Rick Perry Turns in an Acceptable Performance
The first GOP Presidential debate featuring Rick Perry was at times a boring affair, but one that ultimately served its purpose for front-runners Rick Perry and Mitt Romney as it clarified a clear choice between the only two candidates at this stage that have a realistic shot at the GOP nomination.
Perry didn't exactly set the world on fire with his debate performance, but he showed that he can hold his own on the stage with Mitt Romney, who had been running over the rest of the field in the previous two contests that he had attended. Perry hit Romney hard on his job creation record in Massachusetts (a factually dubious claim, given the very low unemployment rate when Romney left office, but an effective talking point nonetheless), the similarity of Romney's health care plan in Massachusetts to Obama's national plan (a very true fact, and it's a shame that Romney won't defend the success of that plan) and generally staked out his turf as the more conservative alternative. He didn't come off as a wing nut or a slave to the Tea Party, but his red meat barbs at President Obama should be enough to satisfy that wing of the party.
Romney, for his part, made no real mistakes, but also didn't break any real new ground or necessarily effective refute Romney's position, which is, in essence, that Romney is too moderate for the average GOP primary voter.
As I said before, my money is still on Romney in the long run - I just feel he is a better politician than Perry and that Perry will ultimately be prone to say more things that will alienate mainstream voters. But Perry did well to solidify his standing in this depend.
My last thought on the GOP debate is -- who the hell did the make-up for the candidates? Every candidate appeared to have an awful case of John Boehner orange skin disease. You'd think they could get these things nailed down for a national television appearance. One candidate looking oddly orange would have been interesting, but the whole field looking that way had me scratching my head.
Does Anybody Really Expect This Thing to Pass?
The GOP controls the House and has a large enough minority to effectively filibuster in the Senate. President Obama's new $400B+ stimulus package, consisting of lower-income and middle-class tax breaks, infrastructure spending, extended unemployment benefits and aid to states is an interesting policy paper. But does anyone expect that it will even get to a vote in either chamber?
The only piece that might gain some traction is continued payroll tax reductions. After all, the GOP loves to cut taxes. But those pesky taxes on the rich? Forget it. More spending of any kind? Deader than dead.
This will be an interesting speech that ultimately means nothing. It was as much about staking out ground for a campaign as actually trying to get something done. Pay attention to the deficit super committee, ignore this piece of DOA legislation.
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Showing posts with label economic stimulus. Show all posts
Showing posts with label economic stimulus. Show all posts
Friday, September 9, 2011
Saturday, August 6, 2011
Osama Bin Who?, What to Make of the State of the Economy, Debate #3 Prepping
President Obama - At the Low Point
I remember when Osama Bin Laden was killed by a daring raid on his compound in Pakistan just a few months ago. Political pundits, both wishful Democrats and mainstream commentators were speaking of how this would seal the deal to re-elect President Barack Obama to a second term. I got a good laugh at the time. It isn't that President Obama didn't get a bounce in the polls as a result of the Bin Laden raid - he clearly did. For a fleeting second, we were just a bit more unified as Americans. It is just that I know how short the American attention span is. President George Herbert Walker Bush was flying at 89% approval in the spring of 1991, coming fresh off victory in the Persian Gulf. By November of 1992, his approval was 34% and he got a mere 38% of the vote in his attempt at re-election.
Whether President Obama is re-elected in November 2012 remains to be seen. As I just noticed, a lot can happen fast in American politics. What is clear is that the approval benefit that the President got from the killing of Osama Bin Laden has faded and then some. The last few weeks of debt-ceiling wrangling has taken its toll on his numbers, as evidenced below.
His monthly numbers put him at the low point of his Presidency. Being clearly into the negative numbers is perilous for a guy hoping to be re-elected. The gamblers on Intrade still think an Obama re-election is more likely than not (it is currently priced at a 54% probability), but less likely than at any previous point in his Presidency. Simply, unless the Republicans commit suicide with a candidate like Bachmann, the President will need to at least hold and probably improve his current job approval numbers to get four more years in the White House.
Correcting Stock Markets, Austerity and Debt Downgrades, Oh My!
The investment world took a collective gasp this week. It wasn't one event. In fact, in a lot of ways, the fundamentals were looking better. The debt ceiling was raised. The European central bank is looking into buying the debt of Italy and Spain, providing an under-pinning of support for the fragile Euro. Corporate profits are at record levels. But people are very nervous. And there are causes to be nervous.
1. Austerity
The debt deal will clearly lead to lower government spending, across the board, which has an anti-stimulative effect on an economy, at least in the near-term. $666B of the $787B in stimulus funds (85%), the keystone economic program of the Obama administration to date have already been spent. The "stimulus by another name" payroll tax credit expires at the end of the year. Extended unemployment benefits are also set to expire at the end of the year.
President Obama has called for extension of unemployment benefits, an extension of the payroll tax cut and increased spending on infrastructure, all of which sounds like stimulus without the President actually calling it stimulus. But is it realistic to spend more and tax less at the same time that the Congressional panel must find another $1.5 trillion in cuts or tax hikes over the next 10 years? It's hard to do deficit reduction and stimulus at the same time.
2. The Stubborn Jobs Picture
Hiring actually picked up a little in June, but progresses at an anemic pace. The 117,000 jobs created last month are scarcely enough to keep pace with population growth. The official unemployment rate remains a stubbornly high 9.1%. If you include those who have given up looking for work, it's an even-more depressing 10.9%. Include those working part-time who are trying to work full-time and you get the "underemployment" rate, a whopping 16.4%.
People who aren't working aren't generating economic output, paying taxes or spending money. Not a great place to be.
3. The Debt Downgrade
Standard and Poors downgraded the quality of U.S. Government Bonds from the highest rating of AAA, a rating U.S. debt has held for all of modern history, to its second-highest rating of AA+. This has received a lot of press, but is probably overblown. Treasury yields are near the lowest levels in modern history as the massive sums of cash not being used to grow the economy are finding their way to the "safe haven" of governmental debt. There simply is no other debt market that can hold that much cash and so it is highly likely that Treasury Yields will remain low of the near-term and the government will not have an issue finding a home for its debts.
Besides, let's be real...S&P doesn't exactly have a stellar track record. Those Collatoralized Debt Obligations that imploded the economy in 2008? AAA rated by S&P. AIG's debt in 2007? AAA rated by S&P. Is S&P really saying that governmental debt now is more risky than AIG or CDO's were then? Or perhaps they are just admitting that they aren't very good at projecting risk.
At any rate, the economy continues to limp along. Whether it will take a turn towards higher growth or slide back into a second recession is difficult to predict. But it will have a huge impact on the election.
Time for Another GOP Debate - What to Watch
Next Thursday at 9 PM ET, Fox News will host the third official GOP Presidential primary debate. I say third official, because the first debate was before the major players got in and therefore excluded key contenders like Mitt Romney and was not broadly watched. This debate should feature all the key players, except for the still-undecided Texas Governor Rick Perry, who really is the guy everyone wants to see.
What we should be watching is how hard the other candidates come after Romney, who is the clear front-runner at this point. Romney has been on lock-down during the debt ceiling discussion, stating no point-of-view. Are the other candidates going to call him on it? Go after him for Romney-care? Try to sell themselves as the more plausible alternative?
Tim Pawlenty was widely criticized for playing it very safe in the second official (but first broadly participated) debate and failing to go after Romney. His campaign is languishing, so don't expect that this time. Expect Bachmann to be full of fire, as she always is. And expect the others to attempt to do something to break themselves out of the pack. I'm just not convinced that any of the present field can beat Romney or that anybody other than Romney can beat Obama. But, like I said, Rick Perry isn't in the game yet.
If you like this game, tell your friends.
I remember when Osama Bin Laden was killed by a daring raid on his compound in Pakistan just a few months ago. Political pundits, both wishful Democrats and mainstream commentators were speaking of how this would seal the deal to re-elect President Barack Obama to a second term. I got a good laugh at the time. It isn't that President Obama didn't get a bounce in the polls as a result of the Bin Laden raid - he clearly did. For a fleeting second, we were just a bit more unified as Americans. It is just that I know how short the American attention span is. President George Herbert Walker Bush was flying at 89% approval in the spring of 1991, coming fresh off victory in the Persian Gulf. By November of 1992, his approval was 34% and he got a mere 38% of the vote in his attempt at re-election.
Whether President Obama is re-elected in November 2012 remains to be seen. As I just noticed, a lot can happen fast in American politics. What is clear is that the approval benefit that the President got from the killing of Osama Bin Laden has faded and then some. The last few weeks of debt-ceiling wrangling has taken its toll on his numbers, as evidenced below.
His monthly numbers put him at the low point of his Presidency. Being clearly into the negative numbers is perilous for a guy hoping to be re-elected. The gamblers on Intrade still think an Obama re-election is more likely than not (it is currently priced at a 54% probability), but less likely than at any previous point in his Presidency. Simply, unless the Republicans commit suicide with a candidate like Bachmann, the President will need to at least hold and probably improve his current job approval numbers to get four more years in the White House.
Correcting Stock Markets, Austerity and Debt Downgrades, Oh My!
The investment world took a collective gasp this week. It wasn't one event. In fact, in a lot of ways, the fundamentals were looking better. The debt ceiling was raised. The European central bank is looking into buying the debt of Italy and Spain, providing an under-pinning of support for the fragile Euro. Corporate profits are at record levels. But people are very nervous. And there are causes to be nervous.
1. Austerity
The debt deal will clearly lead to lower government spending, across the board, which has an anti-stimulative effect on an economy, at least in the near-term. $666B of the $787B in stimulus funds (85%), the keystone economic program of the Obama administration to date have already been spent. The "stimulus by another name" payroll tax credit expires at the end of the year. Extended unemployment benefits are also set to expire at the end of the year.
President Obama has called for extension of unemployment benefits, an extension of the payroll tax cut and increased spending on infrastructure, all of which sounds like stimulus without the President actually calling it stimulus. But is it realistic to spend more and tax less at the same time that the Congressional panel must find another $1.5 trillion in cuts or tax hikes over the next 10 years? It's hard to do deficit reduction and stimulus at the same time.
2. The Stubborn Jobs Picture
Hiring actually picked up a little in June, but progresses at an anemic pace. The 117,000 jobs created last month are scarcely enough to keep pace with population growth. The official unemployment rate remains a stubbornly high 9.1%. If you include those who have given up looking for work, it's an even-more depressing 10.9%. Include those working part-time who are trying to work full-time and you get the "underemployment" rate, a whopping 16.4%.
People who aren't working aren't generating economic output, paying taxes or spending money. Not a great place to be.
3. The Debt Downgrade
Standard and Poors downgraded the quality of U.S. Government Bonds from the highest rating of AAA, a rating U.S. debt has held for all of modern history, to its second-highest rating of AA+. This has received a lot of press, but is probably overblown. Treasury yields are near the lowest levels in modern history as the massive sums of cash not being used to grow the economy are finding their way to the "safe haven" of governmental debt. There simply is no other debt market that can hold that much cash and so it is highly likely that Treasury Yields will remain low of the near-term and the government will not have an issue finding a home for its debts.
Besides, let's be real...S&P doesn't exactly have a stellar track record. Those Collatoralized Debt Obligations that imploded the economy in 2008? AAA rated by S&P. AIG's debt in 2007? AAA rated by S&P. Is S&P really saying that governmental debt now is more risky than AIG or CDO's were then? Or perhaps they are just admitting that they aren't very good at projecting risk.
At any rate, the economy continues to limp along. Whether it will take a turn towards higher growth or slide back into a second recession is difficult to predict. But it will have a huge impact on the election.
Time for Another GOP Debate - What to Watch
Next Thursday at 9 PM ET, Fox News will host the third official GOP Presidential primary debate. I say third official, because the first debate was before the major players got in and therefore excluded key contenders like Mitt Romney and was not broadly watched. This debate should feature all the key players, except for the still-undecided Texas Governor Rick Perry, who really is the guy everyone wants to see.
What we should be watching is how hard the other candidates come after Romney, who is the clear front-runner at this point. Romney has been on lock-down during the debt ceiling discussion, stating no point-of-view. Are the other candidates going to call him on it? Go after him for Romney-care? Try to sell themselves as the more plausible alternative?
Tim Pawlenty was widely criticized for playing it very safe in the second official (but first broadly participated) debate and failing to go after Romney. His campaign is languishing, so don't expect that this time. Expect Bachmann to be full of fire, as she always is. And expect the others to attempt to do something to break themselves out of the pack. I'm just not convinced that any of the present field can beat Romney or that anybody other than Romney can beat Obama. But, like I said, Rick Perry isn't in the game yet.
If you like this game, tell your friends.
