I thought I’d start this morning reads off with Bill Moyers who is having a good laugh at the expense of billionaires that are donating lots of money to political campaigns. It seems they really don’t like having their names bandied about and their closets opened. Pity the Poor Billionaires!!!
Last month, an Obama website cited eight mega-donors to Mitt Romney’s campaign as possessing “less-than-reputable records.” Among them was Frank VanderSloot, a Romney national finance co-chairman who has raised millions for the campaign. He’s a rancher – with 110,448 acres, on which he no doubt roams playing “This Land is Your Land” on his little Stradivarius — and CEO of the billion-dollar company Melaleuca, which Rolling Stone describes as “a ‘multilevel marketing’ firm based in Idaho that sells off-brand cleaning products and nutritional supplements.”
VanderSloot and his wealthy pals went ballistic and cried intimidation. “You go back to the Dark Ages,” VanderSloot said, “when they put these people in the stocks or whatever they did, or publicly humiliated them as a deterrent to everybody else — watch this — watch what we do to the guy who did this.”
Conservatives described the Obama ranking of Romney contributors as an “enemies list,” conjuring images of Nixonian wiretaps and punitive tax audits. But despite protestations to the contrary, these deep-pocketed plutocrats aren’t shelling out the shekels for the love of flag, Mom and apple pie (or tarte tatin, as they call it in the swanky joints).
“Most of the megadonors backing [Romney’s] candidacy are elderly billionaires,” Tim Dickinson writes in Rolling Stone. “Their median age is 66, and their median wealth is $1 billion. Each is looking for a payoff that will benefit his business interests, and they will all profit from Romney’s pledge to eliminate inheritance taxes, extend the Bush tax cuts for the superwealthy — and then slash the top tax rate by another 20 percent.” As at least one of them has said, they view these cash infusions as an “investment,” plain and simple.
Money is rolling into Wisconsin in Tuesday’s recall election. The Hill reports that it’s the most expensive race in Wisconsin history. The Koch Brothers are knee deep in money trying to keep their union bustin’ boy in office. We’ll be live blogging this tomorrow night so stay tuned!
Out-of-state sources have funded both sides heavily in the contest CPI said. Barrett has received about 26 percent of his $4 million in donations from sources outside of Wisconsin, while Walker has received two-thirds of his $30.5 million haul from out-of-state. Both campaigns have been aided by strong spending by super-PACs and other outside groups.
Labor unions have spent heavily to defeat Walker. The report says that the nation’s three largest public unions, the National Education Association (NEA), American Federation of State, County and Municipal Employees (AFSCME), and the Service Employees International Union (SEIU), have directed at least $2 million to anti-Walker efforts.
Walker, for his part, has been aided by conservative businessmen including casino mogul Sheldon Adelson and billionaire David Koch. The Republican Governors Association received a $1 million contribution from Koch in February, according to CPI.
The economy is slowing down. Oil prices are dropping in response. The stock market has lost all its value. Will we see another recession shortly?
The statistics on Friday were daunting. Only 69,000 jobs were created last month, far lower than what’s needed just to keep up with population growth. The job tallies for March and April, shabby to begin with, were revised down, for an average monthly tally of 96,000 over the past three months, versus 252,000 in the prior three months.
The weakness was not only displayed in job growth. Average weekly wages declined in May, to $805, as a measly two-cents-an-hour raise was more than clawed back by a drop to 34.4 hours in the length of the typical workweek.
Similarly, the rise in the number of people looking for work is normally considered a sign of optimism, but, on closer inspection, it appears to be simply the reversal of a drop in job-seekers in April.
Granted, it is better for jobless workers to be actively looking for work than sitting on the sidelines. But without enough jobs to go around, the inevitable result is higher official unemployment. The jobless rate ticked up from 8.1 percent in April to 8.2 percent in May, or 12.7 million people. Of those, 42.8 percent, or 5.4 million people, have been out of work for more than six months, a profound measure of personal suffering and economic decline.
There’s no sign that Washington is prepared to shoulder this responsibility. President Obama’s last big push for job creation, the $450 billion package proposed last fall, would have created an estimated 1.3 million to 1.9 million jobs by providing aid to states for teachers and other vital public employees, investments in infrastructure and tax breaks for new hiring. It was filibustered by Senate Republicans and not brought up for a vote in the Republican-dominated House, with Republican lawmakers claiming that deficit reduction was more important. Since then, they have balked at even smaller administration proposals, like modest investments in clean-energy projects.
Blocking constructive action is bad enough, but it’s not the worst of it. Recently, the House speaker, John Boehner, has ratcheted up economic uncertainty by pledging to force another showdown this year over legislation to raise the debt ceiling. A debt-ceiling debacle would come on top of the expiration at the end of 2012 of the Bush-era tax cuts and the onset of some $1 trillion in automatic spending cuts. If allowed to take effect as planned, those measures would take a huge bite out of growth, further weakening the economy.
