Category Archives: Economy

Europe Sees the Light, as U. S. Opts for Darkness

The misguided GOP focus on deficits and austerity in the U. S. is messing up the whole world’s economy.  From the NYT*:

“The Europeans lately have slightly eased their austerity policies, after four years of deep spending cuts and rising taxes that many economists blame for keeping the Continent in recession long after America’s ended.

“And the Obama administration, after years of pressing Europe to adopt American-style stimulus measures, is now presiding — if reluctantly — over European -style austerity that is measurably slowing its recovery. …

“The new reality in the Unites States reduces the president’s already limited leverage in his fiscal debate with Europeans…even as Europe’s woes continue to act as a drag on its trading partners, including the United States.”

I would force every Republican member of Congress to write “Keynes was right” on the blackboard 1,000 times.

*  “Lines Blur in U.S.-Europe Debate on Austerity,” Jackie Calmes

Happy Days Are Here Again…

Consumer confidence is at its highest level since February 2008.

Housing prices in 20 major cities jumped 10.9% in the past year, the biggest annual increase since April 2006.

We know the deficit is looking much, much better than expected, as recovery brings more revenue to the government.

So for 2014, the GOP is left trying to sabotage Obamacare and trying to milk all the mileage they can out of the Benghazi, IRS, and reporter (AP/Fox’s James Rosen) “scandals.”  I remain unconvinced that any of these is really a true scandal.

Buried Under the “Scandal” Avalanche

There is some really good news out of Washington, if you look under the rocks of Benghazi, the IRS, and the AP.

The budget deficit is projected to drop to $642 billion for FY 2012, which ends on September 30.  That’s a whopping $200 billion less than the CBO estimated in February, when it adjusted the deficit downward to account for sequester spending cuts and 2012 tax increases.  This new projection comes strictly from higher-than-expected tax revenue.  This will be the first time the deficit has been under a trillion since 2009.

Things are so rosy that the deficit might be only a smidge over 2% of GDP by 2015, compared to more than 10% of GDP back in 2009.

In fact some economists, like Jared Bernstein, think the deficit may be coming down too quickly, keeping unemployment high.

 

OK, The Deficit Problem Is Solved

Well, that was easy.  From “Health Care Spending Growth May Have Slowed Permanently,” Brian Beutler, Talking Points Memo:

“Health care spending growth has famously slowed over the past five years, significantly enough that the Congressional Budget Office recently revised its projections of Medicare and Medicaid spending over the coming decade downward by hundreds of billions of dollars.

“Now, research papers suggests the recent slowdown doesn’t just reflect temporary economic weakness, but also structural shifts in how health care is delivered and financed — possibly attributable to the Affordable Care Act — and thus might be a harbinger of a longer-term trend.

If they’re right, and the trend continues, it means workers can expect higher wages and the country’s projected medium term deficits are significantly overstated, which in turn suggests lawmakers’ continuing obsession with the current budget deficit, and deficits over the coming decade, are misguided.

“The study by Harvard researchers, featured in the latest edition of Health Affairs, finds, like all studies of this nature, that the recession and weak economy contributed significantly to the spending growth slowdown. Less generous benefits, resulting in higher out-of-pocket costs, accounted for 20 percent of it. Faced with less generous coverage and less disposable income, people consumed fewer health services.

“But the good news is that spending growth also slowed among those whose health benefits haven’t changed, including Medicare patients. And that suggests a more enduring trend.

“’Our findings suggest cautious optimism that the slowdown in the growth of health spending may persist — a change that, if borne out, could have a major impact on US health spending projections and fiscal challenges facing the country,’ the authors write.

“In a related article, health care economist David Cutler attributes the majority of the slowdown to fundamental changes — including perhaps slowing technological and pharmaceutical innovation, and increased efficiency among providers. If current trends continue, he concludes, then over the next 10 years ‘public-sector health care spending will be as much as $770 billion less than predicted. Such lower levels of spending would have an enormous impact on the US economy and on government and household finances.’”

Stick that in your pipe and smoke it, Paul Ryan!

Of course, that money will probably be spent on more war(s).

 

 

Jobs, Jobs, Jobs

Good news on jobs, not just in the April numbers, but also in the revisions to prior months.

165,000 new jobs were created in April, plus March jobs were revised from 88,000 to 138,000, and February jobs were revised from 268,000 to 332,000.

The unemployment rate has dipped to 7.5%, the lowest in four years.

The Dow reacted by hitting 15,000 for the first time.

