Archive for the ‘The Economy Stupid’ Category

The Rich Get Richer, The Poor Get Poorer

Thursday, December 2nd, 2010

There’s some astounding stats here.

If you want to skip the whole “Republicans want to give permanent tax cuts to the rich without paying for them, but cry poor about extending unemployment to people out of work” argument, just skip to minute 6.

So much for trickle down economics.

Amazing that Democrats don’t talk about this more.

Cartoon Characters Explain Quantitative Easing

Tuesday, November 30th, 2010

A Republican sparring partner sent me this recently.

It’s riddled with incorrect info, but pretty damn funny.

Just to correct some things, let’s remember that the country would be in the midst of a Great Depression without the intervention of Ben Bernake and the Fed. Also, the rampant inflation that the Republicans predicted two years ago hasn’t manifested. Whether it will as a result of this latest Fed injection of capital into the economy is an open question, but anyone who reads the latest economic projections from the Fed and sees how permanently gridlocked the Congress is, can understand why they feel this is necessary.

Thet being said, the take on the crony capitalism that runs this country is spot on. As I told my friend, the only thing that would have made this more spot on is if the cartoon character ended by saying  

“and the American people just voted in the people that spent the last 2 years filibustering to keep this status quo?”

 Allright, enough of my BS.

Watch the cartoon, laugh, cry, or make your own.

The Death of Keynesianism?

Saturday, November 13th, 2010

Here’s Peter Beinart’s Post Election piece. Aside from the contentious bit about “American Exceptionalism,” (which is a separate topic worth returning to later),  the larger issue is where the economy has been and where we go from here. Beinart argues that the biggest casualty of this election is not Democrats, but Keynesianism, the economic theory that argues that when the economy is in recession, the government needs to pump money into the system in order to pick up the slack. While Keynesianism holds that the most effective way to do this is through government spending, temporary tax cuts are also considered stimulative. The idea here is that during times of recession, the private sector stops investing so even if the government lowers taxes, the additional income is likely to be saved or used to pay off debts, not invested into the economy.

Ironically, the discrediting of Keynesianism comes at a time when we have just seen its success. As much as the stimulus was maligned by the Republicans, independent experts such as John McCain’s top economic advisor have argued that it was an integral part of the successful government efforts to avert a Great Depression 2.0. Mark Zandy writes in a report earlier this year that without the massive government intervention by the Treasury Department, Congress and the Federal Reserve (AKA–Lower Interest Rates, TARP and the Stimulus–AKA everything the Tea Party was against), GDP in 2010 would have been 11.5% lower, there would have been 8.5 million less jobs and the country would have been experiencing deflation. While much of this change can be attributed to TARP and the Fed’s actions, Zandy estimates that in 2010 GDP is 3.5% higher, unemployment is 1.5% lower and there are 2.7 million more people employed due to the stimulus.

I’m not arguing that the stimulus was perfect, that there wasn’t waste, or that it couldn’t have been more effective if it was designed differently, but I am arguing that it was effective and that the Republican alternative of just tax cuts and monetary policy would have created the same giant deficit, and produced less economic growth, because despite the lowest US tax rates in 50 years, no one was creating jobs or expanding their busineses in 2009 and interest rates were already at close to zero.

Why Obama wasn’t waving this report around on the campaign trail is a mystery to me, but it is difficult to base a campaign on:  ”you think things are bad now, just think of how bad they would have been…” Also, while government intervention did prevent a Great Depression, job creation has stalled this year as private industry (which is actually doing quite well) has been content to sit on large cash reserves instead of hiring new employees or expanding their businesses.

