of the population...

(W)ho are the 0.1 percent? Very few of them are Steve Jobs-type innovators; most of them are corporate bigwigs and financial wheeler-dealers. One recent analysis found that 43 percent of the super-elite are executives at nonfinancial companies, 18 percent are in finance and another 12 percent are lawyers or in real estate. And these are not, to put it mildly, professions in which there is a clear relationship between someone’s income and his economic contribution.

Executive pay, which has skyrocketed over the past generation, is famously set by boards of directors appointed by the very people whose pay they determine; poorly performing C.E.O.’s still get lavish paychecks, and even failed and fired executives often receive millions as they go out the door.

Meanwhile, the economic crisis showed that much of the apparent value created by modern finance was a mirage. As the Bank of England’s director for financial stability recently put it, seemingly high returns before the crisis simply reflected increased risk-taking — risk that was mostly borne not by the wheeler-dealers themselves but either by naïve investors or by taxpayers, who ended up holding the bag when it all went wrong. And as he waspishly noted, “If risk-making were a value-adding activity, Russian roulette players would contribute disproportionately to global welfare.”

Read the whole piece HERE at NYT.

The curse of long-term unemployment

Michael Hirsh on "the left-behinds":

In recent months, Federal Reserve Board Chairman Ben Bernanke and President Obama have sounded increasingly urgent alarms about the staggering number of long-term unemployed. And they are right to do so: 42.4 percent of the nation’s 13.9 million unemployed workers have been out of a job for more than six months.

That’s by far the highest share of long-term unemployed since the government started keeping records a half-century ago. Expert after expert now warns that the longer a person goes jobless, the greater the atrophy in skills and ambition, and the more likely that person is to drop out of the workforce entirely.

What Bernanke and others rarely mention, though, is that this trend has been building for at least three decades. The share of left-behinds has generally ratcheted up with every economic downturn since the early 1980s. And today, even two years after the Great Recession technically ended in June 2009, the number of long-term jobless has continued to climb to record levels. It shot up from 29.3 percent of total unemployed workers in June 2009 and peaked at 44.6 percent as recently as September.

Washington, dominated by a free-market consensus ever since President Reagan’s era, has ignored that 30-year pattern. Partly as a result, reams of data show that America’s middle class has been shrinking.

Among the few who has long second-guessed the Washington mind-set is Frank Levy, an economist at the Massachusetts Institute of Technology who coauthored a much-cited 2007 paper concluding that labor began losing the fight to capital in the late 1970s.

“I’m not sure how much better we could have done in preserving the middle class,” he says. “But I know that, with a few exceptions like the earned income tax credit, we didn’t really try.”

Read Hirsch's complete piece at The National Journal on the roots and growth of long-term unemployment, a curse which has hollowed out the country's middle-class.

The State of The Union: Insanely Intransigent Republicans, Too-Eager-to-Compromise Democrats and Repetitively Moronic Journalists

Dean Baker at Center for Economic and Policy Research - "Super Committee Democrats Insist on Not Giving Republicans Everything":

In much of the media it is the rule that both parties are equally to blame regardless of what the facts of the situation are. Hence the lead sentence in the (Washington) Post's article on the supercommittee's deadlock tells readers:

"Congressional negotiators made a yet another push Friday to carve $1.2 trillion in savings from the federal debt, but remained stuck in their entrenched positions on tax policy even as the clock was running down on their efforts to reach a deal."

It would be interesting to know how the Post decided that the Democrats have an entrenched position. They have offered dozens of plans, many of which would not involve having the rates return to their pre-Bush level, as is specified in current law. By contrast, the Republicans have consistently put forward proposals that would keep the taxes on the wealthy at their current level or lower them further.

Even though the Democrats have shown every willingness to cave, the Post refuses to give them credit for it.