Saturday, June 25, 2011
A Civil Rights Victory in New York, Huntsman Gets in the Game, Miserable Money Malaise
New York Makes it Six
Despite weak national leadership on the subject by President Obama, a courageous New York State Senate voted Friday night to legalize gay marriage in the State of New York. The bill had previously cleared the Democratically controlled state House and passed on a final vote through the GOP-controlled body 33-29, which included the votes of 29 of the 30 Democrats in the body and 4 Republicans who were bold enough to buck their party base and their leadership to do the right thing. An enthusiastic Governor Andrew Cuomo quickly signed the bill and it is now law.
It is worth appreciating just how far we have come on this issue in a short period of time. In 2004, Massachusetts became the first state in the United States to legalize same-sex marriage, but did so through a state court order. This court order set off a fire-storm which, along with some clever politicking by Karl Rove, led to a slew of ballot initiatives in 2004 and beyond which explicitly banned same-sex marriage in 28 states. It wasn't until 2009 that the first legislative legalization of same-sex marriage occurred, with most of New England acting the same year - Vermont, New Hampshire and Maine all legalized through the legislative process although Maine's legalization was overturned by a 53%-47% ballot vote on a proposition to repeal in 2009. Iowa and Connecticut also legalized same-sex marriage by court order. The District of Columbia has also legalized same-sex marriage by city ordinance.
The New York law is significant in several ways. First of all, it is the largest state that currently allows same-sex marriage (California allowed same-sex marriage for a brief period before the now-infamous Prop 8 passed by a narrow 52-48% vote in 2008.) Secondly, it is the first time ever that a Republican-controlled state body has passed a gay marriage bill. The 4 Republicans who crossed over deserve all the credit in the world for their courage, credit I withhold from President Obama, who has been decidedly weak on this issue.
So, here is where things stand as of the New York change:
States/Localities Where Gay Marriage is Legal and Performed: Massachusetts, Vermont, New Hampshire, Connecticut, Iowa, New York, District of Columbia -- 35.1 million people live in these states or 11.4% of the population
States/Localities Where Gay Marriage is Legal But Not Performed (out-of-state gay marriages recognized): Maryland, New Mexico -- 7.8 million people live in these states or 2.5% of the population
States/Localities Without Gay Marriage but With Civil Unions with Equivalent Rights: New Jersey, Delaware, Illinois, Nevada, California, Oregon, Washington, Hawaii -- 74.4 million people live in these states or 24.1% of the population
States/Localities Without Gay Marriage but With Civil Unions with Limited Rights: Colorado, Wisconsin, Maine -- 12.0 million people live in these states or 3.9% of the population
So, cumulatively,
11.4% of the population can get a gay marriage in their home state
13.9% of the population can get a gay marriage and have it recognized in their home state
38.0% of the population has access to either gay marriage or equivalent rights through a civil union
41.9% of the population has access to at least some form of civil union rights
So, we've made a lot of progress but still have a lot to do.
So where are the next fronts in this debate?
(1) The Potential Gay Marriage States
California - a Prop 8 repeal seems likely eventually. The vote was very close in 2008, attitudes have shifted to be somewhat more pro-gay marriage since then and the 2008 vote was ironically hampered by a very high African-American turnout in 2008 (African-Americans are overwhelmingly opposed to gay marriage but tend to break liberal other than that.) 2012 wouldn't be the ideal time to try, but 2014 might be.
Maine - the last vote in 2009 was only 53%-47%, a new vote might yield a victory for gay rights advocates at the ballot box.
Rhode Island - recent polling indicates strong support (60%+) among the voting population there, although the actual avenue would likely be by legislation through the state house.
Illinois, Washington, Oregon - all states with full civil unions where there is public support for gay marriage (I exclude New Jersey from this list as gay marriage likely has no chance as long as Chris Christie is Governor)
(2) Next Frontiers for Civil Unions
States where civil unions would likely have public support but are probably not ready for gay marriage include a lot of traditional swing states:
Pennsylvania, Ohio, Michigan
(3) The Constitutionality of the Defense of Marriage Act
This act, cowardly signed by President Bill Clinton in 1996 permitted states not to recognize gay marriages performed elsewhere. I've been amazed that this issue has not made it to the Supreme Court, as it seems, on face, to be flagrantly unconstitutional. Article 4, Section 1 of the constitution states:
"Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State. And the Congress may by general Laws prescribe the Manner in which such Acts, Records and Proceedings shall be proved, and the Effect thereof."
The so called "Full Faith and Credit" clause is crystal-clear to the average person. States must honor contracts, legal proceedings and public acts performed in all the other states. It is the basis of our system of rights and property laws. And gay marriage is clearly all three (a contract, a legal proceeding and a public act.)
The Defense of Marriage Act itself quotes the Full Faith and Credit clause and claims constitutionality on the basis that the constitution provides congress the right to the Congress to make determinations about what qualifies under Article 4, Section 1. The constitution contains no such language. I've quoted Article 4, Section 1 in its entirety above.
Conservative support for this highly dubious constitutional argument flies in the face of alleged "strict constructionism". The truth is, conservatives seem fine with judicial activism as long as it supports their agenda.
Much more to come on this key civil rights fight.
Jon Huntsman, The Moderate Long Shot
Speaking of gay rights supporters, former Utah Governor and former Obama Administration Ambassador to China Jon Huntsman got in the race this week. Huntsman is a long shot, for several reason. The first is that his pragmatic, moderate politics don't play well to Republican primary crowds. Huntsman favors civil unions (the same position, as best I can tell, as President Obama), recognizes man-made global warming and has a history of working across the aisle, great general election qualities but poison pills to the tea party. He also suffers from very low name recognition and crowded space among mainstream establishment Republicans (he looks and sounds a lot like both Mitt Romney and Tim Pawlenty.) I don't expect Huntsman to win, but he is going to be an interesting voice in the debate.
The Rotten Economy
Unemployment still stands at 9.1%. US Economic growth for the first quarter was only 1.9% and expected to be only modestly better in the second quarter (to give you a feel, 3% growth is generally required just to maintain the unemployment rate, 4 or 5% to significantly dent it.)
President Obama is stuck. New stimulus is a non-starter in the GOP House. Tax cuts only pile on to an already untenable deficit and debt load. He's stuck riding this one out. And as we've often discussed, economics are the single most important factor in Presidential elections.
The approximately 3-year stimulus plan that was already passed continues but is almost out of juice. As of now:
Tax Cut Paid Out: $259.9 billion out of $288 billion (90.2% complete)
Spending: $395.0 billion of $499 billion (79.2% complete)
Overall: $654.9 billion out of $787 billion (83.2% complete)
Of course, the GOP and President Obama agreed to a stimulus bill of sorts at the end of 2010 as part of the deal to extend the Bush Tax Cuts for all. The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 provided for many measures intended to stimulate the economy:
* Extension of Bush-era income and capital gains tax reductions through 2012 as well as a compromise on the estate tax rate
* A "fix" to the alternative minimum tax, which raised exemptions to prevent middle-class families from falling under the tax
* Extensions of the American Recovery and Reinvestment Act's Child Tax Credit, Earned Income Tax Credit, and American Opportunity Tax Credit
* Job Creation Tax Credits, Ethanol Tax Credits and Accelerated Depreciation Tax Credits for businesses
* A 13-month extension in unemployment benefits
* A brand-new, 1 year payroll tax reduction
This was clearly a much more Republican bill than the original stimulus. The original stimulus was 62% spending and 38% tax cuts and totaled $787B in cost.
The 2010 bill was almost as large, costing approximately $671B, but was only 8% taxing and 92% tax cuts. Spending in the bill broke down as follows:
* Provisions extending Bush-era tax cuts -- 46%
* New Middle Class and Working Class tax cuts -- 37%
* New spending provisions - 8%
* Provisions extending Obama stimulus tax cuts -- 6%
* Other business tax cuts - 3%
Arguably, for all the talk of President Obama being a socialist, he has been the most tax-cutting President in US history. The problem is, he also likes to spend. There is some argument for this as a short-term measure to jump-start the economy. But we are way past short-term. We need to solve the structural deficit, not pass another set of tax gimmicks. Any ideas on how to get to a compromise on that one?
Despite weak national leadership on the subject by President Obama, a courageous New York State Senate voted Friday night to legalize gay marriage in the State of New York. The bill had previously cleared the Democratically controlled state House and passed on a final vote through the GOP-controlled body 33-29, which included the votes of 29 of the 30 Democrats in the body and 4 Republicans who were bold enough to buck their party base and their leadership to do the right thing. An enthusiastic Governor Andrew Cuomo quickly signed the bill and it is now law.
It is worth appreciating just how far we have come on this issue in a short period of time. In 2004, Massachusetts became the first state in the United States to legalize same-sex marriage, but did so through a state court order. This court order set off a fire-storm which, along with some clever politicking by Karl Rove, led to a slew of ballot initiatives in 2004 and beyond which explicitly banned same-sex marriage in 28 states. It wasn't until 2009 that the first legislative legalization of same-sex marriage occurred, with most of New England acting the same year - Vermont, New Hampshire and Maine all legalized through the legislative process although Maine's legalization was overturned by a 53%-47% ballot vote on a proposition to repeal in 2009. Iowa and Connecticut also legalized same-sex marriage by court order. The District of Columbia has also legalized same-sex marriage by city ordinance.
The New York law is significant in several ways. First of all, it is the largest state that currently allows same-sex marriage (California allowed same-sex marriage for a brief period before the now-infamous Prop 8 passed by a narrow 52-48% vote in 2008.) Secondly, it is the first time ever that a Republican-controlled state body has passed a gay marriage bill. The 4 Republicans who crossed over deserve all the credit in the world for their courage, credit I withhold from President Obama, who has been decidedly weak on this issue.
So, here is where things stand as of the New York change:
States/Localities Where Gay Marriage is Legal and Performed: Massachusetts, Vermont, New Hampshire, Connecticut, Iowa, New York, District of Columbia -- 35.1 million people live in these states or 11.4% of the population
States/Localities Where Gay Marriage is Legal But Not Performed (out-of-state gay marriages recognized): Maryland, New Mexico -- 7.8 million people live in these states or 2.5% of the population
States/Localities Without Gay Marriage but With Civil Unions with Equivalent Rights: New Jersey, Delaware, Illinois, Nevada, California, Oregon, Washington, Hawaii -- 74.4 million people live in these states or 24.1% of the population
States/Localities Without Gay Marriage but With Civil Unions with Limited Rights: Colorado, Wisconsin, Maine -- 12.0 million people live in these states or 3.9% of the population
So, cumulatively,
11.4% of the population can get a gay marriage in their home state
13.9% of the population can get a gay marriage and have it recognized in their home state
38.0% of the population has access to either gay marriage or equivalent rights through a civil union
41.9% of the population has access to at least some form of civil union rights
So, we've made a lot of progress but still have a lot to do.
So where are the next fronts in this debate?
(1) The Potential Gay Marriage States
California - a Prop 8 repeal seems likely eventually. The vote was very close in 2008, attitudes have shifted to be somewhat more pro-gay marriage since then and the 2008 vote was ironically hampered by a very high African-American turnout in 2008 (African-Americans are overwhelmingly opposed to gay marriage but tend to break liberal other than that.) 2012 wouldn't be the ideal time to try, but 2014 might be.
Maine - the last vote in 2009 was only 53%-47%, a new vote might yield a victory for gay rights advocates at the ballot box.
Rhode Island - recent polling indicates strong support (60%+) among the voting population there, although the actual avenue would likely be by legislation through the state house.
Illinois, Washington, Oregon - all states with full civil unions where there is public support for gay marriage (I exclude New Jersey from this list as gay marriage likely has no chance as long as Chris Christie is Governor)
(2) Next Frontiers for Civil Unions
States where civil unions would likely have public support but are probably not ready for gay marriage include a lot of traditional swing states:
Pennsylvania, Ohio, Michigan
(3) The Constitutionality of the Defense of Marriage Act
This act, cowardly signed by President Bill Clinton in 1996 permitted states not to recognize gay marriages performed elsewhere. I've been amazed that this issue has not made it to the Supreme Court, as it seems, on face, to be flagrantly unconstitutional. Article 4, Section 1 of the constitution states:
"Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State. And the Congress may by general Laws prescribe the Manner in which such Acts, Records and Proceedings shall be proved, and the Effect thereof."
The so called "Full Faith and Credit" clause is crystal-clear to the average person. States must honor contracts, legal proceedings and public acts performed in all the other states. It is the basis of our system of rights and property laws. And gay marriage is clearly all three (a contract, a legal proceeding and a public act.)
The Defense of Marriage Act itself quotes the Full Faith and Credit clause and claims constitutionality on the basis that the constitution provides congress the right to the Congress to make determinations about what qualifies under Article 4, Section 1. The constitution contains no such language. I've quoted Article 4, Section 1 in its entirety above.