It has become an article of faith among Republicans that Health Care Reform, Financial Reform and the prospect of capping carbon emissions has created a climate of uncertainty that has decreased investment. This argument probably has some merit, but I think it’s overblown. You can complain about a 2000 page Health Care Bill, but health care costs increased over 100% in the last decade. The heath care status quo was inherently uncertain and remains so. Similarly, we could have quibbles over how much regulation of the financial industry is necessary, but again, anyone who watched as Wall Street crashed this economy should have trouble arguing that reforming the banking industry wasn’t needed. In fact, it’s clear that Obama, Geithner and the Banking Committees in Congress engaged in a deliberate strategy of minimizing the impact of financial regulation on the existing system (yet another eggregious example of how much special interest control our government).  

A good case can be made that, while the stimulus and other government intervention succeeded in creating a floor for the economy, the current stall in the recovery highlights the fact that there should have been more incentives for private sector hiring. In retrospect, the stimulus should have included tax cuts that were specifially targeted to job creation, like a payroll tax, instead of the $500-$1000 tax cuts that were given to 98% of Americans. Those tax cuts fulfilled an Obama campaign promise, but probably did little to stimulate the economy.    

Republicans, for their part, were either incapable of telling the difference between short term stimulus and long term deficit spending, or they did a great job pretending that they couldn’t tell the difference (I honestly am not sure which). For their obstructionism and unwillingness to help rescue the economy in any way, they reaped the rewards in this election. Democrats also played right into their hands, by not making any credible moves to cut the deficit in the long term, and in fact, using Medicare cuts that should have been used to balance the budget, to fund Health Care Reform.

Just to give a sense of the hole we find ourselves in, here is a report on the jobs created in October. This number was a positive surprise, since 150,000 jobs created in the month was higher than expected and it comes on the heels of 4 months of net job loss (due to lost government jobs), but the increase was not enough to move the unemployment rate. The article points out that

even if the economy suddenly expands and starts adding 208,000 jobs a month — as it did in its best year this decade — it would still take 12 years to close the gap between the growing number of American workers and the total available jobs.

So Beinart’s frustration is not misplaced. Despite the money that was spent on the stimulus, our infrastructure is still in major need of upgrade and a targeted effort to invest in American infrastructure could stimulate significant private sector job growth.  As China and India industrialize and reorient their economy for the 21st Century with investments in green technology, our infrastructure is crumbling and our politicians are so immobilized by partisan politics that they can’t agree on a plan to decrease our dependence on foreign energy, despite the fact that everyone knows how important this is for the country. 

Republican control of the 2/5 of the Senate has stopped this kind of investment in America and the midterm election results make them even less likely. We have officially entered an era of retrenchment, where the question is not how should we stimulate the economy, but how should we balance the budget. While the economic pain continues for the country, all options to stimulate the economy (including tax cuts) have effectively been taken off the table. In the coming weeks, Democrats and Republicans will argue about whether to keep the Bush Tax Cuts or let them expire. But even this debate is only about whether to take the foot off the pedal, not a new strategy for how to accelerate.

But don’t worry Republicans. now that your guys are calling shots in Congress, I’m sure that the Democrats will give Boehner and the Republicans as long as they gave Obama to start creating jobs.

How does next week sound?

Hypocrites vs. Cowards on Taxes

Sunday, October 3rd, 2010

I’ve been wanting to write about the Democrats punting on tax cuts ever since it became clear that this was the plan, but haven’t had time.

Here’s a nice little piece from Rex Nutting on the issue.

The roots of this issue go back to the early Bush Administration when the Republicans were working on their tax plans. Congressional Republicans (for parliamentary reasons as well as to hide the disastrous long term effects of their tax cutting spree) setup the tax cuts to expire after 2010. As a result, in 2011, taxes will increase to the levels they were during the Clinton Administration for all income brackets, on capital gains and on dividends. The estate tax will also revert to Clinton levels along with a number of additional smaller changes.

In typical fashion, the Republicans are in favor of extending all Bush tax cuts forever, but offer no plan to pay for those tax cuts. These are the same people who have been complaining incessantly about the deficit for 2 years (they apparently discovered it as soon as a Democrat was elected president), but they have no plan to cut it and, in fact, they are insistent that $3 trillion be added to it in the form of tax cuts. 