"An Economic Bill of Rights"

Excerpt from President Franklin Delano Roosevelt's January 11, 1944 message to the Congress of the United States on the State of the Union:

It is our duty now to begin to lay the plans and determine the strategy for the winning of a lasting peace and the establishment of an American standard of living higher than ever before known. We cannot be content, no matter how high that general standard of living may be, if some fraction of our people—whether it be one-third or one-fifth or one-tenth—is ill-fed, ill-clothed, ill-housed, and insecure. This Republic had its beginning, and grew to its present strength, under the protection of certain inalienable political rights—among them the right of free speech, free press, free worship, trial by jury, freedom from unreasonable searches and seizures. They were our rights to life and liberty.

"Failure is good"

Krugman debunks the Super-Committee:

It’s a bird! It’s a plane! It’s a complete turkey! It’s the supercommittee!

By next Wednesday, the so-called supercommittee, a bipartisan group of legislators, is supposed to reach an agreement on how to reduce future deficits. Barring an evil miracle — I’ll explain the evil part later — the committee will fail to meet that deadline.

If this news surprises you, you haven’t been paying attention. If it depresses you, cheer up: In this case, failure is good.

Budget Challenge

This is a new "budget challenge" from Pew Charitable Trust that allows you to adjust the various potential spending and revenue factors and come up with your own one-person "SuperCommittee" solution.  I have not played with this version yet, but found a similiar calculator from the New York Times revealed that these issues are not as insoluble as various "serious people" and politicians would have you think.  A lot of the discourse is thinly veiled ideology. Check it out HERE.

Newt gives "shameless" a bad name

Timothy Egan at New York Times documents the stench:

"I am now a famous person. I represent real power.”

As a young graduate student pursuing an advanced degree in modern European history, Newt Gingrich wrote a dissertation titled “Belgian Education Policy in the Congo: 1945-1960.” Thereafter, in the course of writing 23 books, the scholar-politician pontificated on many subjects, from the pope to a “pouting sex kitten,” who appears for a quick romp in a novel about the Civil War.

None of his work had anything to do with the home lending practices that would help to destroy the American economy. So why would Freddie Mac pay $300,000 to Professor Gingrich in 2006 – just as the troubled mortgage lender was facing calls on Capitol Hill for increased regulation?

Turns out, that was just small change in the overall sweetheart deal that no historian but Gingrich could ever get. Bloomberg News reported this week that Gingrich made between $1.6 million and $1.8 million for giving additional “advice” to Freddie Mac. When I asked about the amount, a Freddie Mac spokesman refused to comment, but officials at the agency who are familiar with the contracts confirmed the numbers reported by Bloomberg.

This is not just another Gingrich laugher, up there with his revolving Tiffany’s account or his multiple personal hypocrisies. This story encapsulates why Washington is broken and how the powerful protect and enrich themselves, unanchored to basic principles.

YOU CANNOT EVICT AN IDEA WHOSE TIME HAS COME

Via ThinkProgress

The safety net amidst the Great Recession

[Via CBPP & Economist´s View]

Wonkblog on the Eurocrisis

This doesn't explain the Eurocrisis, but it helps explain areas of potential impact on the US economy - the worst of which, in the apparently still dense jungle of finance, seem still unknown.  Brad Plumer at Wonkblog:

With the crisis in Europe still raging, analysts are frantically trying to game out what a euro zone implosion would mean for the United States. Yesterday, the Federal Reserve Bank of San Francisco put out a research note pegging the odds of a U.S. economic contraction in early 2012 at “greater than 50%,” noting that a European sovereign debt default (Greece, say) would very likely plunge us into recession.

Part of the reason for that is that Europe is one of our major trading partners — accounting for about one-fifth of U.S. exports. Over at Real Time Economics, Josh Mitchell put together a handy chart, using Wells Fargo data, showing which states export the most goods to Europe, and hence would get hit hardest by a Europe slump:


Utah’s gold exports, South Carolina’s auto exports, and West Virginia’s coal exports are potentially at greatest risk. The one sliver of good news is that, as Wells Fargo notes, most states have major trade flows primarily with countries like the United Kingdom, France, the Netherlands and Germany, rather than the most fragile countries like Greece and Italy and Spain. So it’s tough to say, exactly, how a slowdown overseas would play out here.