Conservative support for this highly dubious constitutional argument flies in the face of alleged "strict constructionism". The truth is, conservatives seem fine with judicial activism as long as it supports their agenda.
Much more to come on this key civil rights fight.
Jon Huntsman, The Moderate Long Shot
Speaking of gay rights supporters, former Utah Governor and former Obama Administration Ambassador to China Jon Huntsman got in the race this week. Huntsman is a long shot, for several reason. The first is that his pragmatic, moderate politics don't play well to Republican primary crowds. Huntsman favors civil unions (the same position, as best I can tell, as President Obama), recognizes man-made global warming and has a history of working across the aisle, great general election qualities but poison pills to the tea party. He also suffers from very low name recognition and crowded space among mainstream establishment Republicans (he looks and sounds a lot like both Mitt Romney and Tim Pawlenty.) I don't expect Huntsman to win, but he is going to be an interesting voice in the debate.
The Rotten Economy
Unemployment still stands at 9.1%. US Economic growth for the first quarter was only 1.9% and expected to be only modestly better in the second quarter (to give you a feel, 3% growth is generally required just to maintain the unemployment rate, 4 or 5% to significantly dent it.)
President Obama is stuck. New stimulus is a non-starter in the GOP House. Tax cuts only pile on to an already untenable deficit and debt load. He's stuck riding this one out. And as we've often discussed, economics are the single most important factor in Presidential elections.
The approximately 3-year stimulus plan that was already passed continues but is almost out of juice. As of now:
Tax Cut Paid Out: $259.9 billion out of $288 billion (90.2% complete)
Spending: $395.0 billion of $499 billion (79.2% complete)
Overall: $654.9 billion out of $787 billion (83.2% complete)
Of course, the GOP and President Obama agreed to a stimulus bill of sorts at the end of 2010 as part of the deal to extend the Bush Tax Cuts for all. The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 provided for many measures intended to stimulate the economy:
* Extension of Bush-era income and capital gains tax reductions through 2012 as well as a compromise on the estate tax rate
* A "fix" to the alternative minimum tax, which raised exemptions to prevent middle-class families from falling under the tax
* Extensions of the American Recovery and Reinvestment Act's Child Tax Credit, Earned Income Tax Credit, and American Opportunity Tax Credit
* Job Creation Tax Credits, Ethanol Tax Credits and Accelerated Depreciation Tax Credits for businesses
* A 13-month extension in unemployment benefits
* A brand-new, 1 year payroll tax reduction
This was clearly a much more Republican bill than the original stimulus. The original stimulus was 62% spending and 38% tax cuts and totaled $787B in cost.
The 2010 bill was almost as large, costing approximately $671B, but was only 8% taxing and 92% tax cuts. Spending in the bill broke down as follows:
* Provisions extending Bush-era tax cuts -- 46%
* New Middle Class and Working Class tax cuts -- 37%
* New spending provisions - 8%
* Provisions extending Obama stimulus tax cuts -- 6%
* Other business tax cuts - 3%
Arguably, for all the talk of President Obama being a socialist, he has been the most tax-cutting President in US history. The problem is, he also likes to spend. There is some argument for this as a short-term measure to jump-start the economy. But we are way past short-term. We need to solve the structural deficit, not pass another set of tax gimmicks. Any ideas on how to get to a compromise on that one?
Sunday, March 20, 2011
Catching Up with the President's Numbers, Budget Malaise Continues, The Stimulus Winds Down, A US War in Libya?
The President's Numbers and the 2012 Race
As I've often said, the single most determining factor in a Presidential re-election is the incumbent President's approval. Therefore, while it's fun to watch the slow-motion race to the Republican nomination, it's probably far more relevant to look and see how the American public is judging President Obama's term in office.
Of course, that good old American public is fickle. Famously, President George Herbert-Walker Bush had a 91% approval (that was actually just in one poll, his average was something close to 80%, but you get the point) a year before one of the worst re-election showings in history, receiving a mere 38% of the popular vote. The thing that turns these numbers on a dime is the economy, and more specifically the 1.5% income growth rule...that is that President's that have the good fortune to see 1.5% income growth in the election year are generally re-elected, while those that see less are not.
Still, you have to know where you are before you can project where you are going.
So, let's look at the last 2 months of poll data. There is some noise along the way, but here is how I would generally explain the trend:
(1) The President CLEARLY got a real bump from his end of year legislative victories, including the ratification of the START treaty, the passage of the 9/11 first responders bill and the repeal of Don't Ask, Don't Tell (a policy change still mired in the pentagon maze, but that's another story for another day.) At the beginning of January (before the range on the chart), the President was average around -4%. By the end of January he was at around +7%, an 11% upswing - huge in the world of electoral politics.
(2) The bounce didn't last at those levels. As is often the case with big bumps like that, memories fade as time goes by. By the end of February, the President's averages were down to about +2.5%, still 6.5% better than where he was at the end of the year, but a 4.5% downgrade from his end of January numbers.
(3) He settled in at this higher level so far in March. So while the President has not maintained all of his bounce, he has certainly maintained at a higher level than he ended last year. This, in my opinion, is in large measure due to improving economic conditions.
Looking at his monthly numbers over his Presidency, we can February was the President's best numbers month since the first year of his Presidency, when there was a halo effect over his historic victory. The last 3 months have marked 3 months in a row in the black, following 6 straight months in the red.
So, what does all this mean for 2012? The President is back at an approval level where he could win, but it is far from a slam dunk. At number of +2.5%, he's right in the range where we could be in for a very competitive 2012 race. Of course, this could all change in either direction in a hurry.
Is This the Last CR?
It's amazing that the new Congress has been in session for nearly 3 months and with the exception of a few symbolic votes (the House voting to repeal Obamacare, for instance) and some non-controversial business, basically all it has done is to pass short-term extensions to the budget - 2 of them so far, but the 5th and 6th ones of a budget year that began October 1st and is almost half over. The latest, which extends government funding for 3 weeks, with $6B in domestic discretionary cuts, passed fairly easily with bi-partisan support, with opposition mostly coming from liberals who felt it went too far with the cuts and conservatives who felt it didn't go far enough with the cuts.
Both sides are saying this is the last one and the bi-partisan "gang of 6" is working towards a compromise, but it is very unclear still how exactly what the compromise they are driving towards will look like. Basically, with the 2 continuing resolutions passed so far, $10B of the $64B that the GOP sought to cut from the discretionary budget has already been passed. So the debate comes down to how much of the remaining $54B will be agreed to. I imagine that the final figure will be somewhere in the $30B range of additional cuts, but again, we are dealing with chump change, relative to the other aspects of the budget.
I continue to hold out hope that congress and the President will dispose of the domestic discretionary question relatively soon and have a real adult debate about entitlement spending, taxes and defense spending, the three levers that really matter when it comes to deficit reduction.
The Winding Down of the American Recovery and Reinvestment Act
Remember the stimulus? That $787B package of tax cuts, infrastructure investments and short-term entitlement enhancements that was more or less the first order of business when the President took office?
As I said at the time, it was really more a 3-year package of economic policy than a short-term shot in the arm to the economy. And, after over 2 years, it is reaching the end of its implementation. And while the GOP has talked tough about repealing its elements, it has more or less run according to its original plan. The latest numbers show the following dispersement of stimulus funds:
Tax Cuts: $260B out of $288B spent (90% spent)
Spending: $368B out of $499B spent (74% spent)
Overall: $628B out of $787B spent (80% spent)
The stimulus was really one of several pieces of key economic policy over the past 2+ years. Let's review all of them and their effectiveness:
(1) The Troubled Asset Relief Program
The $700B package of funding that was used to recapitalize banks, fund the transformation and bankruptcy of GM and Chrysler, bail out AIG and manage the massive losses at Fannie Mae and Freddie Mac was originally passed in the final days of the George W. Bush administration, but largely implemented during the Obama administration. Despite lots of, frankly very fair, criticism at the time, about the lack of limits on executive pay and the lack of help for the borrowers while lenders were being bailed out, the program has, in essence, been a pretty unqualified success.
The bank bailouts will turn a healthy profit and the auto bailout will likely yield only a small loss. With more substantial losses surrounding AIG and Fannie and Freddie, the total net tab for TARP is now estimated at $25B...a pittance to save our financial system.
Of course, neither TARP nor the Dodd-Frank financial reform bill that followed truly addressed the problem of banks getting too big to fail so the systematic risk still exists, but as a stabilization program, TARP worked exactly excellently.
(2) The American Recovery and Reinvestment Act
As discussed above, the stimulus dealt both a series of tax breaks and credits (think Cash for Clunkers and Energy Efficient Home Tax Credits), short-term expansions to unemployment and social welfare programs and infrastructure investments.
The success of the program is obviously the subject of a lot of debate and it is very hard to parse apart the impact of this program relative to other things happening in the macro-economy.
What I will say is that aspects of the program definitely contributed to the recovery. Cash for Clunkers provided a spike in auto sales that stabilized the auto industry and made the non-bankruptcy survival of Ford and the successful emergence from bankruptcy of GM possible. The energy efficient home tax credits have led to a boom in investments in windows, doors and insulation -- if you don't believe me, ask a contractor.
The bill was sold as preventing unemployment from exceeding 8%. It clearly did not do that. But, on balance, the country is better off with it than without it, in my opinion.
(3) The Obama Tax Cuts
Lost in all the debate over extending the Bush Tax Cuts (which I think we can now safely drop the Bush moniker from) was the fact that it's cost, over the next two years, actually exceeds the cost of the stimulus. The economic impact of extending the rate reductions passed during the Bush administration, along with the newly minted short-term reductions in Social Security taxes is yet to be determined. The deficit impact is obvious.
(4) The Federal Reserve
The role of the Federal Reserve in fiscal policy cannot be understated. In many ways, it's policy decisions have more significant impacts on the economy than any stimulus or tax package passed by our elected officials. The fed's policy over the past several years has been to maintain short-term interest rates near zero, indeed the short-term rate has been in the range of 0 to 0.25% since December of 2008.
The Federal Reserve has also embarked upon two rounds of what it has termed "Quantitative Easing". The program works pretty simply, the Federal Reserve buys US Treasuries, effectively printing money and using Treasuries as a mechanism to inject liquidity into the monetary system. The effect of these buys is to artificially suppress interest rates on treasuries and put more money into the system.
Both moves are basically designed with the same purpose...increase economic activity by making money cheap. It also has the side-effect of amping up inflation and reducing the relative value of the US Dollar.
Up to this point, overall inflation has been very tame during the recession, with the economy showing tons of available capacity in the labor market that might help to avert big inflation. But the dollar has been dropping and core commodities such as oil and grains have been spiking, yielding a concern that inflation may soon rise. The short-term impact of the Fed's actions have been positive to the economy - the long-term is a lot more questionable. I would hope the Fed will back off any further QE and consider raising rates in the not-to-distant future.
Airstrikes in Libya
Backed by French support and a UN resolution, the US is participating in Tomahawk launches and air patrols to enforce a no fly zone over Libya and offer support to rebel fighters. This action is in stark contrast to our actions in Iraq, where we went in alone and sent ground forces. This intervention is more akin to our actions in the former Yugoslavia during the 1990s, where we were able to support political and human rights interests with no American casualties by using our superior technology and air strength.
This is exactly the sort of military intervention that we should be leading - one where the free world is united and where our involvement can yield a large reward at a relatively lower cost.
Meanwhile, we are still trying to wind down Iraq and Afghanistan remains a massive cost both in financial and human terms, with no clear long term strategy in the region.
If you like this site tell your friends.
As I've often said, the single most determining factor in a Presidential re-election is the incumbent President's approval. Therefore, while it's fun to watch the slow-motion race to the Republican nomination, it's probably far more relevant to look and see how the American public is judging President Obama's term in office.
Of course, that good old American public is fickle. Famously, President George Herbert-Walker Bush had a 91% approval (that was actually just in one poll, his average was something close to 80%, but you get the point) a year before one of the worst re-election showings in history, receiving a mere 38% of the popular vote. The thing that turns these numbers on a dime is the economy, and more specifically the 1.5% income growth rule...that is that President's that have the good fortune to see 1.5% income growth in the election year are generally re-elected, while those that see less are not.
Still, you have to know where you are before you can project where you are going.
So, let's look at the last 2 months of poll data. There is some noise along the way, but here is how I would generally explain the trend:
(1) The President CLEARLY got a real bump from his end of year legislative victories, including the ratification of the START treaty, the passage of the 9/11 first responders bill and the repeal of Don't Ask, Don't Tell (a policy change still mired in the pentagon maze, but that's another story for another day.) At the beginning of January (before the range on the chart), the President was average around -4%. By the end of January he was at around +7%, an 11% upswing - huge in the world of electoral politics.
