Tuesday, November 24, 2009

US debt a phantom menace

Yesterday the New York Times reported that the United States is borrowing trillions of dollars under terms that seem "too good to be true" just as a "spending explosion" on benefits programs like Medicare and Social Security is set to begin.

In a series titled "Payback Time: Debt Bomb," the Times details the magnitude of our nation's borrowing and warns of an impending and monumental reality check:

"The government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.

With the national debt now topping $12 trillion, the White House estimates that the government's tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically."

Replete with charts and stupefying figures (Americans must pay off more than $1.6 trillion in debt by March 31, 2010), the piece states that there is "little doubt that the United States' long-term budget crisis is becoming too big to postpone."

Au contraire, says Times columnist and Nobel Prize-winning economist Paul Krugman, who warned about the very fear mongering about the deficit that the Times was engaged in:

"Most economists I talk to believe that the big risk to recovery comes from the inadequacy of government efforts: the stimulus was too small, and it will fade out next year, while high unemployment is undermining both consumer and business confidence."

Krugman cites a recent interview during which President Obama warned that "if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession."

Krugman's response: "What? Huh?"

"The concerns Mr. Obama expressed become comprehensible if you suppose that he's getting his views, directly or indirectly, from Wall Street.

Ever since the Great Recession began economic analysts at some (not all) major Wall Street firms have warned that efforts to fight the slump will produce even worse economic evils. In particular, they say, never mind the current ability of the U.S. government to borrow long term at remarkably low interest rates -- any day now, budget deficits will lead to a collapse in investor confidence, and rates will soar...

A better model [for our current economic plight], I'd argue, is Japan in the 1990s, which ran persistent large budget deficits, but also had a persistently depressed economy -- and saw long-term interest rates fall almost steadily. There's a good chance that officials are being terrorized by a phantom menace -- a threat that exists only in their minds.

Read Krugman's full piece here.

Likewise, economist Dean Baker, who was one of the first to recognize the housing bubble years before it burst, scoffs at the Times's over-hyped debt reporting. Baker's post -- titled, "In Just a Decade the U.S. Interest Burden Could Be as High as It Was in 1992!!!!!!!" -- notes that there is "no evidence presented in this article that the rise in interest rates will place the U.S. government in a situation where it will be unable to pay its bills and no one cited in this article makes such a claim."

Incidentally, today's Wall Street Journal features more evidence that the Obama administration is rejecting Krugman's advice. "The White House is lukewarm about proposals by congressional Democrats to introduce broad legislation to create jobs, instead favoring targeted measures that would be less likely to inflate the deficit," the Journal reports, citing administration officials.

Saturday, November 14, 2009

Jobs deficit requires bold action

Since the beginning of the Great Recession, unemployment has increased by 5.8%, the biggest increase since the Great Depression. The ranks of the long term unemployed (those laid off for more than six months) has soared to 5.6. million, also a post-depression peak. While Republicans like Congressman Paul Ryan, and Blue Dog Democrats hyperventilate about the threat of inflation and the federal deficit, America's working people are experiencing a real jobs deficit!

As the New York Times Bob Herbert notes:

Wall Street can boast about recovery all it wants, much of America remains trapped in economic hell.

It will take a monumental leadership effort by the administration and Congress to spark the kind of changes necessary to transform this wretched employment landscape. Ross Eisenbrey of the Economic Policy Institute has written: “By itself, the private sector is unable to create jobs in the numbers the United States needs to obtain a robust, full economic recovery.”

...we need to rethink our entire approach to employment. Conventional efforts to kick-start economic growth are dwarfed by the vast scale of the problem. Bold new efforts — creative efforts — are needed.

Herbert's piece is linked.

Wednesday, November 11, 2009

Bankers pocket billions while unemployment soars

Maureen Dowd writes:

Now we have two economies. We have recovering banks while we have 10-plus percent unemployment and 17.5 percent underemployment. The gross thing about the Wall Street of the last decade is how much its success was not shared with society.

Goldmine Sachs, as it’s known, is out for Goldmine Sachs.

As many Americans continue to struggle, Goldman, Morgan Stanley and JPMorgan Chase, banks that took government bailout money after throwing the entire world into crisis, have said they will dish out $30 billion in bonuses — up 60 percent from last year.

The saying used to be, whatever happens, the lawyers win. Now, it’s whatever happens, the bankers win.

The entire column is linked.

Sunday, November 8, 2009

Labor Secretary calls for jobs program

A jobless recovery is an oxymoron

If you are looking for an economic recovery you can believe in, the October employment report is not for you.

After contracting for a year and a half, the economy grew in the quarter that ended in September, driven largely by federal stimulus. But government spending, as large and as necessary as it has been, has not been enough to revive hiring.

Unemployment surged from 9.8 percent in September to 10.2 percent last month, its highest level since 1983. At the same time, the economy lost 190,000 more jobs. That means employers have eliminated 7.3 million positions since the recession began in December 2007.

As dreadful as they are, the headline numbers understate the severity of the problem. They also obscure an even grimmer fact: Unless there is more government support, it will take several years of robust economic growth — by no means a sure thing — to recoup the jobs that have been lost.

The unemployment rate includes only jobless people who have looked for work in the past four weeks. The underemployment rate — which also includes jobless workers who have not recently looked for work and part-timers who need full-time work — reached 17.5 percent in October. And the long-term unemployment rate — the share of the unemployed population out of work for more than six months — also continues to set records. It is now 35.6 percent.

The official job-loss data also fail to take note of 2.8 million additional jobs needed to absorb new workers who have joined the labor force during the recession. When those missing jobs are added to the official total, the economy comes up short by 10.1 million jobs.

