In what is undoubtedly good news, the US Bureau of Economic Analysis (Dept. of Commerce) has announced that REAL GDP grew by approximately 3.5% in the third quarter of 2009. That is up from the second quarter growth of .7%. It appears that the economy may be rebounding from the so-called “Great Recession”. However, as with everything, the devil is in the details and the details show that this occurred because of government support. This will be good news for those folks that supported the Stimulus Plan. Details underlying the growth still show that the private sector, however, has yet to pick up slack. This means the growth has not worked its way through the economy in a way that makes it firmly sustainable. The increase in Consumer spending seem rooted firmly in the cash-for-clunkers program as well as the tax credits to first time home buyers. These programs have ended so now we have to look for sustainable consumer spending in areas not financially supported by government programs.
Policy makers will now focus on whether the recovery, supported by federal assistance to the housing and auto industries, can be sustained into 2010 and generate jobs. The record $1.4 trillion budget deficit limits President Barack Obama’s options for more aid, while Federal Reserve officials try to convince investors that the central bank will exit emergency programs in time to prevent a pickup in inflation.
“A lot of this is thanks to government support,” Kathleen Stephansen, chief economist at Aladdin Capital Holdings LLC in Stamford, Connecticut, said in an interview on Bloomberg Television. “The consumer, in fact private demand in general, is not ready yet to pick up the growth baton from the government.”
There has yet to be any signs that improvements will be permanent. The Labor Market, traditionally sticky, has yet to turn around in a fundamentally good way.
A report from the Labor Department showed 530,000 workers filed claims for jobless benefits last week, more than anticipated and signaling the job market is slow to heal even as growth picks up.
There is an extremely good piece over at Naked Capitalism that explains the situation right now called “The choice is between increasing or decreasing aggregate demand” written by Edward Harrison of Credit Writedowns.
(It’s a bit wonky so be forwarned.)
As I see it, the issue we are debating has to do with how the government responds when large debts in the private sector constrain demand for credit in the face of a severe economic shock and fall in aggregate demand. In short, if private sector debt levels are so high that a recession precipitates private sector credit revulsion, how should government respond?
This is a good question as it gets to the heart of what to do next if you’re the government and it reflects reality on the ground which are the constraints facing the economy due to continuing credit market problems. The one thing that the discussion fails to address is the fact that quantitative easing by the Fed is not feeding into the credit markets as much as it appears to be feeding a bubble on Wall Street eagerly supported by the Great Vampire Squid and other enemies spawning in the unfathomable deep. The article focuses on the paradox of thrift and the question “Do we really want the private sector to save at the moment?”
The deal is, we’ve plenty of money circulating through the financial markets at the moment because of actions by the FOMC and of course, the Treasury. The problem is where it’s going. Easy money is financing merger activities and arbitrage rather than underlying investment that promotes long run economic growth. This is the same bubble-producing activity that brings us to no good ends. We really don’t need savings as much to fund business as much as we need business to feel like it can make commitments to job-producing, goods and servicing producing capital investments funded by the financial sector that should be forced to stop its casino banking activities. If anything, we need savers to step up and buy government debt, sort’ve an any bonds today movement to stop our reliance on foreign sources and free ourselves of obligations to human rights violators like the Chinese and Saudis.
There was ease in Casey’s manner as he stepped into his place;By Ernest Lawrence Thayer Taken From the San Francisco Examiner – June 3, 1888
There was pride in Casey’s bearing and a smile lit Casey’s face.
And when, responding to the cheers, he lightly doffed his hat,
No stranger in the crowd could doubt ’twas Casey at the bat.
Op-Ed Columnist Charles M. Blow actually went to the Great Louisiana football school of Grambling, so maybe I should’ve used a football metaphor, but mighty Casey seemed mighty apropos here. So many had so much hope in one person and as far as I could tell from the crowd at the old UNO basketball area on Thursday, many still do when it comes to our President. So many folks in love with one person as a symbol of so much. There was one elderly black woman wandering out side on a sidewalk sayin’ “We can go anywhere now! Anywhere we want!”
So, here’s a little taste of Charles Blow’s op-ed column from October 16th at the NY Times.
When, Mr. President? When will your deeds catch up to your words? The people who worked tirelessly to get you elected are getting tired of waiting. According to a Gallup poll released on Wednesday, Americans’ satisfaction with the way things are going in the country has hit a six-month low, and those decreases were led, in both percentage and percentage-point decreases, by Democrats and independents, not by Republicans.