(2) The bounce didn't last at those levels. As is often the case with big bumps like that, memories fade as time goes by. By the end of February, the President's averages were down to about +2.5%, still 6.5% better than where he was at the end of the year, but a 4.5% downgrade from his end of January numbers.
(3) He settled in at this higher level so far in March. So while the President has not maintained all of his bounce, he has certainly maintained at a higher level than he ended last year. This, in my opinion, is in large measure due to improving economic conditions.
Looking at his monthly numbers over his Presidency, we can February was the President's best numbers month since the first year of his Presidency, when there was a halo effect over his historic victory. The last 3 months have marked 3 months in a row in the black, following 6 straight months in the red.
So, what does all this mean for 2012? The President is back at an approval level where he could win, but it is far from a slam dunk. At number of +2.5%, he's right in the range where we could be in for a very competitive 2012 race. Of course, this could all change in either direction in a hurry.
Is This the Last CR?
It's amazing that the new Congress has been in session for nearly 3 months and with the exception of a few symbolic votes (the House voting to repeal Obamacare, for instance) and some non-controversial business, basically all it has done is to pass short-term extensions to the budget - 2 of them so far, but the 5th and 6th ones of a budget year that began October 1st and is almost half over. The latest, which extends government funding for 3 weeks, with $6B in domestic discretionary cuts, passed fairly easily with bi-partisan support, with opposition mostly coming from liberals who felt it went too far with the cuts and conservatives who felt it didn't go far enough with the cuts.
Both sides are saying this is the last one and the bi-partisan "gang of 6" is working towards a compromise, but it is very unclear still how exactly what the compromise they are driving towards will look like. Basically, with the 2 continuing resolutions passed so far, $10B of the $64B that the GOP sought to cut from the discretionary budget has already been passed. So the debate comes down to how much of the remaining $54B will be agreed to. I imagine that the final figure will be somewhere in the $30B range of additional cuts, but again, we are dealing with chump change, relative to the other aspects of the budget.
I continue to hold out hope that congress and the President will dispose of the domestic discretionary question relatively soon and have a real adult debate about entitlement spending, taxes and defense spending, the three levers that really matter when it comes to deficit reduction.
The Winding Down of the American Recovery and Reinvestment Act
Remember the stimulus? That $787B package of tax cuts, infrastructure investments and short-term entitlement enhancements that was more or less the first order of business when the President took office?
As I said at the time, it was really more a 3-year package of economic policy than a short-term shot in the arm to the economy. And, after over 2 years, it is reaching the end of its implementation. And while the GOP has talked tough about repealing its elements, it has more or less run according to its original plan. The latest numbers show the following dispersement of stimulus funds:
Tax Cuts: $260B out of $288B spent (90% spent)
Spending: $368B out of $499B spent (74% spent)
Overall: $628B out of $787B spent (80% spent)
The stimulus was really one of several pieces of key economic policy over the past 2+ years. Let's review all of them and their effectiveness:
(1) The Troubled Asset Relief Program
The $700B package of funding that was used to recapitalize banks, fund the transformation and bankruptcy of GM and Chrysler, bail out AIG and manage the massive losses at Fannie Mae and Freddie Mac was originally passed in the final days of the George W. Bush administration, but largely implemented during the Obama administration. Despite lots of, frankly very fair, criticism at the time, about the lack of limits on executive pay and the lack of help for the borrowers while lenders were being bailed out, the program has, in essence, been a pretty unqualified success.
The bank bailouts will turn a healthy profit and the auto bailout will likely yield only a small loss. With more substantial losses surrounding AIG and Fannie and Freddie, the total net tab for TARP is now estimated at $25B...a pittance to save our financial system.
Of course, neither TARP nor the Dodd-Frank financial reform bill that followed truly addressed the problem of banks getting too big to fail so the systematic risk still exists, but as a stabilization program, TARP worked exactly excellently.
(2) The American Recovery and Reinvestment Act
As discussed above, the stimulus dealt both a series of tax breaks and credits (think Cash for Clunkers and Energy Efficient Home Tax Credits), short-term expansions to unemployment and social welfare programs and infrastructure investments.
The success of the program is obviously the subject of a lot of debate and it is very hard to parse apart the impact of this program relative to other things happening in the macro-economy.
What I will say is that aspects of the program definitely contributed to the recovery. Cash for Clunkers provided a spike in auto sales that stabilized the auto industry and made the non-bankruptcy survival of Ford and the successful emergence from bankruptcy of GM possible. The energy efficient home tax credits have led to a boom in investments in windows, doors and insulation -- if you don't believe me, ask a contractor.
The bill was sold as preventing unemployment from exceeding 8%. It clearly did not do that. But, on balance, the country is better off with it than without it, in my opinion.
(3) The Obama Tax Cuts
Lost in all the debate over extending the Bush Tax Cuts (which I think we can now safely drop the Bush moniker from) was the fact that it's cost, over the next two years, actually exceeds the cost of the stimulus. The economic impact of extending the rate reductions passed during the Bush administration, along with the newly minted short-term reductions in Social Security taxes is yet to be determined. The deficit impact is obvious.
(4) The Federal Reserve
The role of the Federal Reserve in fiscal policy cannot be understated. In many ways, it's policy decisions have more significant impacts on the economy than any stimulus or tax package passed by our elected officials. The fed's policy over the past several years has been to maintain short-term interest rates near zero, indeed the short-term rate has been in the range of 0 to 0.25% since December of 2008.
The Federal Reserve has also embarked upon two rounds of what it has termed "Quantitative Easing". The program works pretty simply, the Federal Reserve buys US Treasuries, effectively printing money and using Treasuries as a mechanism to inject liquidity into the monetary system. The effect of these buys is to artificially suppress interest rates on treasuries and put more money into the system.
Both moves are basically designed with the same purpose...increase economic activity by making money cheap. It also has the side-effect of amping up inflation and reducing the relative value of the US Dollar.
Up to this point, overall inflation has been very tame during the recession, with the economy showing tons of available capacity in the labor market that might help to avert big inflation. But the dollar has been dropping and core commodities such as oil and grains have been spiking, yielding a concern that inflation may soon rise. The short-term impact of the Fed's actions have been positive to the economy - the long-term is a lot more questionable. I would hope the Fed will back off any further QE and consider raising rates in the not-to-distant future.
Airstrikes in Libya
Backed by French support and a UN resolution, the US is participating in Tomahawk launches and air patrols to enforce a no fly zone over Libya and offer support to rebel fighters. This action is in stark contrast to our actions in Iraq, where we went in alone and sent ground forces. This intervention is more akin to our actions in the former Yugoslavia during the 1990s, where we were able to support political and human rights interests with no American casualties by using our superior technology and air strength.
This is exactly the sort of military intervention that we should be leading - one where the free world is united and where our involvement can yield a large reward at a relatively lower cost.
Meanwhile, we are still trying to wind down Iraq and Afghanistan remains a massive cost both in financial and human terms, with no clear long term strategy in the region.
If you like this site tell your friends.
Thursday, August 5, 2010
Elena Kagan and a Reminder of the Consequences of Elections, A Checkin on Obama's Scorecard, Still Stimulating?, My Apologies to Arthur Laffer
What Elena Kagan's Confirmation Reminds Me Of
This afternoon, the Senate confirmed Elena Kagan to serve on the Supreme Court by an unambiguous vote of 63-37, with 56 of 57 Democrats voting in favor (moderate Ben Nelson voted "no"), both Independents (the sometimes liberal Joe Lieberman and the always liberal Bernie Sanders) voting in favor and 5 of 41 Republicans voting in favor (moderates Collins, Snowe, Graham and conservatives Lugar and Gregg.) It was not a particularly close vote, even by the defacto 60 vote threshold that we have come to know and hate in the US Senate.
Her joining of the court will not much change the ideological make-up, given that she replaces the most liberal member of the court, John Paul Stevens.
In Kagan, the country gets a great legal mind, but one with limited judicial experience. Depending on your perspective and the year, that is either a good thing or a bad thing.
I was reminded by a liberal friend of mine the other day just how much Supreme Court seats punctuate how much consequence each Presidential election holds. He reminded me of the closeness of the 2004 Presidential race (3 points nationally, less than a hundred thousand deciding votes in Ohio) and the fact that the seat, in effect, decided two Supreme Court seats, those now held by Samuel Alito and John Roberts, probably for at least a generation.
How different would the nature of court decisions be if there were a solid 6-vote liberal majority versus a moderate/conservative 5-4 majority?
Is He Keeping His Promises?
There's been a lot of discussion in the space lately about President Obama's declining approval ratings, but I haven't updated in a while how he is tracking on actually doing what he said he would do, that is, keeping his campaign promises.
From our friends at politifact, here is their latest accounting:
Promises Kept: 120
Promises Partially Kept (aka compromises): 38
Promises Broken: 20
All other promises (ones in the works, not yet rated or "stalled" - meaning that they are not progressing at the moment): 327
So, of the 505 things that President promised to do in the 2008 campaign, if I give him full credit for kept promises and half-credit for partially-kept promises, he has completed 27.5% of his promises, or given that his term is 38.5% completed, he would be on pace to fulfill 71% of his promises. Not a bad average, except that the promises get harder the further you get along, since early on you generally get all the early stuff done.
In terms of the promises in which he has taken definite action (the 178 rated), he has been 78% true to his word.
All of this leads me to conclude...we largely got what Obama said he would be. If we are disappointed, it is largely because we took it upon ourselves to believe he might be something he never said. I included myself in the deluded.
How About That Stimulus?
Quietly, having faded from public attention long ago, the American Recovery and Reinvestment Act continues to return tax dollars and spend money on infrastructure and entitlements. This is the problem with 3-year economic programs, like the stimulus bill -- people forget they are working long before their full effects are known.
By the latest government accounts,
Tax Cuts: $223B out of $288B spent (77% complete)
Spending: $268B out of $499B spent (54% complete)
The tax cuts largely expire at the end of this year, so those will be 100% complete by December. The infrastructure spending will certainly extend into 2011.
The ARRA, combined with the balance-sheet actions of the fed, have largely shaped economic policy in this country for the first Obama term. The results in 2012 will largely reflect whether these policies ultimately succeed or fail.
There have been some great pieces published of late that show just how closely Presidential results track to election-year income growth. I'll publish a recap of this work in my next blog, but suffice it say, it shows the Clinton campaign of 1992 was right, "it's the economy, stupid"
I Was Wrong on Laffer
In a recent blog about the history of the Laffer curve, I stated that Arthur Laffer now supported raising taxes as he believe that we were not past the optimal revenue point for taxation. My remarks were based on my recollection of a Newsweek article from several months ago. As I have been unable to locate the original source, and Mr. Laffer has made it clear in a subsequent Wall Street Journal commentary piece that he does not support raising top marginal tax rates, I apologize for misconstruing his views on present taxation.
I stand by my belief that tax rates need to be increased, but did not mean to misrepresent Mr. Laffer's view as being supportive of mine.
This afternoon, the Senate confirmed Elena Kagan to serve on the Supreme Court by an unambiguous vote of 63-37, with 56 of 57 Democrats voting in favor (moderate Ben Nelson voted "no"), both Independents (the sometimes liberal Joe Lieberman and the always liberal Bernie Sanders) voting in favor and 5 of 41 Republicans voting in favor (moderates Collins, Snowe, Graham and conservatives Lugar and Gregg.) It was not a particularly close vote, even by the defacto 60 vote threshold that we have come to know and hate in the US Senate.
Her joining of the court will not much change the ideological make-up, given that she replaces the most liberal member of the court, John Paul Stevens.
In Kagan, the country gets a great legal mind, but one with limited judicial experience. Depending on your perspective and the year, that is either a good thing or a bad thing.
I was reminded by a liberal friend of mine the other day just how much Supreme Court seats punctuate how much consequence each Presidential election holds. He reminded me of the closeness of the 2004 Presidential race (3 points nationally, less than a hundred thousand deciding votes in Ohio) and the fact that the seat, in effect, decided two Supreme Court seats, those now held by Samuel Alito and John Roberts, probably for at least a generation.
How different would the nature of court decisions be if there were a solid 6-vote liberal majority versus a moderate/conservative 5-4 majority?
Is He Keeping His Promises?
There's been a lot of discussion in the space lately about President Obama's declining approval ratings, but I haven't updated in a while how he is tracking on actually doing what he said he would do, that is, keeping his campaign promises.