Meanwhile, the Democrats have a slightly less irresponsible plan, which is that the tax cuts should be extended for 98% of the people, but allowed to expire for the top 2-3%. They’re out there campaigning on the fact that they’re opposed to the additional $700 million and hoping the American people ignore the approximately $2.5 trillion that they’re in favor of adding.

I’ve talked about this issue in detail here. Basically, my take on the tax cuts is that they should be allowed to expire for all income levels because we just can’t afford them as a country. We have a $9-$10 trillion deficit on the books for the next ten years and these tax cuts represent $3-$4 trillion of this. The defcit is one of the biggest and most intractable issues in American politics and in one action (in fact one inaction) $3 trillion could be wiped off of that deficit. At the same time, as I’ve been arguing for some time, the economy still needs stimulus in the short term and I’d be okay with extending all of the tax cuts for two years and then letting them all expire. This is the optimal compromise and has been endorsed by experts like Obama’s former OMB Director Peter Orzag.

Th Republicans’ budget gimmickry allowed the Democrats to craft a great political plan around the tax cuts. Since all tax cuts would expire in 2011, the plan was to allow only the middle class tax cuts come to a vote. It was assumed that the Republicans would filibuster this attempt, effectively holding 98% of Americans’ tax cuts hostage to the top 2% (which some 60-75% of Americans oppose) and giving the Democrats a clear contrast and a great issue to run on.

This looked good until the Senate Democrats met two weeks ago and found that (surprise!) their caucus was divided on the issue. They decided to punt the vote on taxes into the lame-duck session. 

It’s really unbelievable. Somehow, faced with a multitude of options, the Democrats managed to do the wrong thing for their party as well as for the country.

I’m as partisan as the next guy (perhaps more so) and I would love to have an issue to bash the Republicans over the head with,  but more importantly I want to do what is right for the country and for the economy. Whether you think that decreases in tax rates are stimulative or not, the reality is that we’re nearing the end of the year and individuals and businesses are setting their business plans for next year. After two years of debate and legislation over changes to health care,  financial regulation, energy, etc it’s time for some certainty: certainty over what the rules are and certainty over what the tax rates will be.  

The bigger picture here is that we elect leaders to lead and they should do that, not wait for the results of the election and then tell us what they think. The Democrats held large majorities in the House and Senate and the Presidency for 2 years. Saying that they ran out of time or that they don’t want to vote on raising taxes because the Republicans will attack them on it is ridiculous, cowardly and irresponsible. The Republicans are going to attack on taxes no matter what. Democrats: whether you’re giving out tax breaks to 98% of people or just extending all tax cuts for everyone, let us know where you stand. Give people a reason to vote for you. Take tough votes and then defend them.

Don’t act so cowardly. I’ll be voting for you because I’d rather have the cowards than the hypocrites, but I can’t speak for everyone else. This year, you might want to consider giving the other people a reason to vote for you, not just against the other side.

What a Recession Looks Like

Thursday, September 2nd, 2010


It’s Way Too Early To Write This President Off

Tuesday, August 17th, 2010

The Republicans have been positively giddy about President Obama’s falling poll numbers and probably every week and half my conservative uncle sends me a screed about how Obama is a failed president and America has irreversibly lost faith in him. This week it was this Op-ed from a columnist for Britian’s Telegraph.

We’ve been hearing this from the Right since a few months after Obama took office and it always reminds me of the parallels to the early 80′s when the shoe was on the other foot: the previous president had presided over a terrible economic time that the opposition party would end up using against him and his party for decades to come and a foreign policy that included some high profile blunders that shook Americans’ image of themselves.  Against this backdrop, a historic president took power with strong approval ratings, gave the country new hope and inspiration and successfully began the process of reorienting the country in a sharp departure from the previous president’s policies.