Paul Krugman slammed the “anti-bipartisanship” in the Paul Ryan budget and in Romney’s support of obstructionist policies aimed at tanking the economy yesterday on ABC. Krugman said that the budget Romney supports is a “fraud”.
This morning on “This Week,” New York Times columnist Paul Krugman called Rep. Paul Ryan’s proposed budget plan a “fraud” as Romney campaign senior advisor Eric Fehrnstrom confirmed his candidate’s support for the plan that would trim trillions in federal spending over the next decade.
“The Ryan plan — and I guess this is what counts as a personal attack — but it isn’t. It’s not an attack on the person; it’s an attack on the plan. The plan’s a fraud,” said Krugman. “And so to say that — just tell the truth that there is really no plan there, neither from Ryan, nor from Governor Romney, is just the truth. That’s not — if that’s — if that’s being harsh and partisan, gosh, then I guess the truth is anti-bipartisanship. ”
Krugman, who has been critical of the Ryan, R-Wis., plan in the past, was responding to the Fehrnstrom, who confirmed Romney’s support for the plan after ABC News’ George Will asked Fehrnstrom to clarify his candidate’s stance on the Ryan proposal.
“He’s for the Ryan plan. He believes it goes in the right direction. The governor has also put forward a plan to reduce spending by $500 billion by the year 2016,” said Fehrnstrom. “In fact, he’s put details on the table about how exactly he would achieve that. So to say he doesn’t have a plan to — a plan to restrain government spending is just untrue.”
Krugman defended the president’s budget plan when asked by Fehrnstrom if he preferred it over the Ryan plan.
“I mean, the president — at least it’s — you know, I don’t approve of everything, but there are no gigantic mystery numbers in his stuff. We do know what he’s talking about. His numbers are — you know, all economic forecasts are wrong, but his are not — are not insane. These are — these are just imaginary,” he said.
Molly Ball writes about the mediocre Mitt Romney Governorship of Massachusetts at the Atlantic. Here’s my favorite quote “He believed that a PowerPoint presentation would solve all our problems.” Here’s some other tidbits that lead up to that very funny line.
Romney campaigned on a promise to clean up Massachusetts’ notoriously cronyistic state government, painting his opponent, the sitting state treasurer, as a product of a backroom-dealing Beacon Hill culture. But his efforts once he was elected were somewhat halfhearted and largely fruitless.
One example was the state’s judiciary, a notorious hotbed of patronage. Romney’s attempts to reform it didn’t succeed, and instead, he ended up succumbing to the status quo, the Washington Post reports. His attempt to consolidate transportation agencies was shot down by the legislature, as was his push to remove from the state university system William Bulger, brother of mobster “Whitey” Bulger. (Bulger did eventually resign, in part due to Romney’s pressure.)
“A lot of governors come in offering to change the political culture,” said Cunningham. “But he wasn’t here long enough, he didn’t put enough effort into it, and he had a very formidable opponent.”
Perhaps because of his outsider mien, Romney enjoyed notably chilly relationships with legislators and local officials, who found him distant and somewhat disengaged. John Barrett, who was mayor of the city of North Adams during Romney’s governorship, described him Thursday as “a governor who just ignored us, who didn’t want our effort,” saying he never met with mayors or sought their input. “He believed that a PowerPoint presentation would solve all our problems,” Barrett said.
So, the biggest issue on my mind is the looming Debt-Ceiling fight and the horrible Agent Orange. I pretty much believe that the House Republicans will crash all the markets and then some if they think it makes Obama less likely to be elected. Here’s Garrett Epps at the American Prospect. He believes–as do I–that Obama should use the Constitutional Option and tell them all to go to hell regardless. It will be interesting to see how soon they will heat this up.
The debt limit will apparently become a crisis again sometime after the election. Boehner two weeks ago announced his plan to demand another round of cuts when the current ceiling is reached at the end of the year. (I suspect this manufactured crisis will only happen if Obama is re-elected; if Mitt Romney wins the election, Republicans will suddenly find economic recovery an important value after all.)
Obama should begin now to prepare for the predicted crisis. And if there is any way to climb down from the inane “my attorney Bernie says I can’t” comment, he should find it. I called the U.S. Department of Justice to ask whether the Office of Legal Counsel has issued, or is preparing, a formal opinion on the President’s possible power under Section Four; the DOJ’s spokesman did not return my call.
There’s an interesting analysis at TP on how the last debt ceiling debate hurt the economy. A repeat under current conditions could be disastrous.
House Republicans last year used the imminent approach of the nation’s credit limit to force Congress into enacting a series of spending cuts. The hostage scenario led to the nation’s first ever credit downgrade, with the credit rating agency Standard & Poor’s repeatedly citing the GOP’s intransigence on revenue as a key justification. Speaker of the House John Boehner (R-OH) has indicated that the GOP is ready to reenact the debt ceiling debacle the next time the nation comes close to its borrowing limit. But as economists Betsey Stevenson and Justin Wolfers write, the economy was significantly setback during the last showdown, which they call “an act of economic sabotage“
Follow the links to the Bloomberg analysis and you’ll see why we’re in worse position to weather that kind of anti-bipartisanship nonsense this year. So, who really killed the confidence fairy last year?