The fierce urgency of now has melted into the maddening wait for whenever.
There is a list there, one we are all familiar with here at The Confluence of things that folks with a liberal bent to their disposition desire. Things promised and as of yet, undelivered no matter what apologies the apologists have provided.
Take health care reform. Because of the president’s quixotic quest for bipartisanship, he refused to take a firm stand in favor of the public option. In that wake, Democrats gutted the Baucus bill to win the graces of Olympia Snowe — a Republican senator from a state with half the population of Brooklyn, a senator who is defying the will of her own constituents. A poll conducted earlier this month found that 57 percent of Maine residents support the public option and only 37 percent oppose it.
Poll after poll show that people really want that public option. Just exactly who is the constituency that must be appeased by both Republicans like Senator Snow and the democratic leadership including President Obama? Who are we appeasing to go against the will of the majority?
Ah, but there’s more to list and more chances to ask that vital question WHEN?
On the same weekend that gay rights protesters marched past the White House, the president again said that his administration was “moving ahead on don’t ask don’t tell.” But when? This month? This year? This term?
Yup, wasn’t there the absolute promise to get rid of don’t ask don’t tell? Wasn’t there that firm commitment –at the very least of repealing DOMA–to civil unions, to full recognition of one’s human right to completely love, commit and protect another.
Oh, but there’s more, as Mr. Blow so brilliantly opines.
As we prepare to draw down troops from the disaster that was the war in Iraq, we may commit more troops to the quagmire that is the war in Afghanistan and the government may miss its deadline for closing the blight that is the prison at Guantánamo Bay, Cuba.
You would think, perhaps, he would end there, after all this is quite a list. But just as we’ve written thread after thread here, there is more on that list of broken promises.
Obama pledged to stem the tide of job losses and foreclosures and to reform the culture of the financial sector. Well, the Dow just hit 10,000 again while the national unemployment rate is about to hit 10 percent. And the firms we propped up are set to dole out record bonuses while home foreclosures have hit record highs. Main Street is still drowning in crisis while Wall Street is awash in Champagne. When will this imbalance be corrected?
And now we’re back again to my home town–New Orleans–and the promises made and broken here.
Candidate Obama pledged to make the rebuilding of New Orleans a priority, but President Obama whisked into the city on Thursday for a visit so brief that one Louisiana congressman dubbed it a “drive-through daiquiri summit.” The president spent more time on the failed Olympic bid in Copenhagen than he did in the Crescent City.
If I could deliver thunderous applause Mr. Blow, I would. Thank you for printing in the New York Times what is on the mind of so many of us around here. Symbols are nice but wins are much better!
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Any one who thinks the Democratic Party or the Democratic President represent the interests of the little guy in this country can’t be reading any newspapers. I’ve always thought that the Republican Party overly favored big business and was out to set up monopolies for all its cronies. It’s hard to believe anyone aligning themselves with liberal interests or even a real conservative could support the continuing infusion of cash, tax cuts, and legal breaks to industries that are squeezing the profits out of both workers and businesses that actually make something or do something. The middlemen are now running the country and snatching its wealth.
First, there’s this Politico Story where even the headline offends my sensibilities of justice and fairplay: Dem officials set stage for corporate-backed health care campaign. The President’s undisclosed meetings are reminding me more and more of the Dubya/Cheney years.
At a meeting last April with corporate lobbyists, aides to President Barack Obama and Sen. Max Baucus (D-Mont.) helped set in motion a multimillion-dollar advertising campaign, primarily financed by industry groups, that has played a key role in bolstering public support for health care reform.
The role Baucus’s chief of staff, Jon Selib, and deputy White House chief of staff Jim Messina played in launching the groups was part of a successful effort by Democrats to enlist traditional enemies of health care reform to their side. No quid pro quo was involved, they insist, as do the lobbyists themselves.
The result has been a somewhat unlikely alliance between an administration that came into power criticizing George W. Bush for his closeness to Big Business and groups such as the Pharmaceutical Research and Manufacturers of America and the American Medical Association.
The previously undisclosed meeting April 15 at the offices of the Democratic Senatorial Campaign Committee led to the creation of two groups — Americans for Stable Quality Care and a now-defunct predecessor group called Healthy Economy Now — that have spent tens of millions of dollars on TV advertising supporting health reform efforts.
No sooner had I read that then I went to WaPo and found this one: Bailed-Out Banks Raking In Big Profits.