However, in the second year of his presidency the economy was slow to recover, the country began to lose faith in the president and voters seemed poised to hand his party a major defeat in the midterm elections. In polling, the president was ranked lower than his Democratic rivals for the presidency and the opposition increasingly saw him as a failed president. Desperate to stave off an embarrassing showing in the midterms, the president hit the campaign trail to explain that it was the previous president’s fault, while the opposition party shook their heads and asked how long the president was going to try to avoid responsibility for the state of the economy. 

The president, of course, was Ronald Reagan, who eventually cruised to a 19% point victory over Walter Mondale in an Electoral College landslide where he won all states with the exception of Mondale’s home state of Minnesota and the District of Columbia.

Last week, while reading Steve Kornacki’s post about the parallels (and futility) of Obama blaming Bush and Reagan blaming Jimmy Carter in order to stave off defeat in the midterms, I stumbled across a good thread that sheds even more light on the parallels. As Kornacki noted at the beginning of this year, in October 1982 the unemployment rate was 10.4 percent–and rising, 2.9 points higher than when Reagan took office. Currently, the unemployment rate is at 9.5 percent, a rise of 2.3 points from when Obama took office.

He quotes the LA Times’ analysis of their November 1982 poll:

The survey, published in the paper’s Saturday edition, found a large number of moderate Democrats who supported Reagan in 1980 are turning against him because they are losing faith in his economic program and oppose his cuts in social programs. The poll found that if a presidential election were held today between Reagan and Democratic Vice President Walter Mondale, Mondale would win by six percentage points.

…The survey found 58 percent of those interviewed believe the economy is in “bad” shape, with 20 percent terming the situation a “major depression.” By a 2-1 ratio, those polled said they feel they are worse off personally because of Reagan’s economic policies.

In fact, looking at graphs of Obama and Reagan’s approval ratings for their first two years is like looking at a mirror image.

To be sure, the situation isn’t completely analogous. As many have pointed out, corporations are actually doing quite well in this economy and by some estimates are sitting on a pile of cash as big as $1.8 billion, but hiring has lagged. While some have pointed to the perception in the business community that Obama is “anti-business,” Ezra Klein points out that economic downturns that include financial crises have historically taken longer to recover from than those that don’t and that this problem is not so much the regulatory environment, but what he calls “the catch-22 of the recovery: businesses will start hiring when the economy recovers. And the economy will start to recover when businesses start hiring.”  Matthew Iglesias also points out the tougher row that Obama has to hoe based on economists’ growth projections. I would add to this the fact that the ability to run long term structural deficits that stimulate the economy is no longer an option given the pile of debt that the Reagan and Bush II era’s left us. 

The point of all this is not to make a prediction of how much economic growth we will have in two years, or where the unemployment rate will be at that time, but only to point out that it is too early to write the President off and all of the Republican fulminating about how Americans now see that President Obama is “a failure,” is overblown. 

As a smart man once said, “It’s the Economy, Stupid.” If jobs come back, the decisions that Obama made to insure an additional 30 million people, to work with Bernake to stop the bleeding on jobs and return us back to economic growth,  to make the largest investments in clean energy in our nation’s history with the stimulus plan, to save the American auto industry, to continue to stabilize the banking industry by adding Geithner’s “stress tests” to George Bush’s bank bailout, to pass the most wide ranging financial reform to mitigate the possibility of another financial crash imperiling the economy… all of these issues will be seen as important steps in our economic recovery and the total lack of Republican help on any of those efforts will be held against them. On the other hand, if jobs don’t come back, then all of those things will be used by Republicans to explain why they didn’t…and we may be looking at President Romney in 2012 (Of course, if the Republican’s are dumb enough to nominate Palin or Newt Gingrich all bets are off).

The point is that there’s a lot of water that’ll pass under that bridge before this president can be called a “failed president.” As I noted previously, a Republican takeover of the House could turn out to be the best thing that ever happens to Obama, as it would allow Obama to tack back to the center, both parties would be forced to take responsibility for the tough decisions that lie ahead and there would be a shared sense of blame that comes with the new Republican responsibility.