Meanwhile, the bigger, scarier unknown is whether financial mayhem in Europe could wreak havoc on U.S. banks.

Oldie but goodie

The New Yorker's James Suroweicki argues Republicans should go back to merely being corporate lapdogs and - at the least - abandon "The Crazy" because their extreme ideology is bad for business...HERE.

The Rove Slime Machine Targets Warren

Simon Johnson:

Karl Rove’s Crossroads GPS group has launched the first attack ad against Elizabeth Warren, presumably because she is now running hard for the Senate in Massachusetts.  This ad is not a big surprise, but the line that Mr. Rove takes could well backfire.

The ad states, “we need jobs, not radical theories and protests,” so we can break the argument down into three separate parts.

First, who destroyed more than 8 million jobs in the United States – and plunged us into the deepest and longest lasting recession since the 1930s?  Surely this was not Ms. Warren, who was just a law school professor, in the run-up to 2008.

Mr. Rove is opening the blame game and this is going to go badly for his presumed supporters – the largest banks on Wall Street that took excessive risks, paid their top people well, and then blew themselves up at great cost to the American taxpayer.  By all means, let us have a conversation about jobs and the history of job losses in the United States; “too big to fail” banks do not look good in this context.



Second, what exactly is the radical theory here?  Ms. Warren’s point has been that we regulate the safety of toasters but not financial products.  Basic consumer protection is, of course, still resisted strongly by the less reputable parts of the financial sector.  But honestly, what well-run and honest firm fears sensible product standards, which is exactly what the Consumer Financial Protection Bureau is working on establishing?

Oldie but goodie

The woes of the banks' CEOs, HERE.

OWS has changed the national conversation

 POLITICO:

Occupy Wall Street is winning


Whatever the objectives of protesters involved in Occupy Wall Street, they have succeeded in engaging the country in a conversation about income inequality.

A quick search of the news--including print articles, web stories and broadcast transcripts--via Nexis reveals a significant rise in the use of the term “income inequality,” from less than 91 instances in the week before the occupation started to almost 500 instances last week

What do teachers make?

A Corporate Plege of Allegiance?

From Robert Reich:

(I)f the Supreme Court and regressive Republicans insist big corporations are people and want to treat them as American citizens, then why not demand big corporations take a pledge of allegiance to the United States?

And if they don’t take the pledge, we should boycott them. (Occupiers — are you listening?)

Here’s what a Corporate Pledge of Allegiance might look like:

The Corporate Pledge of Allegiance to the United States

The [fill in blank] company pledges allegiance to the United States of America. To that end:

We pledge to create more jobs in the United States than we create outside the United States, either directly or in our foreign subsidiaries and subcontractors.

If we have to lay off American workers, we will give them severance payments equal to their weekly wage times the number of months they’ve worked for us.

We further pledge that no more than 20 percent of our total labor costs will be outsourced abroad.

We pledge to keep a lid on executive pay so no executive is paid more than 50 times the median pay of American workers. We define “pay” to include salary, bonuses, health benefits, pension benefits, deferred salary, stock options, and every other form of compensation.  

We pledge to pay at least 30 percent of money earned in the United States in taxes to the United States. We won’t shift our money to offshore tax havens and won’t use accounting gimmicks to fake how much we earn.

We pledge not to use our money to influence elections.

Companies that make the pledge are free to use it in their ads over the Christmas shopping season.

The impact of "Occupy Wall Street" on the labor movement

Steven Greenhouse at NYT:

Organized labor’s early flirtation with Occupy Wall Street is starting to get serious.

Union leaders, who were initially cautious in embracing the Occupy movement, have in recent weeks showered the protesters with help — tents, air mattresses, propane heaters and tons of food. The protesters, for their part, have joined in union marches and picket lines across the nation. About 100 protesters from Occupy Wall Street are expected to join a Teamsters picket line at the Sotheby’s auction house in Manhattan on Wednesday night to back the union in a bitter contract fight.

Labor unions, marveling at how the protesters have fired up the public on traditional labor issues like income inequality, are also starting to embrace some of the bold tactics and social media skills of the Occupy movement.