High-frequency data on consumer confidence from the research company Gallup, based on surveys of 500 Americans daily, provide a good picture of the debt-ceiling debate’s impact (see chart). Confidence began falling right around May 11, when Boehner first announced he would not support increasing the debt limit. It went into freefall as the political stalemate worsened through July. Over the entire episode, confidence declined more than it did following the collapse of Lehman Brothers Holdings Inc. in 2008. After July 31, when the deal to break the impasse was announced, consumer confidence stabilized and began a long, slow climb that brought it back to its starting point almost a year later. (Disclosure: We have a consulting relationship with Gallup.)
Businesses were also hurt by uncertainty, which rose to record levels as measured by the number of newspaper articles mentioning the subject. This proved far more damaging than the regulatory uncertainty on which Republican criticisms of Barack Obama’s administration have focused (more on that subject in a Bloomberg View editorial today). Employers held back on hiring, sapping momentum from a recovery that remains far too fragile.
It’s going to be a very long, hot summer.
What’s on your reading and blogging list today?
I had another week full of weird things to do. I completely forgot my driver’s license expired last month on my birthday and had to rush out to get it renewed. I really don’t keep track of my age at all any more so I forgot the entire divisible-by-four thing. I also have been rushing around doing odds and ends that have just been driving me nuts. It just seems life is just one complex set of paperwork to fill out for someone or another these days. This week I had to prove all kinds of things to all kinds of people. I guess no one takes you at face value any more. We’ve turned into a nation where you have to show every one your papers. It made the week a combination of something Kafkaesque and Stalinesque. I simultaneously wanted to laugh, cry, and slap people multiple times this week.
There’s an interesting article at The Atlantic on how the economic recovery is affecting women differently from men. The article is called “The Recession was Sexist (So is the Recovery)” and it’s worth a read. It’s written by Jordan Weissmann.
Since November 2010, 70% of new jobs have gone to men. At first blush that sounds reasonable. If men lost more jobs, they should also recoup more. The problem crops up when you look at the number of job gains as a fraction of losses. Men have regained about a third of the jobs they shed in the recession. Women have only regained about one in five.
Ladies and gentlemen, we have a gender gap. And it’s not clear whether it will narrow. In November, female job gains actually outpaced males, 65,000 to 55,000. But going forward, women are going to have to contend with one of the most nastiest forces in job market: government budgets.
As the graphic to the left shows, women far outnumber men on state and local government payrolls, especially in public schools. Early in the recession, those employers were propped up by stimulus money. No longer. We live in an age of belt tightening, and government employees are being shown the door by the thousands. Last month, state and municipal payrolls shrank by 16,000 workers. There’s no sign of the trend letting up.
If you want to see the graphs that go with the discussion, you should check the article out. The trend is really noticeable.
There’s also continued filibusters from Mitch McConnell of anything that could remotely help the unemployed, families hurt by recession, and anything that looks like it might have gone near the President. I can’t believe all this belligerence is a winning strategy for them, but only time will tell. As much as I’ve had problems with Obama, McConnell’s got me so hopping mad and the clown set running for the Republican nomination have me more distressed. I’ve never seen a bunch of more mean-spirited, ignorant, hateful, religious fanatics in my life. In this situation, Obama is definitely the lesser of evils. This is an election that will bring the definition of evil to a new nadir. There’s not a woman- or child-friendly politician to be had any where.
The filibuster — a stall tactic that requires time-consuming motions and 60 votes to overcome — can be used on virtually all Senate business, including on whether to even bring up bills for debate.
Democrats say Republican tactics this week will come back to haunt them. On Thursday, Republicans are well-positioned to filibuster the nomination of Richard Cordray to head the new Consumer Financial Protection Bureau. For weeks, the GOP has demanded several changes to the bureau to roll back its powers.
Democrats say it’s “the first time in history” that a nominee will be blocked because of the concerns over the agency that the person was selected by the president to head — rather than the qualifications of the nominee.
“I said to some of my Republican colleagues, ‘Do you want this to happen when someday there’ll be a Republican president?’” said Sen. Sherrod Brown (D-Ohio). “It’s clearly a terrible precedent.”
en. Bob Menendez (D-N.J.) said he didn’t think any minority should adopt such tactics that he called “highly dangerous for the country.”
Republicans are highly dubious of the claims, saying there’s nothing unusual over holding up nominees until legitimate concerns over policy are addressed.
“This is the first time in history that I’m aware of that an agency of this kind has been created,” said Sen. Mike Crapo (R-Idaho), a member of the Senate Banking Committee.
The tit-for-tat has been going on since Tuesday when Republicans sustained a filibuster by a 54-45 vote on the Halligan nomination to the D.C. appellate court, accusing President Barack Obama of nominating an “activist judge” hostile to gun rights.