The nation’s largest banks, preserved from failure by federal aid and romping in markets revived by federal aid, are racking up vast profits even as the broader economy struggles to emerge from recession.
While loan losses continue to mount, the banks are making it up on Wall Street, trading in stocks, bonds and other financial instruments, and collecting fees for services such as helping companies raise money.
Goldman Sachs and Citigroup reported third-quarter profits Thursday, joining J.P. Morgan Chase in outstripping the expectations of financial analysts and solidifying their places as among the banks that have benefited most from the government’s massive rescue of the financial industry.
Of course, I’ve been advocating for better control of the shadow banking system for as long as I can remember. These guys are now out in the day light and acting like the financial crisis never even happened. They’re in better market position than they have ever been and are now using it to sell portfolios back and forth to run up paper profits. Not only that, the so-called defenders of the little guy are not only doing nothing, they’re doing worse than nothing. HelenK brought my attention to this one from the NY Times: Bill Shields Most Banks From Review. Just when you thought their loanshark-like lending practices which contributed so heavily to the bad economy and so many job losses would be exposed, Barney the Congressman (not the Dinosaur) shows where his bread is buttered.
Bowing to political pressure from community bankers, the House Financial Services Committee approved an exemption on Thursday for more than 98 percent of the nation’s banks from oversight by a new agency created to protect consumers from abusive or deceptive credit cards, mortgages and other loans, The New York Times’s Stephen Labaton reported.
The carve-out in legislation overhauling the regulatory system would prevent the new consumer financial protection agency from conducting annual examinations of the lending practices at more than 8,000 of the nation’s 8,200 banks, leaving only the largest banks and other lenders subject to the agency’s examiners.
Earlier in the day, the committee completed its work on a different contentious provision of the legislation when, on a nearly straight party-line vote of 43 to 26, it approved tougher regulations over the derivatives market. That provision, too, contained exemptions for many businesses.
The exemption for the banks was endorsed by the chairman, Representative Barney Frank of Massachusetts, who saw it as necessary to win support for the overall bill from the committee’s moderate and conservative Democrats. Their support is particularly important because the Republicans are unified against the legislation.
How much longer can our national wealth and legislative process support people that basically do nothing for a living but act as cost inducing middle men in markets? Insurance companies and Investment bankers have very little value added. They just run up costs between the real customers and the real producers of the goods and services. Why are they being protected and why is their profit grabbing ability being enhanced by the democrats in Washington?
Just so you know where the real damage lies, take a look at the USA today headline: Wages tumble toward 18-year low.
Average weekly wages have fallen 1.4% this year for private-sector workers through September, after adjusting for inflation, to $616.11, a USA TODAY analysis of Bureau of Labor Statistics data found. If that trend holds, it will mark the biggest annual decline in real wages since 1991.
The bureau’s data cover 82% of private-sector workers but exclude managers and some higher-paid professionals.
“Wages are usually the last thing to deteriorate in a recession,” says economist Heidi Shierholz of the liberal Economic Policy Institute. “But it’s happening now, and wages are probably going to be held down for a long time.”
Insurance companies and financial middle men do nothing but stand between the consumer and the producer. They add tremendous levels of cost and confusion to those markets and have no gone from helping businesses manage risk to creating more of it. They are anomalies or so-called frictions in a market economy. We does our President and our Congress keep feeding the Sharks and the Vampire Squids?
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Bruce Bartlett has just released a new book–and a mea culpa of sorts– for supply side economics (SSE). As an ex-aide to the late Jack Kemp and author of a book on Reaganomics, Bartlett’s got an interesting perspective from having a seat near the table. He also takes a few undeserved potshots at some Keynesians that were slow to embrace a few ideas that later proved to be good ones. As an example, Bartlett mislabels the District’s discovery of the importance of monetarism as something that could be credited to supply-siders. Reaganuts frequently try to take credit for that even though credit should rightly go to President Jimmy Carter and his appointment of Fed Chair Paul Volker.
There’s also a bit of clinging to that magical marginal tax rate idea the Laffer curve which has been seriously debunked by empirics during the Reagan and Clinton years. However, I will give the Kemp-Roth tax bill–and hence, Bartlett and his Supply Side–credit for two positive policies. The first was a Keynsian style spending/tax fiscal policy during the last bad recession we had back in the 1980s. The other is the realization that it’s good to provide tax incentives for long term supply curve enhancement. This would be tax credits for re-capitalization for industry which should actually be more part of a national industrial plan, but I’ll just leave it at that. The other would be the idea of tax sheltering money for retirement. 401(k)s were a good innovation. The Clinton administration was also instrumental in sheltering long term savings from current taxes. These two things do help with long run economic growth and capital formation which are lofty and necessary goals.