From our friends at politifact, here is their latest accounting:
Promises Kept: 120
Promises Partially Kept (aka compromises): 38
Promises Broken: 20
All other promises (ones in the works, not yet rated or "stalled" - meaning that they are not progressing at the moment): 327
So, of the 505 things that President promised to do in the 2008 campaign, if I give him full credit for kept promises and half-credit for partially-kept promises, he has completed 27.5% of his promises, or given that his term is 38.5% completed, he would be on pace to fulfill 71% of his promises. Not a bad average, except that the promises get harder the further you get along, since early on you generally get all the early stuff done.
In terms of the promises in which he has taken definite action (the 178 rated), he has been 78% true to his word.
All of this leads me to conclude...we largely got what Obama said he would be. If we are disappointed, it is largely because we took it upon ourselves to believe he might be something he never said. I included myself in the deluded.
How About That Stimulus?
Quietly, having faded from public attention long ago, the American Recovery and Reinvestment Act continues to return tax dollars and spend money on infrastructure and entitlements. This is the problem with 3-year economic programs, like the stimulus bill -- people forget they are working long before their full effects are known.
By the latest government accounts,
Tax Cuts: $223B out of $288B spent (77% complete)
Spending: $268B out of $499B spent (54% complete)
The tax cuts largely expire at the end of this year, so those will be 100% complete by December. The infrastructure spending will certainly extend into 2011.
The ARRA, combined with the balance-sheet actions of the fed, have largely shaped economic policy in this country for the first Obama term. The results in 2012 will largely reflect whether these policies ultimately succeed or fail.
There have been some great pieces published of late that show just how closely Presidential results track to election-year income growth. I'll publish a recap of this work in my next blog, but suffice it say, it shows the Clinton campaign of 1992 was right, "it's the economy, stupid"
I Was Wrong on Laffer
In a recent blog about the history of the Laffer curve, I stated that Arthur Laffer now supported raising taxes as he believe that we were not past the optimal revenue point for taxation. My remarks were based on my recollection of a Newsweek article from several months ago. As I have been unable to locate the original source, and Mr. Laffer has made it clear in a subsequent Wall Street Journal commentary piece that he does not support raising top marginal tax rates, I apologize for misconstruing his views on present taxation.
I stand by my belief that tax rates need to be increased, but did not mean to misrepresent Mr. Laffer's view as being supportive of mine.
Sunday, May 30, 2010
What a Mess in the Gulf, Kagan Hearings Set for July, At Long Last Some Action on Gay Rights, Another Incremental Jobs Bills
An Inept Response All Around
We are now over 40 days into the spill on a BP rig in the gulf that is spewing thousands of barrels of oil into the ocean every day and the sad reality is that we appear no closer to solving the issue than we were on day one.
The so called "top kill", an effort to pump heavy mud and solid material into the well to stem the flow of oil has failed and the next plan is a custom fitted cap to limit (but likely not eliminate) the flow of oil while a relief well is dug, which will take at least until August to complete.
Don't expect a full resolution to this spill, already the largest in United States history, until at least August or September, which means that this spill may wind up being 4 to 5 times larger than the horrific Exxon Valdez spill a generation ago. To make matters worse, while the Valdez was devastating to the Alaskan coast, the economic, social and ecological impact of a spill in the gulf is far worse. The entire gulf coasts economy will be impacted in huge ways: fishing will be badly damaged for at least a decade, tourism to the beaches will be destroyed and all of the dependent things in the local economy (fish processing, hotels, restaurants, you name it) will be devastated. The ecological damage will be immense, destroying scores of natural wildlife under suffocatingly thick oil. This is, to put it simply, quite possibly the worst ecological disaster in United States history.
And still the oil flows on. And I'm left with the question why?
I take a very simple view of this. There are only two possibilities. The first possibility is that regulations were utterly inadequate to prevent such a spill or to ensure that a contingency plan was in place to quickly solve it where it to occur. The second possibility is that the regulations existed but were not followed. In reality, it is probably a mix of those two categories, but the more information that I find out, the more it supports the first theory.
I'd never even heard of the Minerals Management Service prior to this spill, but the obvious coziness and outright corruption of that organization has now become clear. How is it possible that it did not require back-ups to a valve failing on oil rig designs? Can you imagine a nuclear power plant that wasn't required to build a back-up system if one part failed? How on Earth did inspections not reveal this kind of risk? The head of the MMS has been fired and that is a good start, but it is utterly insufficient. We basically have a complete failure of a regulatory scheme and a need to start over, with new people and with new authority. I'd start by replacing Ken Salazar, a nice guy who seems to care deeply about these issues, but not the kind of tough enforcer that you need to fix the broken system. Plus, what kind of message does it send if there is no accountability at the top in an instance like this?
The President has appeared weak-kneed and late to the game here. If BP didn't have a plan to quickly solve the issue, than the government should have. If it didn't, it should've been in their with all of its best resources, from day 1, running things. Where is the Army Core of Engineers? Where is the President's Science Advisor? Heck, where is the plan? Are we just going to try stuff and hope it works?
It has been speculated on the right that this is President Obama's Katrina. I'm not quite ready to go that far yet, but let's just say that I'm not at all satisfied with his handling of this crisis. It does not inspire confidence in how he would deal with a natural disaster like a hurricane. And my view of the supposedly smart people around him is heavily wounded.
Kagan Hearings to Begin in Late July
Elena Kagan's hearings to replace John Paul Stevens on the Supreme Court will begin in late July, according to the senior Democrats in charge in the Senate Judiciary Committee. Republicans are already complaining that this gives them insufficient time to prepare, which is of course, utter nonsense, since they fully vetted Kagan less than 2 years ago as solicitor general, but as I've pointed out several times over the past few months, is a complaint consistent with a strategy of running out the clock on the current Congress in the belief (almost certainly correct) that the GOP will control more seats in the next Congress. They will complain and the hearings will go ahead anyway. Kagan will be confirmed, barring some unlikely previously unknown damning fact. Her vote totals will look a lot like the vote totals to confirm her for solicitor general (that vote was 61-31.)
Rumors have swirled around Kagan's sexual orientation, given her middle age and the fact that she has never been married. I have no direct knowledge of whether Kagan is gay or not, but can only say that if she is, I would love for her to come out of the closet and be a role model for gay Americans. I think it would be fantastic to have an openly gay Supreme Court justice. However, I don't even know if she is, in fact gay and if she is, she seems to have shown a preference for keeping those matters private, as should be her right.
Americans Worst Case of Employment Discrimination May Soon End
The House has finally voted, as part of the large Defense Authorization Bill, to end the awful, discriminatory and bigoted policy of "don't ask, don't tell" in the United States Military, following a full military review and sign-off by both Secretary of Defense Robert Gates and the President. The House Amendment passed with only 5 GOP votes and 26 Democrats voting no, despite the fact that new polling shows 80% of Americans support allowing gays to serve openly (although, out of fairness, I'm sure that the numbers if you polled the enlisted military would be far lower.)
The same day, the Senate Defense Committee agreed to a similar amendment to the Defense Authorization, with all Democrats on the committee voting for it, joined by Republican Susan Collins of Maine (thank goodness for those last two remaining Republican moderates in the US Senate.)
The road is certainly not over. The House has passed its version of the Defense Authorization Bill, but the Senate must still pass it's version, then both houses pass a reconciled conference report on the bill before in can go to the President for signature. Following that, the military review must be completed and the sign-offs from Gates and Obama take place before the policy goes into effect.
Because of the delay above, I renew my call on President Obama to show some leadership and suspend prosecution of gay members of the military until this work is completed. It is a crime that we continue to discharge brave members of the armed services for no other reason than being gay. And it is a crime that 4 out of 5 Americans, including the majority in some very red states, now recognizes as wrong. The American people are progressing their thinking a lot faster than Washington is.
Another Do-Little "Jobs" Bill
There is little question that the American Recovery and Reinvestment Act (aka the Stimulus Bill) is the President's signature piece of economic policy in his first two years. A massive $787 billion collection of expenditures and tax cuts spread over the first three years of his term, is more or less defines his economic approach in his first term. The reality is that most of the spending associated with that bill, which has, in a lot of ways, faded from public attention, is yet to take place. Here are the latest stats on the spending associated with the bill:
Spending: $236B out of $499B (47% complete)
Tax Cuts: $163B out of $288B (56% complete)
Total: $399B out of $787B (51% complete)
That's right, the stimulus bill is just barely half executed. And it was designed that way, not just as a short-term shot in the arm (which is what people typically think about when they think stimulus), but as a multi-year, multi-tiered approach to driving economic growth. Big tax incentives on the front-end for things like Cash for Clunkers or the First-Time Homebuyer Tax Credit to spur sales of cars and homes. By the way, remember how everyone on the right said Cash for Clunkers simply pulled forward sales that would have otherwise occurred later an that the auto industry would be back in the doldrums after it expired? Checked the stats lately? Auto sales are now up 25% year over year WITHOUT the credit. So, it's hard to argue the effectiveness of the short-term incentives.
Tier two was infusions of entitlements and state cash to stave off massive state budget cuts that would drive unemployment and to put cash in the hands of the unemployed and needy that would immediately be reinserted into the economy driving growth. This stage has had mixed success, with states staving off cutbacks....until now that the money is running out. Perhaps the money served it's purpose by saving those cuts until the economy was on more solid footing, but there is no doubt that there are state budget crisis everywhere right now that have to be solved.
The third stage, which we are really now entering in earnest is about infrastructure spending. Road and bridge upgrades. Green energy programs. Things which create jobs but are also investments in the future of our economy. There is road work upgrading I-295 near me (a badly needed project.) Solar panels have gone up on light poles all around me, provided by private industry, but subsidized by stimulus funds. This is all good stuff, whether or not it is enough to immediately bring down the unemployment rate. In fact, my criticism at the time is that I wished far more of the bill were devoted to infrastructure spending (only $275B out of the $787B packaged was devoted to such items, scarcely over a third.)
So with a clear approach already laid out and in progress, why is congress passing silly little $48B (and yes, $48B is tiny in the scheme of our economy) jobs bills? Because they are trying to show that they are doing "something" about the persistent near 10% unemployment rate and the 8+ million jobs lost in the recession. The truth is that the latest bill, a collection of small tax cuts which is about 50% offset by some tax hikes, does little either way to impact the economy. But it looks like action. And as mad as people still are about unemployment, they want to show some action.
The latest "jobs bill" is a small aside that will be quickly forgotten. But, keep the faith, unemployment will come down. The fundamentals are returning to the economy, with economic growth taking place and good employment growth over the past two months, for the first time since the recession started. But it is now obvious to me that it will take a painfully long time to get down to an acceptable level of unemployment (I define "acceptable" as somewhere around 7%, "good" as somewhere around 5%.) We'll see if the American people have that kind of patience. I suspect not.
If you like this site, tell your friends.
We are now over 40 days into the spill on a BP rig in the gulf that is spewing thousands of barrels of oil into the ocean every day and the sad reality is that we appear no closer to solving the issue than we were on day one.
The so called "top kill", an effort to pump heavy mud and solid material into the well to stem the flow of oil has failed and the next plan is a custom fitted cap to limit (but likely not eliminate) the flow of oil while a relief well is dug, which will take at least until August to complete.
Don't expect a full resolution to this spill, already the largest in United States history, until at least August or September, which means that this spill may wind up being 4 to 5 times larger than the horrific Exxon Valdez spill a generation ago. To make matters worse, while the Valdez was devastating to the Alaskan coast, the economic, social and ecological impact of a spill in the gulf is far worse. The entire gulf coasts economy will be impacted in huge ways: fishing will be badly damaged for at least a decade, tourism to the beaches will be destroyed and all of the dependent things in the local economy (fish processing, hotels, restaurants, you name it) will be devastated. The ecological damage will be immense, destroying scores of natural wildlife under suffocatingly thick oil. This is, to put it simply, quite possibly the worst ecological disaster in United States history.
And still the oil flows on. And I'm left with the question why?
I take a very simple view of this. There are only two possibilities. The first possibility is that regulations were utterly inadequate to prevent such a spill or to ensure that a contingency plan was in place to quickly solve it where it to occur. The second possibility is that the regulations existed but were not followed. In reality, it is probably a mix of those two categories, but the more information that I find out, the more it supports the first theory.
I'd never even heard of the Minerals Management Service prior to this spill, but the obvious coziness and outright corruption of that organization has now become clear. How is it possible that it did not require back-ups to a valve failing on oil rig designs? Can you imagine a nuclear power plant that wasn't required to build a back-up system if one part failed? How on Earth did inspections not reveal this kind of risk? The head of the MMS has been fired and that is a good start, but it is utterly insufficient. We basically have a complete failure of a regulatory scheme and a need to start over, with new people and with new authority. I'd start by replacing Ken Salazar, a nice guy who seems to care deeply about these issues, but not the kind of tough enforcer that you need to fix the broken system. Plus, what kind of message does it send if there is no accountability at the top in an instance like this?