But Democrats said she was a well-qualified nominee with an exemplary résumé, and that the standard set by the so-called Gang of 14 senators in 2005 to only filibuster judicial nominees in “extraordinary circumstances” had been effectively nullifed.
Ruemmler, the White House counsel, said she could “rattle off a litany of folks who would be on any Republican shortlist” that would be rejected under the new standard, like attorney Paul Clement who is representing Republicans in the House in defending the Defense of Marriage Act. But she said it would be “ridiculous” if Democrats did that over such an ideological dispute.
The White House points to 20 judicial nominees awaiting Senate action, several of whom would fill posts considered “emergency” vacancies, and officials complain that the chamber is moving at a much slower pace now than it was when Bush was in office.
Iran has been showing film of a captured US drone. There’s been confirmation now that the film is authentic and so is the drone. This confirms some of the rumors floating around earlier this week.
Iran’s Press TV said that the Iranian army’s “electronic warfare unit” brought down the drone on 4 December as it was flying over the city of Kashmar.
Brig General Amir-Ali Hajizadeh, head of Iran’s Revolutionary Guards’ aerospace unit, told Iranian media that the drone “fell into the trap” of the unit “who then managed to land it with minimum damage”.
He said Iran was “well aware of what priceless technological information” could be gleaned from the aircraft.
Nato said at the weekend that an unarmed reconnaissance aircraft had been flying a mission over western Afghanistan late last week when its operators lost control of it.
Pentagon officials have said they are concerned about Iran possibly acquiring information about the technology.
I still haven’t gotten used to seeing armadillos all around the place since I moved down here. Looks like Kentucky is going to have to get used to them too as they are moving north and east. The move started in the 1980s and has been increasing since then. Like many local critters, they appear to be moving north with climates getting warmer.
“The first road-killed armadillo I encountered in Kentucky was in 2003, and the first live one I saw was in 2006,” said John MacGregor, a herpetologist with the Kentucky Department of Fish and Wildlife Resources.
MacGregor said in recent years there have been several confirmed sightings by staff biologists in eastern and south central Kentucky.
Steve Bonney, northeastern region wildlife coordinator for Kentucky Fish and Wildlife, encountered a road-killed armadillo in Rowan County in 2009 on the way to work. “I routinely record road kills. When I saw what I thought was an armadillo, my radar went off,” said Bonney. “It kind of shocked me.”
When Bonney arrived at work, he immediately drove back to the site of the road kill on Ky. 801 in Farmers, Kentucky to photograph and pick up the armadillo.
Of the 20 known species of armadillos, the nine-banded armadillo is the most widely distributed. It is the only armadillo species to have ventured north of Mexico. Today, the nine-banded armadillo is established as far east as South Carolina and as far west as southern Nebraska. Loughry said range expansion “has been consistent over the years, and is the continuation of a long-term trend.”
But what biologists can’t agree on is why range expansion is occurring so fast. Factors that may be fueling this expansion include: climate change, the armadillo’s general adaptability, its high reproductive rate and little desire on the part of humans to hunt or eat armadillos.
The two most likely things to cause armadillo mortality are getting run over by vehicles on roads or being eaten by coyotes.
If any of them amble up to a neighborhood near you, here’s some cajun recipes for those of you brave enough to try them.
Here’s an interesting interview with Bruce Judson on the Societal Dangers of income inequality. Judson is a professor of management that specializes in entrepreneurship at Yale School of Managment. He has a new e-book coming out on making capitalism work for the 99%. BC is Bryce Covert of ND 2.0.
BC: What does inequality mean for the middle class, which is the foundation of our country’s economy?
BJ: Early America lacked the class barriers then prevalent in Europe: Everyone mixed with each other. This led the more fortunate to have empathy and a visceral understanding for the problems of the less fortunate. As economic inequality has increased, we see far less mixing among people at different income levels. Now everyone has less of a sense that they are part of one large community and that we have a responsibility to each other.
Political theorists, going back to Aristotle, have all concluded that a vibrant middle class is essential for a vibrant democracy. The members of the middle class hope to move up, so they want mobility to remain a desirable option, but they also fear moving down, so they are more likely to support a social safety net. In essence, the middle is the group that ensures stability as a barrier to legislative extremes that unduly reward the wealthy or harm the poor.
Unfortunately, inequality that chips away at the middle class can lead to violence. There was violence that occurred in the Depression, with riots in the Midwest. People also started to take the law into their own hands. In penny auctions, after your farm was foreclosed on, you showed up at the courthouse with all of your friends — farmers who had their rifles with them — and took over the bidding and bought back your farm for penny. As income inequality increases, the dispossessed may start to feel they have been treated unfairly and things can get ugly.
BC: Your work also predicted revolution. What’s your current take?
BJ: The book did not predict revolution. The book said that if we allow income inequality to continue growing unchecked, then we would face a high risk of political instability or revolution. We discussed earlier how the book detailed a series of stages, or a narrative, for how growing economic inequality can lead to social upheaval. Unfortunately the narrative I detailed seems to be happening.