However, for the little bit of good coming from SSE, also came a lot of bad. I found it interesting that in Bartlett’s piece today he reveals the bad with almost what appears to be relish. That is how most Republicans turned the idea that you can promote long term economic growth with some good, targeted tax policy into the mess that Dubya/Cheney wrought with the frightful combination of tax cuts are good for everything that ails you and deficits never matter as long as you spend the money on wars and enriching the military industrial complex.
During the George W. Bush years, however, I think SSE became distorted into something that is, frankly, nuts–the ideas that there is no economic problem that cannot be cured with more and bigger tax cuts, that all tax cuts are equally beneficial, and that all tax cuts raise revenue.
These incorrect ideas led to the enactment of many tax cuts that had no meaningful effect on economic performance. Many were just give-aways to favored Republican constituencies, little different, substantively, from government spending. What, after all, is the difference between a direct spending program and a refundable tax credit? Nothing, really, except that Republicans oppose the first because it represents Big Government while they support the latter because it is a “tax cut.”
I think these sorts of semantic differences cloud economic decisionmaking rather than contributing to it. As a consequence, we now have a tax code riddled with tax credits and other tax schemes of dubious merit, expiring provisions that never expire, and an income tax that fully exempts almost on half of tax filers from paying even a penny to support the general operations of the federal government.
The supply-siders are to a large extent responsible for this mess, myself included. We opened Pandora’s Box when we got the Republican Party to abandon the balanced budget as its signature economic policy and adopt tax cuts as its raison d’être. In particular, the idea that tax cuts will “starve the beast” and automatically shrink the size of government is extremely pernicious.
It’s a great read for any one that wants to understand the economic policy making of the last 30 years or so. This was the best part for me, the stalwart Keynesian when it wasn’t popular. He actually mentions that Keynes isn’t all about government spending and budget deficits all the time. That is the part that the Dubyas and Cheneys of the world always conveniently or ignorantly overlook.
So basically the book is about the rise and fall of Keynesian economics followed by the rise and fall of SSE. Although the Keynesian part of the book was originally intended to flesh out my model of the rise and fall of economic theories, it turned out to have very valuable lessons for today. Indeed, the circle appears to have come around to where Keynesian theories are now the best ones we have for dealing with today’s economic crisis.
Maybe Bruce, who now writes for the Daily Beast and was fired from a conservative think tank for writing a book that criticized Dubya, has found that with age comes wisdom. Also worth a read are two Bartlett’s pieces from the blog new majority. The first is Tax Tea Party Fantasy from last spring and Why I Am Anti-Republican from late this summer. It seems old dogs do occasionally learn new tricks.
Elinor Ostrom became the first woman to achieve a Nobel Prize in Economics. She shares this year’s prize with Oliver Williamson. That’s forty years of prizes gone by. Both winners research areas that are somewhat out of the mainstream. Ostrom studies the problem of the commons. Williamson researches governance issues. Both are relevant areas given the state of the world’s resources and that of financial and economic markets.
The award was a “great surprise… I’m still a little bit in shock,” she said by phone at the news conference announcing the prize.
Ostrom, a professor of political science at Indiana University, was praised “for her analysis of economic governance, especially the commons.”
Ostrom’s work shows that local communities often manage common resources — such as woods, lakes and fish stocks — better on their own than when outside authorities impose rules, the committee said.
“Bureaucrats sometimes do not have the correct information, while citizens and users of resources do,” she said to explain the significance of her work.
The committee highlighted her research on a dam in Nepal as an example, saying her research has moved analysis of nonmarket institutions “from the fringe of economic analysis to the very center.”
Marginal Revolution has an interesting thread up on Williamson’s work. Here’s a link to Williamson’s most recent work that supports earlier work done by Ronald Coase. More information on both winners can be found here at the NY Times.
I’m just relieved Fama didn’t win yet again and this is a bit of a slap at his EMH too!
The Mercatus Center at George Mason University has an interview with laureate Ostrom on their site called: Rethinking Institutional Analysis: Interviews with Vincent and Elinor Ostrom which is really interesting.