The President has appeared weak-kneed and late to the game here. If BP didn't have a plan to quickly solve the issue, than the government should have. If it didn't, it should've been in their with all of its best resources, from day 1, running things. Where is the Army Core of Engineers? Where is the President's Science Advisor? Heck, where is the plan? Are we just going to try stuff and hope it works?
It has been speculated on the right that this is President Obama's Katrina. I'm not quite ready to go that far yet, but let's just say that I'm not at all satisfied with his handling of this crisis. It does not inspire confidence in how he would deal with a natural disaster like a hurricane. And my view of the supposedly smart people around him is heavily wounded.
Kagan Hearings to Begin in Late July
Elena Kagan's hearings to replace John Paul Stevens on the Supreme Court will begin in late July, according to the senior Democrats in charge in the Senate Judiciary Committee. Republicans are already complaining that this gives them insufficient time to prepare, which is of course, utter nonsense, since they fully vetted Kagan less than 2 years ago as solicitor general, but as I've pointed out several times over the past few months, is a complaint consistent with a strategy of running out the clock on the current Congress in the belief (almost certainly correct) that the GOP will control more seats in the next Congress. They will complain and the hearings will go ahead anyway. Kagan will be confirmed, barring some unlikely previously unknown damning fact. Her vote totals will look a lot like the vote totals to confirm her for solicitor general (that vote was 61-31.)
Rumors have swirled around Kagan's sexual orientation, given her middle age and the fact that she has never been married. I have no direct knowledge of whether Kagan is gay or not, but can only say that if she is, I would love for her to come out of the closet and be a role model for gay Americans. I think it would be fantastic to have an openly gay Supreme Court justice. However, I don't even know if she is, in fact gay and if she is, she seems to have shown a preference for keeping those matters private, as should be her right.
Americans Worst Case of Employment Discrimination May Soon End
The House has finally voted, as part of the large Defense Authorization Bill, to end the awful, discriminatory and bigoted policy of "don't ask, don't tell" in the United States Military, following a full military review and sign-off by both Secretary of Defense Robert Gates and the President. The House Amendment passed with only 5 GOP votes and 26 Democrats voting no, despite the fact that new polling shows 80% of Americans support allowing gays to serve openly (although, out of fairness, I'm sure that the numbers if you polled the enlisted military would be far lower.)
The same day, the Senate Defense Committee agreed to a similar amendment to the Defense Authorization, with all Democrats on the committee voting for it, joined by Republican Susan Collins of Maine (thank goodness for those last two remaining Republican moderates in the US Senate.)
The road is certainly not over. The House has passed its version of the Defense Authorization Bill, but the Senate must still pass it's version, then both houses pass a reconciled conference report on the bill before in can go to the President for signature. Following that, the military review must be completed and the sign-offs from Gates and Obama take place before the policy goes into effect.
Because of the delay above, I renew my call on President Obama to show some leadership and suspend prosecution of gay members of the military until this work is completed. It is a crime that we continue to discharge brave members of the armed services for no other reason than being gay. And it is a crime that 4 out of 5 Americans, including the majority in some very red states, now recognizes as wrong. The American people are progressing their thinking a lot faster than Washington is.
Another Do-Little "Jobs" Bill
There is little question that the American Recovery and Reinvestment Act (aka the Stimulus Bill) is the President's signature piece of economic policy in his first two years. A massive $787 billion collection of expenditures and tax cuts spread over the first three years of his term, is more or less defines his economic approach in his first term. The reality is that most of the spending associated with that bill, which has, in a lot of ways, faded from public attention, is yet to take place. Here are the latest stats on the spending associated with the bill:
Spending: $236B out of $499B (47% complete)
Tax Cuts: $163B out of $288B (56% complete)
Total: $399B out of $787B (51% complete)
That's right, the stimulus bill is just barely half executed. And it was designed that way, not just as a short-term shot in the arm (which is what people typically think about when they think stimulus), but as a multi-year, multi-tiered approach to driving economic growth. Big tax incentives on the front-end for things like Cash for Clunkers or the First-Time Homebuyer Tax Credit to spur sales of cars and homes. By the way, remember how everyone on the right said Cash for Clunkers simply pulled forward sales that would have otherwise occurred later an that the auto industry would be back in the doldrums after it expired? Checked the stats lately? Auto sales are now up 25% year over year WITHOUT the credit. So, it's hard to argue the effectiveness of the short-term incentives.
Tier two was infusions of entitlements and state cash to stave off massive state budget cuts that would drive unemployment and to put cash in the hands of the unemployed and needy that would immediately be reinserted into the economy driving growth. This stage has had mixed success, with states staving off cutbacks....until now that the money is running out. Perhaps the money served it's purpose by saving those cuts until the economy was on more solid footing, but there is no doubt that there are state budget crisis everywhere right now that have to be solved.
The third stage, which we are really now entering in earnest is about infrastructure spending. Road and bridge upgrades. Green energy programs. Things which create jobs but are also investments in the future of our economy. There is road work upgrading I-295 near me (a badly needed project.) Solar panels have gone up on light poles all around me, provided by private industry, but subsidized by stimulus funds. This is all good stuff, whether or not it is enough to immediately bring down the unemployment rate. In fact, my criticism at the time is that I wished far more of the bill were devoted to infrastructure spending (only $275B out of the $787B packaged was devoted to such items, scarcely over a third.)
So with a clear approach already laid out and in progress, why is congress passing silly little $48B (and yes, $48B is tiny in the scheme of our economy) jobs bills? Because they are trying to show that they are doing "something" about the persistent near 10% unemployment rate and the 8+ million jobs lost in the recession. The truth is that the latest bill, a collection of small tax cuts which is about 50% offset by some tax hikes, does little either way to impact the economy. But it looks like action. And as mad as people still are about unemployment, they want to show some action.
The latest "jobs bill" is a small aside that will be quickly forgotten. But, keep the faith, unemployment will come down. The fundamentals are returning to the economy, with economic growth taking place and good employment growth over the past two months, for the first time since the recession started. But it is now obvious to me that it will take a painfully long time to get down to an acceptable level of unemployment (I define "acceptable" as somewhere around 7%, "good" as somewhere around 5%.) We'll see if the American people have that kind of patience. I suspect not.
If you like this site, tell your friends.
Saturday, April 3, 2010
On The Economy: 162,000 Reasons to Celebrate, Millions More Reasons to Stay Concerned, Looking Ahead to the Rest of the 111th Congress
We Are Generating Jobs...But We Have a Long Way to Go
Throughout the first part of 2010, each month when the Bureau of Labor Statistics has released employment statistics, I've found reasons to be optimistic, but also perspective on how far we have to go to get to a more tolerable level of unemployment. This month's release very much follows that vein.
As we've discussed in the past, the monthly release is actually two releases, one that surveys employers to look at job creation and one that targets workers to understand unemployment rate and participation rates in the workforce. The second survey, in my opinion, is the most critical, as it hits all workers, whereas the employer or "establishment" survey tends to miss small business hiring and firing, but both give clues to where the employment market is headed.
In the employer survey for March, there was a lot of good news. Total payrolls grew by 162,000. Of this, 48,000 where hires by the Census Bureau to facilitate execution of the 2010 census. That is a form of unintentional government stimulus, but it does still help get people back to work. But even excluding this number, private payrolls grew by 114,000, this first substantial gain since December 2007 and included gains in manufacturing, health care and temporary services. Construction employment was stable for the first time the recession began and the only major area to lose jobs was financial services. The average workweek, an indicator of future hiring and firing, was also positive, posting a 0.3% gain in the month. In short, this month was a real turning point in the establishment survey data.
In the more critical unemployment survey, the unemployment rate held steady at 9.7%, holding on to the modest gains that have brought the rate down from its peak of 10.1%. That would be modestly good news by itself, but there are more data just below the surface that provide reasons to be hopeful. The population of "underemployed", those working part time but seeking full time work increased from 8.8 million to 9.0 million but this was actually good news, because the "marginally attached" those not counted in the unemployed rate because they have stopped actively trying to find a job was down, from 2.5 million to 2.3 million, meaning that you likely had people who were previously discouraged who are now working, albeit part time, with the entire change coming from discouraged workers, who fell from 1.2 million to 0.9 million, an almost 25% decrease.
So, looking at the extended data, the "underemployment rate" was steady at 16.8%, but more of those 16.8% had jobs.
Now, for the bad news. Using 5% unemployment and 8% "underemployment" as a benchmark for a "normal" rate of unemployment, at the rate of job creation in March, it would take almost 7 years to get back to these "normal" rates. This is clearly unacceptable and if it happens, Obama and the Democrats would find themselves on the sidelines both in 2010 and 2012. But the momentum is positive and there is good reason to believe that the job gains will continue to accelerate in the coming months.
The other good news is that there is still plenty of umph left in the economic stimulus program, which was really a 3-year economic plan. The latest expenditures to date are as follows:
Tax Cuts: $99.1 billion out of $288 billion paid (34.4% spent)
Spending: $208.8 billion out of $499 billion paid (42.8% spent)
Total: $307.9 billion out of $787 billion paid (39.1% spent)
So, over three fifths of the impact of the stimulus is yet to come and to a large extent it is the portion of the expenditure that is likely to be most job-creating. A lot of the earlier spending did things like stabilize state governments to prevent layoffs of state workers and provide emergency entitlements to those in economic distress. Those things were necessary, but didn't create many new jobs. Now that we are into the phase of the bill, which essentially runs through 2011, which involves construction and infrastructure projects, we are likely to see a pick-up in the job-creating impact. The pace of spending has picked up as the cries over unemployment have become louder (note that the spending is now far outpacing the tax cuts, which was not the case earlier), but I would still argue that the money has gone out too slowly.
In other economic news, the government is continuing to retract the broad-reaching intervention in the economy that began with the financial crisis. As of now (April 1st), the Federal Reserve program of buying up mortgage-backed securities has ended. This program was artificially keeping mortgage rates low to stabilize home prices. Rates will now be allowed to drift to their natural market price, which will likely be higher. The Fed has also recently hiked its emergency lending rates to banks, which were essentially acting as a subsidy to provide liquidity to distressed banks.
The government still owns large stakes in 3 Fortune 500 corporations. It has substantial stakes in Citigroup and AIG and is the majority owner of General Motors, all three are products of conversion of debt the companies incurred on TARP money into equity positions.
On Citigroup, it appears the government is going to sell off its stake this year, and appears poised to make a good profit on its investment, as Citigroup shares have recovered a great deal as the economic criss has waned. With GM, the government is looking to make an Initial Public Offering of some of its shares as early as the end of the year, and there is optimism that the government will at least break even on this position. AIG is the most thorny and the most likely that the government will take a loss as well as the least clear as to how the government would exit, as unlike Citigroup and GM, AIG has not yet re-established a profitable business model.
But, AIG aside, the socialization of major institutions appears to be winding down and the economy largely returning to the way ti was.
What Happens When Congress Gets Back April 12th
Congress is on Easter break right now, but returns to business a week from Monday. The 111th Congress is set to adjourn October 8th and unlike last year, they will do everything that they can to stick to that date, being that it is an election year and incumbents will want to be back in their districts campaigning for re-election. So, with a little under 6 months to do work, what can we expect?
(1) The Fiscal 2011 Budgets
The appropriations process can be long and cumbersome, especially with sky-high deficits still persisting. Expect the bulk of the debate to focus on this essential function for the rest of the year.
(2) Financial Reform
Aside from the budgets, this is the only major piece of legislation that is likely to see floor votes in both houses of congress. There is chatter about willingness to work in a bi-partisan fashion on this bill, but don't count on a lot of GOP support, even if the Democrats incorporate a lot of their suggestions and ideas. The best-case scenario for the White House is probably to get a bill through with broad Democratic support and a few moderate GOP members, again targeting Olympia Snowe, Susan Collins and Scott Brown to try to establish a 60th vote against a GOP filibuster attempt (when does the GOP not filibuster at this point?)
But even building a liberal/moderate coalition will be tough as the liberals want a bill that goes much farther than the proposal that Sen. Chris Dodd (D-CT) took out of committee and the moderates still believe it went to far. Finding that "just right" compromise to keep all parties on board will be difficult and will likely lead to a pretty modest reform bill.
(3) Immigration
Don't even worry about it...won't make it to a vote this year.
(4) Cap and Trade
There is still a House-passed bill, but this won't make it through the Senate. Erstwhile bipartisan Sen. Lindsay Graham (R-SC) has sounded increasingly partisan since the health care vote and the DEMs really need him on board to push a bill through the Senate. This one will have to wait until 2011, or never, depending on how many seats the GOP gains.