Policy of the One Percent, by the One Percent, for the One Percent

From “The 1 Percent’s Solution,” Paul Krugman, NYT:

“Thus, the average American is somewhat worried about budget  deficits, which is no surprise given the constant barrage of deficit scare stories in the news media, but the wealthy, by a large majority, regard deficits as the most important problem we face.  And how should the budget deficit be brought down?  The wealthy favor cutting federal spending on health care and Social Security — that is “entitlements” — while the public at large actually wants to see spending on those programs rise.

“You get the idea:  The austerity agenda looks a lot like a simple expression of upper-class preferences, wrapped in a facade of academic rigor.  What the top 1 percent wants becomes what economic science says we must do.

“[T]he years since we turned to austerity have been dismal for workers but not at all bad for the wealthy, who have benefited from surging profits and stock prices even as long-term unemployment festers.

“And this makes one wonder how much difference the intellectual collapse of the austerian position will actually make.  To the extent that we have policy of the 1 percent, by the 1 percent, for the 1 percent, won’t we just see new justifications for the same old policies?”

 

Quote of the Day

“Yes, total debt in the U.S. economy, public and private combined, has risen dramatically relative to G.D.P. No, this doesn’t mean that we as a nation have been living far beyond our means, and must drastically tighten our belts. While we have run up a significant foreign debt (although not as big as many imagine), the rise in debt overwhelmingly represents Americans borrowing from other Americans, which doesn’t make the nation as a whole any poorer, and doesn’t require that we collectively spend less. In fact, the biggest problem created by all this debt is that it’s keeping the economy depressed by causing us collectively to spend too little, with debtors forced to cut back while creditors see no reason to spend more.

“So what should we be doing? By all means, let’s restore the kind of effective financial regulation that, in the years before the Reagan revolution, helped deter excessive leverage. But that’s about preventing the next crisis. To deal with the crisis that’s already here, we need monetary and fiscal stimulus, to induce those who aren’t too deeply indebted to spend more while the debtors are cutting back.

“Unemployment, not excessive money printing, is what ails us now — and policy should be doing more, not less.”  Emphasis added.

Paul Krugman, from “The Urge to Purge,” NYT

Prez “Chaining” Himself for Nothing?

Josh Marshall at Talking Points Memo on the President’s coming out for chained CPI to calculate Social Security benefits:

“[O]n the politics, President Obama and his advisors have made clear this isn’t what President Obama is actually for. He doesn’t think it’s a good idea. It’s rather what he’s willing to do if Republicans are willing to make a big move on revenues. So he’s anticipating claims that he’s not serious about long term cuts and making clear that he’s willing to put real cuts, painful cuts that most of his supporters will hate, on the table. There’s an internal logic there. But the problem is that there doesn’t seem to be much of any evidence that Republicans are going to make that any kind of move like that. So really this is just the President negotiating with himself, validating the wisdom of big Social Security cuts while Republicans are still saying — and show no signs of not saying — that no more taxes should ever go up ever.

“Now, the counter to this is that the optics of going the extra length helps the President with swing voters who want to see he’s trying to compromise. I’m uncertain about that. But that’s certainly part of the calculus.

“But there’s the third point that I think is most important to understanding what’s going on here. This isn’t only about President Obama’s negotiating acumen. In conversations with the president’s key advisors and the President himself over the last three years one point that has always come out to me very clearly is that the President really believes in the importance of the Grand Bargain. He thinks it’s an important goal purely on its own terms. That’s something I don’t think a lot of his diehard supporters fully grasp. He thinks it’s important in long-range fiscal terms (and there’s some reality to that). But he always believes it’s important for the country and even for the Democratic party to have a big global agreement that settles the big fiscal policy for a generation and let’s the country get on to other issues — social and cultural issues, the environment, building the economy etc.

“This has always struck me as a very questionable analysis of the where the country is politically and what it needs. But I put it forward because I don’t think these moves can really be understood outside of this context.“  Emphasis added.

My personal feeling is that the President can’t do a Grand Bargain with the group that’s in Congress now, especially the House, and that we don’t need one anyway.  As the economy comes back, deficits are declining to reasonable levels in the short and medium-term.  A Grand Bargain can wait, but jobs and growth can’t.  The more growth we can fuel now, the less painful that Grand Bargain will ultimately have to be.  Now is the time to pave the way for a future Grand Bargain rather than for doing that Bargain itself.

Progressives are freaking out today about chained CPI, but it ain’t gonna happen without revenues, which means it ain’t gonna happen.  So the President is making an offer that the GOP can — and will — refuse.