My best estimate is we have now passed through 60 percent of the narrative. A lot needs to happen before the risk of political instability becomes a reality. I am hopeful that with inequality now on the national agenda, we will see the reforms needed.
So, there’s a lot of juicy stuff in that interview including Judson’s take on the Occupy movement.
BC: Does the emergence of the Occupy Wall Street movement make you more or less hopeful for the nation’s future?
BJ: It absolutely makes me hopeful that we will start to see some meaningful reforms. The Occupy movement is casting a bright and unforgiving light on some of the unacceptable practices in our society that, sadly, have become commonplace.
I believe the Occupy movement is not going away. The reason it grew so quickly is that it was the flashpoint for the country’s anger and widespread feelings of unfairness. It’s almost inevitable that in some way it will expand to include people who feel they’ve been unfairly foreclosed on, the record numbers of Americans experiencing long-term unemployment, and many of the unemployed in general who feel they’ve been cheated out of the opportunity to work – mainstream America.
The danger is that if the Occupy movement does not succeed, and nothing takes its place, we will move further along the narrative I described.
So, that’s my offerings this morning. I have a few more paper chases to do today before I settle in for the weekend. I’m thinking I’ll end this week with a nice long soak in the tub, some read wine, and the new Vanity Fair with the Gaga in red pic on the cover. I’m going to read about the romance between Queen Elizabeth and Prince Phillip and look at all those really old photos. I’d say that out to put reality out of my mind for awhile. Okay, I’m going to read the Stiglitz article first (Fix the Economy? What Obama and the GOP won’t tell you). Then, I’m going to read Christopher Hitchens on Nietzsche, then I’ll do the Queen’s young romance. So, okay, I”ll give you one taste.
Hitchens describes chemotherapy. This is something I know well. I also know what it’s like to kiss death and know that it hovers over your bed waiting for you to move closer to its embrace.
I often grandly say that writing is not just my living and my livelihood but my very life, and it’s true. Almost like the threatened loss of my voice, which is currently being alleviated by some temporary injections into my vocal folds, I feel my personality and identity dissolving as I contemplate dead hands and the loss of the transmission belts that connect me to writing and thinking.
These are progressive weaknesses that in a more “normal” life might have taken decades to catch up with me. But, as with the normal life, one finds that every passing day represents more and more relentlessly subtracted from less and less. In other words, the process both etiolates you and moves you nearer toward death. How could it be otherwise? Just as I was beginning to reflect along these lines, I came across an article on the treatment of post-traumatic stress disorder. We now know, from dearly bought experience, much more about this malady than we used to. Apparently, one of the symptoms by which it is made known is that a tough veteran will say, seeking to make light of his experience, that “what didn’t kill me made me stronger.” This is one of the manifestations that “denial” takes.
I am attracted to the German etymology of the word “stark,” and its relative used by Nietzsche, stärker, which means “stronger.” In Yiddish, to call someone a shtarker is to credit him with being a militant, a tough guy, a hard worker. So far, I have decided to take whatever my disease can throw at me, and to stay combative even while taking the measure of my inevitable decline. I repeat, this is no more than what a healthy person has to do in slower motion. It is our common fate. In either case, though, one can dispense with facile maxims that don’t live up to their apparent billing.
So, I’m watching the US stock market plummet and laughing to myself in a most unhealthy way. NOW, they’re worried about no growth and jobs. What a buncha marroons! But hey, we maintained that AAA rating so the flight to safety has begun. Gold any one?
“We have a stubbornly slow economy,” Hank Smith, chief investment officer at Haverford Trust Co. in Radnor, Pennsylvania, said in a telephone interview. His firm manages about $6.5 billion. “The economy is stuck in a very slow growth mode, which means that it’s more susceptible to any external shocks.”
Harvard University economics professor Martin Feldstein said he sees a 50 percent chance that the U.S. will relapse into another recession.
“Nothing has given us much growth,” Feldstein said today in a Bloomberg Television interview on “Surveillance Midday” with Tom Keene. Feldstein is a member of the committee that dates recessions for the National Bureau of Economic Research.
Today’s retreat brought the S&P 500 to within 1 percentage point of its low for the year on March 16 and trimmed its year- to-date gain to about 0.5 percent. All 10 industry groups fell, led by a 2.4 percent slump in industrial companies. General Electric Co. lost 3.7 percent to lead declines in 29 of 30 stocks in the Dow Jones Industrial Average.
Archer Daniels Midland Co., the world’s largest grain processor, tumbled 2.4 percent as earnings trailed projections after corn and tax expenses rose. MetroPCS Communications Inc., the pay-as-you-go mobile-phone carrier, lost 35 percent for the biggest decline in the S&P 500 as sales fell short of analysts’ forecasts.
What if they gave a recovery and nobody came? So, What’s missing from the debt ceiling debate? Jobs. In an aggregate demand led recession, what gives us growth is healthy government spending, not tax cuts, and certainly not austerity. Welcome to the new anti-growth fiscal policy.