Taken together, the numbers paint this stark picture: At no time in post-World War II America has it been more difficult to find a job, to plan for the future, or — for tens of millions of Americans — to merely get by.

At a recent meeting at the White House to discuss job creation, President Obama said that “bold, innovative action,” would be needed — from the administration, Congress and the private sector — to undo the devastation in the labor market. Americans are waiting for Mr. Obama to lead the way.

There were good ideas floated at the White House meeting, including bolstered federal support for efforts to retrofit and weatherize homes and public buildings. There was also talk of using government money to establishing a so-called infrastructure bank that would issue bonds to help finance big construction projects.

The country also needs a program that would create jobs for teenagers — ages 16 to 19 — whose unemployment rate is currently a record 27.6 percent. Deep and prolonged unemployment among the young is especially worrisome. It means they do not have a chance, and may never get the chance, to acquire needed skills, permanently hobbling their earnings potential.

We know that more stimulus spending and government programs are a fraught topic. But they are exactly what the country needs. It may be the only way to prevent a renewed downturn.

And the only way to create the jobs needed to put Americans back to work. Those are the essential — and missing — ingredients of a sustained recovery.

New York Times, November 8, 2009

Saturday, November 7, 2009

Job loss dominates political landscape

On Friday the Department of Labor reported that the unemployment rate had climbed to 10.2%, its highest rate since April 1983.

Nearly 16 million people cannot find work.

The underemployment rate which includes discouraged workers who have given up looking for jobs and those working part-time because they cannot find full time employment hit 17.5%

Economic insecurity and jobs have become the the nation's dominant political issue.

New York Times columnist Charles Blow writes:

This is now Obama’s crisis, and it carries political consequences. During Tuesday’s gubernatorial races in New Jersey and Virginia, nearly 9 in 10 voters said that they were worried about the direction of the nation’s economy in the next year. And the majority of those who held that view voted for the Republican candidates. This could portend a flashback to 1994.

It isn’t President Obama’s fault that he inherited this mess, but it is his to fix, and he must make haste. To paraphrase his Toledo prelection: you need to do it not five years from now, not next year, you need to do it right now. J-O-B-S.

Wednesday, November 4, 2009

Declining wages threaten economic recovery

Global growth in real wages slowed dramatically in 2008 as a result of the economic crisis.

Wages are expected to drop even further this year despite some signs of an economic recovery, the International Labour Organization (ILO) reports.

“The continued deterioration of real wages worldwide raises serious questions about the true extent of an economic recovery, especially if government rescue packages are phased out too early. Wage deflation deprives national economies of much needed demand and seriously affects confidence”, said Manuela Tomei, Director, ILO Conditions of Work and Employment Programme and lead author of the study.

Consumption accounts for seventy percent of the U.S. economy and has been the engine of growth for almost thirty years. A continued decline in real wages will further depress consumption at a time when U.S. consumers are already tapped out on credit, business investment is stagnate, unemployment is expected to rise to over 10% and banks remain reluctant to make loans.

If real wages continue to decline economists worry that the 3.5% increase in GDP last quarter, driven by federal stimulus spending including the cash for clunkers program and the homeowners tax credit, will not be sustainable.

In this context Milwaukee County Executive and Republican candidate for Governor Scott Walker's pledge to cut wages if elected would undermine any possibility of economic recovery in Wisconsin.

The ILO adopted a Global Jobs Pact at the International Labour Conference in June that calls for measures to maintain employment and avoid the damaging consequences of deflationary wage spirals and worsening working conditions.

The update of the Global Wage Report says “the picture on wages is likely to get worse in 2009” regardless of other economic indicators suggesting an economic rebound. The report notes that in half of the 35 countries for which figures are available, real monthly wages fell in the first quarter of 2009 compared to their average of 2008, often due to cuts in hours worked.

The current deterioration in wages follows a decade of wage moderation before the global economic crisis. The report says that years of stagnating wages relative to productivity gains – together with growing inequalities – have contributed to the crisis by limiting the ability of many households to increase consumption other than through debt.

“In the future, restoring the link between productivity growth and wage increases is essential for economic and social sustainability. Companies should be able to achieve competitiveness through rising productivity rather than by cutting labour costs, and workers should have sufficient bargaining position to defend their wages. This will go a long way towards addressing income inequalities”, Ms. Tomei said.

The report also concludes that excessive bonuses, unrelated to actual performance, contributed to the crisis by distorting incentives in the financial sector and promoting short-term risk taking.

Monday, November 2, 2009

Favre's Green Bay return like your high school 25th reunion

The Packers Vikings game drew the largest non-playoff crowd in Green Bay history. It lived up to its hype, after the Packers came alive in the second half.

There was more Viking purple in the stands than one would expect. But as a friend of mine from the Philly area noted, the Green Bay fans were extremely good natured in their support for the home team and their tolerance of visitors from the north.

The Wall Street Journal Jason Gay had the game's best one liner which is actually two:

If you were a Packer fan at Lambeau, it had to smart. Sort of like watching your high school girlfriend show up to your 25th reunion—with George Clooney.

Nobel Prize winner calls for more federal job creation

Nobel Prize winning economist Paul Krugman writes:

The good news is that the American Recovery and Reinvestment Act, a k a the Obama stimulus plan, is working just about the way textbook macroeconomics said it would. But that’s also the bad news — because the same textbook analysis says that the stimulus was far too small given the scale of our economic problems. Unless something changes drastically, we’re looking at many years of high unemployment.

And the really bad news is that “centrists” in Congress aren’t able or willing to draw the obvious conclusion, which is that we need a lot more federal spending on job creation.

The article is attached.