(5) Don't Ask, Don't Tell
In an election year? Ha! Forget it.
(6) Jobs Bills
Probably some more little bills with hiring incentives and tax credits, but nothing that will have a major impact. The stimulus package will continue to be the economic program of 2010 and 2011.
Thanks for reading. If you like this site, tell your friends.
Throughout the first part of 2010, each month when the Bureau of Labor Statistics has released employment statistics, I've found reasons to be optimistic, but also perspective on how far we have to go to get to a more tolerable level of unemployment. This month's release very much follows that vein.
As we've discussed in the past, the monthly release is actually two releases, one that surveys employers to look at job creation and one that targets workers to understand unemployment rate and participation rates in the workforce. The second survey, in my opinion, is the most critical, as it hits all workers, whereas the employer or "establishment" survey tends to miss small business hiring and firing, but both give clues to where the employment market is headed.
In the employer survey for March, there was a lot of good news. Total payrolls grew by 162,000. Of this, 48,000 where hires by the Census Bureau to facilitate execution of the 2010 census. That is a form of unintentional government stimulus, but it does still help get people back to work. But even excluding this number, private payrolls grew by 114,000, this first substantial gain since December 2007 and included gains in manufacturing, health care and temporary services. Construction employment was stable for the first time the recession began and the only major area to lose jobs was financial services. The average workweek, an indicator of future hiring and firing, was also positive, posting a 0.3% gain in the month. In short, this month was a real turning point in the establishment survey data.
In the more critical unemployment survey, the unemployment rate held steady at 9.7%, holding on to the modest gains that have brought the rate down from its peak of 10.1%. That would be modestly good news by itself, but there are more data just below the surface that provide reasons to be hopeful. The population of "underemployed", those working part time but seeking full time work increased from 8.8 million to 9.0 million but this was actually good news, because the "marginally attached" those not counted in the unemployed rate because they have stopped actively trying to find a job was down, from 2.5 million to 2.3 million, meaning that you likely had people who were previously discouraged who are now working, albeit part time, with the entire change coming from discouraged workers, who fell from 1.2 million to 0.9 million, an almost 25% decrease.
So, looking at the extended data, the "underemployment rate" was steady at 16.8%, but more of those 16.8% had jobs.
Now, for the bad news. Using 5% unemployment and 8% "underemployment" as a benchmark for a "normal" rate of unemployment, at the rate of job creation in March, it would take almost 7 years to get back to these "normal" rates. This is clearly unacceptable and if it happens, Obama and the Democrats would find themselves on the sidelines both in 2010 and 2012. But the momentum is positive and there is good reason to believe that the job gains will continue to accelerate in the coming months.
The other good news is that there is still plenty of umph left in the economic stimulus program, which was really a 3-year economic plan. The latest expenditures to date are as follows:
Tax Cuts: $99.1 billion out of $288 billion paid (34.4% spent)
Spending: $208.8 billion out of $499 billion paid (42.8% spent)
Total: $307.9 billion out of $787 billion paid (39.1% spent)
So, over three fifths of the impact of the stimulus is yet to come and to a large extent it is the portion of the expenditure that is likely to be most job-creating. A lot of the earlier spending did things like stabilize state governments to prevent layoffs of state workers and provide emergency entitlements to those in economic distress. Those things were necessary, but didn't create many new jobs. Now that we are into the phase of the bill, which essentially runs through 2011, which involves construction and infrastructure projects, we are likely to see a pick-up in the job-creating impact. The pace of spending has picked up as the cries over unemployment have become louder (note that the spending is now far outpacing the tax cuts, which was not the case earlier), but I would still argue that the money has gone out too slowly.
In other economic news, the government is continuing to retract the broad-reaching intervention in the economy that began with the financial crisis. As of now (April 1st), the Federal Reserve program of buying up mortgage-backed securities has ended. This program was artificially keeping mortgage rates low to stabilize home prices. Rates will now be allowed to drift to their natural market price, which will likely be higher. The Fed has also recently hiked its emergency lending rates to banks, which were essentially acting as a subsidy to provide liquidity to distressed banks.
The government still owns large stakes in 3 Fortune 500 corporations. It has substantial stakes in Citigroup and AIG and is the majority owner of General Motors, all three are products of conversion of debt the companies incurred on TARP money into equity positions.
On Citigroup, it appears the government is going to sell off its stake this year, and appears poised to make a good profit on its investment, as Citigroup shares have recovered a great deal as the economic criss has waned. With GM, the government is looking to make an Initial Public Offering of some of its shares as early as the end of the year, and there is optimism that the government will at least break even on this position. AIG is the most thorny and the most likely that the government will take a loss as well as the least clear as to how the government would exit, as unlike Citigroup and GM, AIG has not yet re-established a profitable business model.
But, AIG aside, the socialization of major institutions appears to be winding down and the economy largely returning to the way ti was.
What Happens When Congress Gets Back April 12th
Congress is on Easter break right now, but returns to business a week from Monday. The 111th Congress is set to adjourn October 8th and unlike last year, they will do everything that they can to stick to that date, being that it is an election year and incumbents will want to be back in their districts campaigning for re-election. So, with a little under 6 months to do work, what can we expect?
(1) The Fiscal 2011 Budgets
The appropriations process can be long and cumbersome, especially with sky-high deficits still persisting. Expect the bulk of the debate to focus on this essential function for the rest of the year.
(2) Financial Reform
Aside from the budgets, this is the only major piece of legislation that is likely to see floor votes in both houses of congress. There is chatter about willingness to work in a bi-partisan fashion on this bill, but don't count on a lot of GOP support, even if the Democrats incorporate a lot of their suggestions and ideas. The best-case scenario for the White House is probably to get a bill through with broad Democratic support and a few moderate GOP members, again targeting Olympia Snowe, Susan Collins and Scott Brown to try to establish a 60th vote against a GOP filibuster attempt (when does the GOP not filibuster at this point?)
But even building a liberal/moderate coalition will be tough as the liberals want a bill that goes much farther than the proposal that Sen. Chris Dodd (D-CT) took out of committee and the moderates still believe it went to far. Finding that "just right" compromise to keep all parties on board will be difficult and will likely lead to a pretty modest reform bill.
(3) Immigration
Don't even worry about it...won't make it to a vote this year.
(4) Cap and Trade
There is still a House-passed bill, but this won't make it through the Senate. Erstwhile bipartisan Sen. Lindsay Graham (R-SC) has sounded increasingly partisan since the health care vote and the DEMs really need him on board to push a bill through the Senate. This one will have to wait until 2011, or never, depending on how many seats the GOP gains.
(5) Don't Ask, Don't Tell
In an election year? Ha! Forget it.
(6) Jobs Bills
Probably some more little bills with hiring incentives and tax credits, but nothing that will have a major impact. The stimulus package will continue to be the economic program of 2010 and 2011.
Thanks for reading. If you like this site, tell your friends.
Sunday, March 7, 2010
2010 Federal Round-Up, Assessing the Latest Employment Picture, Health Care Clock Ticking
2010 Round-Up
Let's take a look at the latest.
First, the Senate:
We have 10 races with fresh polls and of these, 3 move in rating category. The net of these changes are marginally favorable to the GOP, with 2 moving to the right and 1 moving left.
First, the moves:
Pennsylvania -- moves from Lean GOP Pick-Up to Toss-up - Arlen Specter leads Pat Toomey by 7 points in a new Quinnipiac Poll. Toomey had been leading by single digits in polls in recent weeks, so this could be a fluke or be overly generous, so I'm not ready to move this back into Specter's column until I see more data.
Colorado -- moves from Toss-Up to Lean GOP Pick-Up - both Buck and Norton lead incumbent Democrat Bennett in three new polls with spreads of 5 to 9%.
North Carolina -- moves from Lean GOP Hold to Likely GOP Hold incumbent Republican Burr is up by 16% in the latest Rasmussen Poll and has led every poll from every firm so far in 2010.
Now the other 7 races with fresh polling data that reconfirm existing race ratings:
Arkansas -- latest Rasmussen poll shows 3 potential GOP opponents leading incumbent Dem Lincoln by 2 to 9 points. The race remains a Lean GOP PIck-up.
Nevada -- the latest polls have the 2 potential GOPers leading Majority Leader Reid by 9 to 13 points. This one is close to moving back a notch right, but for now it remains a Lean GOP Pick-Up.
Indiana -- a bevy of polls have come out since Bayh's announced retirement and the spread has been anywhere from even to +10% GOP. We'll leave this a Lean GOP Pick-Up, although it clearly could move in either direction, depending on the candidates.
Connecticut -- Blumenthal is still up by a very comfortable spread of 26 to 29 points in the latest polls. This race remains a Safe Democratic Hold.
New York (Gillebrand) -- Gillebrand is up by 2 points against Pataki in a new poll. This race stays a Toss-Up.
Illinois -- A new Research 2000 Poll has Dem Giannoulis at +7%, an earlier Feb Rasmussen Poll had GOPer Kirk at +6%. This race stays a Toss-Up for now.
Ohio -- Republican Portman leads by small, but consistent spreads of 3 to 5 points in 3 different polls. This race stays a Lean GOP Hold.
Missouri -- Republican Blunt still +7% in latest Rasmussen poll. Remains a Lean GOP Hold.
So, this leaves us with:
Safe Democratic Holds (4)
Maryland, Connecticut, New York (Schumer), Vermont
Likely Democratic Holds (3)
Washington, Hawaii, Oregon
Lean Democratic Holds (2)
California, Wisconsin
Toss-Up - DEM Controlled (3)
Pennsylvania, New York (Gillebrand), Illinois
Lean GOP Pick-Up (5)
Arkansas, Nevada, Delaware, Indiana, Colorado
Lean GOP Hold (5)
New Hampshire, Kentucky, Ohio, Missouri, Arizona
Likely GOP Hold (5)
North Carolina, Georgia, Alaska, Kansas, Florida
Safe GOP Pick-Up (1)
North Dakota
Safe GOP Hold (8)
Louisiana, Iowa, South Dakota, Alabama, Idaho, Oklahoma, South Carolina, Utah
Net Projection: GOP +6 to 9 Seats (10 needed to control Senate)
Best Case GOP (all leaners) - GOP +11 Seats
Best Case DEM (all leaners) - DEM +4 Seats
Still in the same place we have been for all of 2010, with the GOP poised to make big inroads in the Senate, but shy of enough to win control.
In the House:
The generic polling has actually tightened somewhat, with the average of averages in our poll of polls showing the GOP at +0.7%.
This implies: GOP +31 Seats
So, again, the GOP stands to make substantial gains, but is shy of the number (39 to 40, depending on how you count it) needed to gain an outright majority.
The Latest Employment Report
For the month of February, the unemployment rate remained at 9.7%, retaining the gains that were made in January. The unemployment rate is off from its high of 10.1% but is still hovering at a level that is among the highest of the past 30 years.
Those "underemployed" -- working part time for economic reasons increased from 8.3 million to 8.8 million. The number of those "marginally attached", that is those that are not officially counted as unemployed because they have either given up and stopped looking or are not looking for other reasons, remained constant at 2.5 million.
So, in total, the "underemployment rate" increased form 16.7% to 17.1%.
Not good news in total, but some bright spots.
First, the official unemployment rate held on to gains for the month, which few (other than myself) predicted. Secondly, the entire increase is due to "underemployment", that is, people are working, just not getting as many hours as they would like...the discouraged number didn't increase nor did those that were outright unemployed.
So, in total, we still have a long slog to get back something that resembles more normal unemployment rates, but things continue to stabilize.
There has been a lot of speculating on the winter weather adversely impacting the report, and the BLS acknowledge that it surely did have a negative impact, but they are not able to precisely quantify the effect. If true, that SHOULD mean a more favorable report in March, all else being equal. We'll stay tuned.
Stimulus funds continue to slowly trickle out. Spending against President Obama's signature economic program so far is as follows:
Tax Cuts -- $92.8 billion out of $288 billion spent (32.2%)
Spending -- $194.9 billion out of $499 billion spent (39.1%)
Total Bill -- $287.7 billion out of $787 billion spent (36.6%)
Health Care Clock Ticking
There have been a lot of "deadlines" in the health care debate -- remember Labor Day 2009? How about the end of 2009? The latest theory in the political class is that if Congress doesn't act by Easter, the bill won't happen. While timelines can help to clarify the debate, they are all artificial. The only real deadline for reform this year is the adjournment of Congress. After that, bills that have already been passed expire, Representatives and Senators head to the campaign trail and, eventually a new congress comes in, one likely to be a lot less favorable to doing anything on the scale that President Obama is looking for.
Having said that, President Obama has been turning up the heat over the past week with a fire that many would've liked him to show a year ago. Nancy Pelosi is searching for a way to satisfy enough Blue Dogs and abortion opponents in her caucus to get to passage.