The unemployment rate, currently above 9 percent, is projected to remain high for a long time. For example, the current Blue Chip Economic Indicators consensus forecast puts the average unemployment rate for 2012 at 8.3 percent. The agreement to raise the debt ceiling just announced by policymakers in Washington not only erodes funding for public investments and safety-net spending, but also misses an important opportunity to address the lack of jobs. The spending cuts in 2012 and the failure to continue two key supports to the economy (the payroll tax holiday and emergency unemployment benefits for the long term unemployed) could lead to roughly 1.8 million fewer jobs in 2012, relative to current budget policy.
The agreement would reduce spending by at least $1 trillion over 10 years through budget caps on non-mandatory programs, with additional reductions under discussion in a second phase. While the bulk of the cuts are back-loaded – coming more in the future – the near-term cuts would still have an immediate impact. Applying conventional multipliers, the reduction of $30.5 billion in calendar year 2012 would reduce GDP by 0.3%, and result in roughly 323,000 fewer jobs (as depicted in the table below).
In addition to the immediate cuts to spending, the debt ceiling agreement fails to continue two major policies which had been part of broad agreements in the past. The payroll tax holiday and extended unemployment insurance were passed last December along with the two-year extension of the Bush-era tax cuts; but are set to expire at the end of 2011. While Congress could still extend these policies between now and the end of the year, that scenario is looking much less likely today. (Any economic support subsequent to this deal would have to be offset by other tax increases or spending cuts in 2012 or a further increase in the debt ceiling, neither of which seems politically viable.)
But wait, didn’t the know-it-all in chief just say jobs were priority one now? Well, let me just laugh. Even Andrea Mitchell knew enough to ask the dmbest person in nearly every room–Valerie Jarrett–with what money are you going to be doing that?
“As we go through the package, and members are beginning to learn what’s in the package, they’re seeing,” the reaction is “better and better,” White House senior adviser Valerie Jarrett said on MSNBC’s “Andrea Mitchell Reports.”
“I’ve been on many of these calls since last evening with a wide variety of people who were initially skeptical,” she said. “But when they see the details of the package, they’re becoming increasingly comfortable.”
The deal reached by the president and congressional leaders is “not perfect,” Jarrett said, and is “not the package that the president would have wanted.”
Even so, she said, “it is a package that stays true to his values and his goals, No. 1, long-term certainty, and No. 2, making sure that the people who can least afford to suffer are protected.”
The Economic Policy Institute, a top nonpartisan think tank, estimates that the deal struck this weekend to raise the nation’s debt limit will end up costing the economy 1.8 million jobs by 2012. Today the Senate is expected to approvethe package passed yesterday by the House and send it to President Obama. But while the unemployment rate remains above 9 percent, the deal does nothing to address chronic joblessness.
The agreement would reduce spending by at least $1 trillion over 10 years, but even the near-term cuts could shrink already sluggish GDP growth by 0.3% in 2012. According to EPI, the plan “not only erodes funding for public investments and safety-net spending, but also misses an important opportunity to address the lack of jobs.” In particular, the immediate spending cuts and the “failure to continue two key supports to the economy (the payroll tax holiday and emergency unemployment benefits for the long term unemployed) could lead to roughly 1.8 million fewer jobs in 2012.”
What we should be worrying about is all the news that Washington has ignored while it was doing the debt ceiling shuffle. Most importantly, the economy has almost stopped growing and unemployment is again on the rise.
On Friday, the commerce department released data showing the economy grew just 1.3% in the second quarter. Even worse, it revised down the first quarter growth number from 1.9% to just 0.3%. This means that the economy was growing at just a 0.8% annual rate over the first half of 2011. This is well below the 2.5% pace that is necessary just to keep unemployment from rising.
Of course, unemployment has been rising, with the June figure hitting 9.2%. That is up from a post-recession low of 8.8% in March. The unemployment rate does not give the whole story, since many of people have lost hope of finding a job and given up looking for work altogether. The employment to population ratio (EPOP) – the percentage of the population with jobs – has fallen back almost to its low point for the downturn. The EPOP for African Americans has hit new lows in each of the last three months.
The revisions also provided other interesting pieces of information. For example, corporate profits were revised sharply higher for both 2009 and 2010. The share of profits in corporate sector output hit a new record high, more than a full percentage point above its previous peak. Finance was the biggest winner within the corporate sector, accounting for 31.7% of corporate profits, also a record high.
In short, we now have an economy that is stuck in the doldrums. It is operating well below its potential level of output. Furthermore, instead of catching up, it appears to be falling further behind. We are seeing a growth rate far below the economy’s potential, when we should be seeing growth that is far above potential. And the Wall Street guys are fat and happy.
Believe me, an economy “stuck in the doldrums” will look good this time next year. If Mitch McConnell wanted to over throw or throw over the country, he sure succeeded. Some one needs to whip his sorry ass.