In the meantime, Republicans will no doubt continue to twist the facts to make Obama’s falling poll numbers fit their preexisting narrative. More discerning people will know that Obama’s presidency is not going to turn on whether he “believes in American exceptionalism,” whether he bowed to the Japanese Prime Minister, whether he wants to let Muslims have the same religious freedom under our Constitution that Christians have or whether almost half of the Republican party is too ignorant to know that he was born in the United States. It’s pretty simple. If the economy recovers and the country feels safe, the president will be in good shape in 2012. If not, then he won’t.   

Again, no predictions yet, but the Republicans might want to hold off on popping any champagne corks over the failure of Obama (and thus the country). One thing I can say with confidence is that two years is an eternity in politics and the last chapters of this book are not even close to being written.

Tax Cuts Do Not Pay For Themselves

Saturday, August 14th, 2010

With the Bush tax cuts about to expire and Democrats planning to make the argument over extending Bush tax cuts for the rich a key to their positioning for the November elections, there has been an increased focus on the effects of all of Bush’s tax cuts.

In defending the extentions the Republicans have backed themselves into a bit of a rhetorical corner. Specifically, they just spent two years complaining incessantly about the $9 trillion dollar deficit that Obama has somehow created in just two years (as if they were asleep during the previous 8 years) and now they are proposing to continue the tax policies that have significantly contributed to those deficits. In an attempt to justify this irresponsible policy, a number of Republicans have fallen back on the familiar supply-side argument from the Reagan years that “tax cuts pay for themselves.”

In addition to this general statement, I have also heard from some Republicans recently that “there was no revenue problem” during the Bush years and that if spending hadn’t increased at the time, Bush would have been able to balance the budget. While that may be technically true, it fundamentally ignores the fact that the Bush tax cuts tacked on an additional trillion and a half to a budget that was aleady bloated by recession and two wars (wars that almost all Republicans supported).

A few minutes of Google research was enough to dispel the fantasy that tax cuts pay for themselves. Studies by both the liberal Center on Budget and Policy Priorities and the free market Heritage Foundation have both pegged the cost of the Bush tax cuts at close to $1.7 trillion over a ten year period. Even the most conservative estimates of the stimulative power of the tax cuts assume that they would have created a 25% increase in tax revenues during that period, making the cost of those tax cuts at least $1.3 trillion (if not more).

Going forward, the cost of extending the Bush tax cuts for all income brackets is estimated at $3 trillion over 10 years.

So now Republicans–who complained seemingly non-stop for two years about how Obama had created trillion dollar deficits–are in the position of running for office on a plan to keep all the Bush tax cuts in place, but not providing any plan to offset the estimated $3 trillion revenue loss.

This dichotomy was on display pretty dramatically on Meet the Press last Sunday. The week before David Gregory had Alan Greenspan on and had asked the former Fed Chairman if he favored extending the Bush tax cuts. “I’m very much in favor of tax cuts but not with borrowed money” he said, “and the problem that we have gotten into in recent years is spending programs with borrowed money, tax cuts with borrowed money; and at the end of the day that proves disastrous.”

Gregory probed more: “you don’t agree with Republican leaders who say tax cuts pay for themselves?”

“They do not,” replied Greenspan. 

When Boehner was on last Sunday, Gregory played Greenspan’s clip from the week before and asked him how he could be concerned about the deficit, but at the same time in favor of extending the Bush tax cuts indefinitely.

“Do tax cuts pay for themselves?” Gregory asked.

Boehner was evasive, but Gregory kept at him until he burst out that Gregory wanted to “get into this Washington game…and their funny accounting over there.” 

Nice try Boehner, but this isn’t a Washington game, and it’s not a trick question to ask if you have a plan to pay for the $3 trillion in tax cuts that you are proposing, especially if you just spent the past two years blaming Obama and Pelosi for the deficit.