Our economy continues to scuttle across a bottom set by the huge drop in performance during the Great Recession. This economist was not surprised by the lackluster GDP report released today. No one has used the correct fiscal policy prescription in this country since 1999. The current batch of Washington nimrods are going to set us at a new low shortly. We’ll be lucky to see nasty numbers like these a year from now. It’s as if tanking the economy is job 1 now.
Gross domestic product climbed at a 1.3 percent annual rate following a 0.4 percent gain in the prior quarter that was less than earlier estimated, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg News called for a 1.8 percent increase. Household purchases, about 70 percent of the economy, rose 0.1 percent.
Treasuries rose as the report dimmed prospects for faster growth in the rest of 2011. The faltering economy may get another blow from spending cuts being negotiated in Congress, keeping pressure on Federal Reserve Chairman Ben S. Bernanke to hold interest rates near zero.
“The second-half rebound is melting away,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, the only forecaster polled to correctly estimate the gain in GDP. “It’s a very, very difficult situation for policy makers. The Fed could give a pretty strong signal that they are not likely to move on interest rates for a very long time.”
The yield on the benchmark 10-year note decreased to 2.85 percent at 1:22 p.m. in New York from 2.95 percent late yesterday. Stocks pared earlier losses on signs that House Speaker John Boehner’s plan to raise the debt ceiling was gaining support. The Standard & Poor’s 500 Index fell 0.3 percent to 1,296.42 after falling as much as 1.4 percent.
Former Labor Secretary Robert Reich tells it like it is in a post that might as well be entitled “It’s the jobs, stupid”. Too bad he’s not up for the Treasury position now occupied by Secretary Slave to Investment Banks. There’s a false equivalency being spread about raising the debt ceiling and increasing the deficit that’s really hampering policy discourse right now. The two things aren’t the same. The debt is the amount we owe and it builds each year when there is a deficit or when interest accumulates. The deficit is a shortage in one year’s budget. The only real crisis we have right now is a jobs crisis and a complete lack of demand. Again, no business person in their right mind is going to create anything if there’s no customers. Oh, there’s also a confederacy of dunces in the US House of Representatives. But, I won’t go there right now.
Get it? We’re really in a “jobs and growth” crisis – not a budget crisis.
And the best way to get jobs and growth back is for the federal government to spend more right now, not less – for example, by exempting the first $20,000 of income from payroll taxes this year and next, recreating a WPA and Civilian Conservation Corps, creating an infrastructure bank, providing tax incentives for small businesses to hire, expanding the Earned Income Tax Credit, and so on.
But what happens next week if Congress can’t or won’t deliver the President a bill to raise the debt ceiling? Remember: This is all politics, mixed in with legal technicalities. Economics has nothing to do with it.
One possibility, therefore, is for the Treasury to keep paying the nation’s bills regardless. It would continue to issue Treasury bills, which are our nation’s IOUs. When those IOUs are cashed at the Federal Reserve Board, the Fed would do what it has always done: Honor them.
How long could this go on without the debt ceiling being lifted? That’s a legal question. Republicans in Congress could mount a legal challenge, but no court in its right mind would stop the Fed from honoring the full faith and credit of the United States.
One of the biggest right wing memes that drives me crazy is that the economy is bad because we have too much taxes still and that the President’s stimulus didn’t work because it was worthless spending. I knew it wouldn’t do much to stimulate the economy simply because it didn’t take advantage of the government spending multiplier in key areas and wasn’t big enough. Also, it was the Biggest Tax Cut Ever which rarely works as efficiently as direct government spending to get consumption going again. So why are so many idiots arguing that more of the same tax cuts are going to improve the economy and cutting all levels of government spending is considered confidence building when the government spending multiplier will just push recessionary momentum? You got me. It’s insanity.
So, what happens if these debt ceilings talk fail? Well, first, every single financial asset, liability, and contract will reprice all over the world. Most of them will reprice in a bad way that will hamper economies every where. Every business project will be evaluated using a risk free rate that will now be higher and will not be considered risk free any more. That means many projects will now be rejected so expansions, new jobs, or anything like that will be rejected. Remember, this is not because we can’t pay those bills, it’s because a few idiots refuse to pay them. Second, the world will continue to step away from the dollar. Third, there will be strong recessionary pressures. It’s not good, folks. As these recent GDP figures show, we’re far from out of the impact of the last financial shock.
But what if all those options failed? What would be the consequence of even a notional default? The IMF has talked of a global recession if there was a loss of confidence in US solvency although it’s not clear that a failure to roll over debt for a few days would qualify for that description.
Having seen what happened with Lehman’s default, the main worry would be a freeze in the markets. Take the finances of banks, for example. Many use Treasury bonds as the risk-free asset for capital purposes. As Capital Economics points out
“Government debt is only automatically 0% risk-weighted for banks under Basel II if it is rated AA- or higher (although regulators can make exceptions for domestic government debt issued in local currency). In principle, therefore, financial institutions would face significantly higher capital charges in the event of a US government default.In practice, it seems likely that the regulators would move quickly to waive the rules. But there might be a few hairy moments while they did. And what about money-market funds? Having been burned by the credit crunch, many have opted for the safe haven of US Treasury bills. Perhaps they could roll over those bills into some form of IOU from the government. But if investors demanded their money back at a time when Treasury bills were illiquid, money-market funds might be forced to suspend resumptions or “break the buck”. Then there is the repo market, widely used by financial institutions to raise money; Treasury securities are used as collateral for such borrowing.”