We just finished a long debate over the health care reform bill and the Republicans’ main argument was that we couldn’t afford to move toward universal health care and that they didn’t like (or believe in)  the way it was financed. That’s fair enough, I didn’t like how it was financed either, but it was financed, which is more than we can say about extending the Bush tax cuts, or the Medicare prescription drug benefit that the Republicans passed under Bush.

We are closing out 30 years of history in which the Republicans have consistently said that they would cut government, but when push came to shove, just cut taxes and let government increase in size. Does anyone think that we should just trust these guys to do the right thing this time?…and more importantly, if anyone does believe that they have a plan to balance the budget, don’t we deserve to know what that plan would look like?

As I’ve said before, I think that there are good arguments to maintain low taxes for the next couple of years to stimulate the economy (I would rather see the income tax cuts be replaced by a short-term payroll tax holiday), but we are facing a $9 trillion deficit over the next ten years and neither party seems serious about the changes that will need to be made. Canceling  the tax cuts would slash that deficit by one third overnight and make the job of deficit reduction significantly less daunting.

Americans need to understand that hard choices (on both benefits and taxes) need to be made, and we should have a debate that illuminates this reality. The politicians are doing what they always do. Obama promised not to raise taxes on the middle class, so he’s in favor of extending the tax cuts for everyone but the top 2%. Republicans like low taxes more than they hate deficits, so they’re in favor of adding on another $700 billion over 10 years for the top 2% (while they filibuster jobless benefits because “we can’t afford them”). Both sides complain about deficits, but both sides are also in a mad dash to stuff the budget full of their individual priorities before they have to start negotiating on what programs to cut and what revenues to raise.

The country deserves a debate on bigger issues instead of a narrow debate along the partisan lines that the parties have layed out. We deserve a rare outbreak of candor from our politicians. 

This may be to much to ask right now, but dispensing with the canard that “tax cuts pay for themselves” is a good start.

Sunday’s Talking Heads on Economy

Monday, August 2nd, 2010

Lazy Sunday, so I caught a lot of talking heads.

Very good discussions about the economy in general and the slow recovery specifically.

Fareed Zakaria, as he often does, proposed a great fiscal plan that has no chance of happening: let all the Bush tax cuts expire, but provide additional stimulus (such as extended unemployment and aid to states) in the short term  to make up for the loss of income. This will cut over $300 billion off of the yearly structural deficit right away. Unlike tax cuts (much of which will be saved by beneficiaries and won’t go back into the economy), aid to states and unemployment is money that is virtually guaranteed to go back into the economy.

Under this plan, tax rates would then go back to Clinton era levels when tax burdens were so onerous that we had the strongest growth in 3 decades and the budget was balanced.  Of course, since the Republicans have consistently filibustered any additional deficit spending and Democrats won’t repeal the middle class tax cuts, this is nice to discuss, but it isn’t going to happen.

Meet the Press had a great discussion of the economy with Michael Bloomberg, Ed Rendell and Alan Greenspan.

I am particularly struck by this “Wall Street and big business hate the Obama Administration” argument. It came up on both Meet the Press and on GPS  and the language with which they discussed it was particularly dramatic. Alan Greenspan said that he’d “never seen anything like it” and Chrystia Freeland said that many people on Wall Street regularly speak with “venom” and have a “feeling of betrayal” towards Obama.

This is a strange dichotomy.  On the one hand, the American people (myself included) feel like Obama and the Congress have been in hock to Wall Street, the banks, and big corporations, and want(ed) him to be tougher on them. On the other hand, many in the business community feel picked on and, despite higher earnings and about $1.8 trillion in the bank, aren’t  using that extra money to hire new employees.

This is a big topic and I’ll have more comments in the future, but just wanted to put it out for discussion while it’s timely.

Comments welcome as always…