Standard & Poor’s has considered this scenario and suggests that
“Failure to pay off maturing debt or missing interest payments (approximately $62 billion of interest is payable on Aug. 15) would constitute a selective default pursuant to our criteria, and Standard & Poor’s expects it would lower the sovereign rating to ‘SD’. Even if the Fed and other central banks managed to keep the financial system functioning, we expect that markets around the world would be severely damaged. In such a hypothetical scenario, we expect that equity markets would generally plunge, borrowing costs and interbank lending rates would soar, and corporate credit markets would be closed to all but the highest quality issuers. We envisage that consumers and businesses would likely stop spending on all but essential items, and the value of the dollar would drop by 10% or more against other major currencies. With the dollar heading lower, investors would likely look for hard assets like oil and other commodities, driving prices higher.Given the fragility of the economic recovery, this is an incredible risk to contemplate. It is also worth noting that, even a freeze on government spending that stopped short of a default, would have a significant impact on demand.”
I still can’t believe that a few people are willing to tank the economy for failed economic hypotheses. It’s as if everything we’ve learned over the past 70 years has been completely thrown to the wind and we’re being run by the myth of Reagan’s ghost. I say myth because what they’re going on didn’t even happen on his watch. He was responsible for the biggest single tax increase in history and was responsible for a lot of the debt they’re whining about today. Speaking of Reagan, one of his economists–Bruce Bartlett–has an excellent analytical piece up on how the Debt Crisis is being Fueled by Obama’s weak negotiations. It’s worth a read.
Unfortunately, Obama is really too young to have the kind of experience that previous presidents like Reagan brought to the White House in terms of understanding intransigent enemies and how to deal with them. Consequently, Obama has really been caught flat-footed by the Tea Party era Republican Party. He believed it would respond positively if he offered it half a loaf on just about every issue.
For example, some 40 percent of the 2009 stimulus legislation consisted of tax cuts even though his economic advisers knew that they would have almost no stimulative effect. But Obama viewed them as an important concession to Republicans. Yet despite total rejection of his stimulus package by the GOP, Obama kept the tax cuts rather than reprogramming the money into more effective programs such as state aid or public works.
Nevertheless, Obama offered Republicans another half-loaf by putting forward a health reform plan almost identical to those that they and conservative groups such as the Heritage Foundation had proposedin the 1990s. Obama’s offer was summarily rejected and Republicans suddenly decided that the individual mandate, which previously had been at the core of their own health reform plans, was unconstitutional.
Now we are in the midst of a debt crisis that stems largely from Obama’s inability to accept the intransigence of his political opponents. Last December, he caved in to Republicans by supporting extension of the Bush tax cuts even though there is no evidence that they have done anything other than increase the deficit. There were those who told Obama that he ought to include an increase in the debt limit, but he rejected that idea, believing that Republicans would behave like responsible adults and raise the debt limit just as they did routinely when their party held the White House.
I join Bartlett, former President Clinton, and others in begging the President to invoke the 14th amendment. Then, he should find some economics advisers who know what they are doing and listen to them for a change.
From the Federal Open Market Committee’s (FOMC) policy statement earlier today:
Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract. Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession. Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth.
In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.
In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
It goes on to state that its goal is to bring long term rates down farther by buying “up to an additional $750 billion of agency mortgage-backed securities”, “$300 billion of longer-term Treasury securities over the next six months” and “agency debt this year by up to $100 billion”. The Fed is aggressively using its balance sheet to inject liquidity into the financial system since the already low fed funds rate target is technically as low as it can get now. The Fed is hinting that we may be looking at the recession’s trough soon. Given the release of today’s 1st Quarter GDP, we can only hope and pray.
From Market Watch:
The central bank’s Federal Open Market Committee said that spending has stabilized and that the pace of the downturn appeared to be somewhat slower. The economy could remain weak in coming month but policy actions and “market forces” were aligned to create a gradual upturn, the statement said.
Fed watchers saw little drama in today’s announcement.
“The only major difference between today’s statement and the previous one on March 18 is that today’s cited the fact that most evidence points to a slowing rate of economic decline. Anyone with two eyes and a brain knows this to be the case,” wrote Josh Shapiro, chief U.S. economist at MFR Inc. in a note to clients.
Economists had expected the policy-setting panel to maintain the status quo. The FOMC kept its target interest rate unchanged at an ultra-low 0%-to-0.25% range.
The economy has fared dismally over the past six months — collapsing by the sharpest rate in more than 50 years. The unemployment rate has spiked and business investment has slowed.