You'll know this is for real when a vote gets scheduled in the House. So far that has not happened. That means that Pelosi doesn't have the votes, not yet.
If you like this site, tell your friends.
Let's take a look at the latest.
First, the Senate:
We have 10 races with fresh polls and of these, 3 move in rating category. The net of these changes are marginally favorable to the GOP, with 2 moving to the right and 1 moving left.
First, the moves:
Pennsylvania -- moves from Lean GOP Pick-Up to Toss-up - Arlen Specter leads Pat Toomey by 7 points in a new Quinnipiac Poll. Toomey had been leading by single digits in polls in recent weeks, so this could be a fluke or be overly generous, so I'm not ready to move this back into Specter's column until I see more data.
Colorado -- moves from Toss-Up to Lean GOP Pick-Up - both Buck and Norton lead incumbent Democrat Bennett in three new polls with spreads of 5 to 9%.
North Carolina -- moves from Lean GOP Hold to Likely GOP Hold incumbent Republican Burr is up by 16% in the latest Rasmussen Poll and has led every poll from every firm so far in 2010.
Now the other 7 races with fresh polling data that reconfirm existing race ratings:
Arkansas -- latest Rasmussen poll shows 3 potential GOP opponents leading incumbent Dem Lincoln by 2 to 9 points. The race remains a Lean GOP PIck-up.
Nevada -- the latest polls have the 2 potential GOPers leading Majority Leader Reid by 9 to 13 points. This one is close to moving back a notch right, but for now it remains a Lean GOP Pick-Up.
Indiana -- a bevy of polls have come out since Bayh's announced retirement and the spread has been anywhere from even to +10% GOP. We'll leave this a Lean GOP Pick-Up, although it clearly could move in either direction, depending on the candidates.
Connecticut -- Blumenthal is still up by a very comfortable spread of 26 to 29 points in the latest polls. This race remains a Safe Democratic Hold.
New York (Gillebrand) -- Gillebrand is up by 2 points against Pataki in a new poll. This race stays a Toss-Up.
Illinois -- A new Research 2000 Poll has Dem Giannoulis at +7%, an earlier Feb Rasmussen Poll had GOPer Kirk at +6%. This race stays a Toss-Up for now.
Ohio -- Republican Portman leads by small, but consistent spreads of 3 to 5 points in 3 different polls. This race stays a Lean GOP Hold.
Missouri -- Republican Blunt still +7% in latest Rasmussen poll. Remains a Lean GOP Hold.
So, this leaves us with:
Safe Democratic Holds (4)
Maryland, Connecticut, New York (Schumer), Vermont
Likely Democratic Holds (3)
Washington, Hawaii, Oregon
Lean Democratic Holds (2)
California, Wisconsin
Toss-Up - DEM Controlled (3)
Pennsylvania, New York (Gillebrand), Illinois
Lean GOP Pick-Up (5)
Arkansas, Nevada, Delaware, Indiana, Colorado
Lean GOP Hold (5)
New Hampshire, Kentucky, Ohio, Missouri, Arizona
Likely GOP Hold (5)
North Carolina, Georgia, Alaska, Kansas, Florida
Safe GOP Pick-Up (1)
North Dakota
Safe GOP Hold (8)
Louisiana, Iowa, South Dakota, Alabama, Idaho, Oklahoma, South Carolina, Utah
Net Projection: GOP +6 to 9 Seats (10 needed to control Senate)
Best Case GOP (all leaners) - GOP +11 Seats
Best Case DEM (all leaners) - DEM +4 Seats
Still in the same place we have been for all of 2010, with the GOP poised to make big inroads in the Senate, but shy of enough to win control.
In the House:
The generic polling has actually tightened somewhat, with the average of averages in our poll of polls showing the GOP at +0.7%.
This implies: GOP +31 Seats
So, again, the GOP stands to make substantial gains, but is shy of the number (39 to 40, depending on how you count it) needed to gain an outright majority.
The Latest Employment Report
For the month of February, the unemployment rate remained at 9.7%, retaining the gains that were made in January. The unemployment rate is off from its high of 10.1% but is still hovering at a level that is among the highest of the past 30 years.
Those "underemployed" -- working part time for economic reasons increased from 8.3 million to 8.8 million. The number of those "marginally attached", that is those that are not officially counted as unemployed because they have either given up and stopped looking or are not looking for other reasons, remained constant at 2.5 million.
So, in total, the "underemployment rate" increased form 16.7% to 17.1%.
Not good news in total, but some bright spots.
First, the official unemployment rate held on to gains for the month, which few (other than myself) predicted. Secondly, the entire increase is due to "underemployment", that is, people are working, just not getting as many hours as they would like...the discouraged number didn't increase nor did those that were outright unemployed.
So, in total, we still have a long slog to get back something that resembles more normal unemployment rates, but things continue to stabilize.
There has been a lot of speculating on the winter weather adversely impacting the report, and the BLS acknowledge that it surely did have a negative impact, but they are not able to precisely quantify the effect. If true, that SHOULD mean a more favorable report in March, all else being equal. We'll stay tuned.
Stimulus funds continue to slowly trickle out. Spending against President Obama's signature economic program so far is as follows:
Tax Cuts -- $92.8 billion out of $288 billion spent (32.2%)
Spending -- $194.9 billion out of $499 billion spent (39.1%)
Total Bill -- $287.7 billion out of $787 billion spent (36.6%)
Health Care Clock Ticking
There have been a lot of "deadlines" in the health care debate -- remember Labor Day 2009? How about the end of 2009? The latest theory in the political class is that if Congress doesn't act by Easter, the bill won't happen. While timelines can help to clarify the debate, they are all artificial. The only real deadline for reform this year is the adjournment of Congress. After that, bills that have already been passed expire, Representatives and Senators head to the campaign trail and, eventually a new congress comes in, one likely to be a lot less favorable to doing anything on the scale that President Obama is looking for.
Having said that, President Obama has been turning up the heat over the past week with a fire that many would've liked him to show a year ago. Nancy Pelosi is searching for a way to satisfy enough Blue Dogs and abortion opponents in her caucus to get to passage.
You'll know this is for real when a vote gets scheduled in the House. So far that has not happened. That means that Pelosi doesn't have the votes, not yet.
If you like this site, tell your friends.
Saturday, January 30, 2010
5.7% Economic Growth and What It Means, Time to Watch Wisconsin?
The Recovery Becomes Official, What's Next?
The Bureau of Economic Analysis on Friday released it's quarterly report on the performance of the United States Gross Domestic product, which included the preliminary estimate of economic growth in the 4th quarter of 2009. The US Economy grew at an annualized rate of 5.7% in the 4th quarter of 2009, the fastest rate in over 6 years. This, following the revised 2.2% growth rate for the third quarter of 2009, marks two consecutive quarters of positive economic growth. For all intents and purposes, we can declare that the "Great Recession" ended in the summer or fall of 2009, although an official pronouncement won't be made until long after the fact.
So what exactly does this mean and how does this jive with the current 10.0% unemployment rate and the even more scary "underemployment rate" which counts those who are unemployed, those who are no longer classified as unemployment because they have given up looking for work and those who are working part-time but are seeking full-time work, of 18.3%?
First, let's take a step back and remember what these numbers mean.
The Gross Domestic Product of the United States is the value of all goods and services produced in the United States within a year. This is a very important bottom-line economic number as the the value of all the goods and services produced directly correlates to the standard of living people have as all goods and services produced here are either consumed here or exported, with the value of the exports used to buy other goods. A very good metric for the overall standard of living in a country is its Per Capita GDP, that is the Gross Domestic Product divided by the population. This is how many goods and services the average person can expect to receive. This explanation is a little over-simplified, but generally true.
The US population is not static. It is growing at a rate of about 2% per year. Therefore, the GDP has to grow at a rate of 2% per year just to maintain the existing standard of living. When growth falls below 2%, even if it does not go negative, living standards decline. When it exceeds 2%, living standards increase.
The chart below shows the quarterly GDP growth rates since 2007. The green line is the actual GDP growth rate. The blue line is the "gap to 2%", that is the amount by which the standard of living in the United States is below where it was before the recession started.
There are two key lessons that I believe that you can glean from this graph.
(1) Economic performance under President Obama has been remarkable good
It's an odd thing to say with unemployment extremely high, but if you look at the growth curve, the economy was in utter free-fall in the 4th quarter of 2008 (before the President took office) and in the 1st quarter of 2009 (after the President took office, but before any reasonable impact from his economic policies could take effect.)
Of course, giving him full credit for the recovery would be silly. The actions to stabilize the financial system taken by the Bush administration in its last days, as lacking as they may have been in terms of proper accountability, was critical in preventing an even greater slide. The natural economic cycle obviously also plays into this -- economies go up and down to a certain extent irrespective of government policy. The Fed has also been critical, slashing interest rates to their lowest levels ever and providing large amounts of liquidity by taking on a large balance sheet.
Still, it's hard to deny the impact of President Obama's policies. Cash for Clunkers and the First Time Homebuyer credit spurred auto sales and arrested the free fall of home prices. Tax credits stabilized consumer spending. Infrastructure spending spurred construction employment, albeit not at a fast enough pace.
The bottom line is, in just three quarters, the rate of economic growth went from a pace of 6.4% contraction to a pace of 5.7% growth, over a 12% swing.
(2) How Far We Still Have to Go
If you look at the gap to 2% growth, the economy is still 5.8% smaller than it needs to be just to restore the standard of living prior to the recession. That may not sound like a lot relative to a 5.7% growth rate, but it is. Let me explain.
Keep in mind that going forward, the economy will continue to have to grow at 2% just to hold its ground, so a year of 5.8% growth wouldn't restore the standard, it would require a year of 7.8% growth, 5.8% to fill the hole and 2.0% to account for population growth. Nobody thinks 7.8% growth is going to happen.
So, based on more realistic scenarios, how long before we get back to where we were?
At 5% growth, it would take 2 years to get back to where we were at the start of the recession -- in other words we wouldn't be back to where we were until the end of 2011.
At 4% growth, it would take 3 years, or the end of 2012.
At 3% growth, it would take 5.75 years, or the fall of 2015.
And the 5.7% growth number includes a lot of inventory recovery - businesses restocking inventories following holding them at historic lows during the recession, growth that is not repeatable. 4% is probably a pretty rosy scenario. Which means that we are going to see elevated unemployment for some time to come.
So, in the end, the news is good, but we have a long way to go. The Fed will have to balance growth with controlling inflation and will ultimately need to increase interest rates to more normal levels if economic growth continues. There is still anxiety and depressed consumer spending thanks to high unemployment. But it's hard not to feel a lot better than we did a year or nine months ago.
Stimulus Spending and the Proposed "Jobs Bill"
The latest government report shows that stimulus money continues to slowly go out the door. The latest figures:
Tax Cuts: $92.8 billion spent out of $288 billion (32.2%)
Spending: $195.6 billion spent out of $499 billion (39.2%)
Total: $288.4 billion spent out of $787 billion (36.6%)
Given that 63.4% of the stimulus money remains unspent, why is President Obama saying that a "jobs bill", also known to those of us paying attention, as another stimulus bill, should be the top priority of congress this year?
Clearly part of it is political, the President is trying to pivot to an economic focus after the bloody fight over health care sapped his public approval. This is understandable. The Democrats want to be seen as doing something with people still hurting under the scourge of unemployment.
But authorizing more spending may not be the best course to chart. The best course is probably to focus on effectively deploying the almost half a trillion dollar already available under the stimulus package, working to close out TARP and collect remaining outstanding loans to the financial services industry, chart a course back to private enterprise for GM, which may well earn a profit this year and chart a plan to deficit reduction that will prevent future economic growth from being impaired by massive amounts of investment capital being absorbed through government bonds.
That work isn't as sexy, but is probably what is needed. Hopefully that will all happen in the background. But we are probably going to get at least a token jobs bill in the meantime.
Feingold at Risk?
A theoretical Rasmussen poll matching incumbent Senator Russ Feingold (D-WI) against popular former Republican Governor and former Secretary of Health and Human Services Tommy Thompson, shows Thompson leading Feingold by 3%. This is a theoretical poll as Thompson has not indicated that he is going to run. Still, it is a worrisome number for Feingold, as it shows that he IS vulnerable this November. It is enough to move Wisconsin from a Likely Democratic Hold to a Lean Democratic Hold.
Other polls released this week showed the GOP continuing to lead in North Carolina and the DEM's continuing to lead in California, but neither was significant enough to move the rating of the races, which were both already listed as leaning in those respective directions.
The GOP is slowly chipping into one Democratic seat after another. Is this just a low point for the DEM's and will the ultimately recover or hold on and win Wisconsin, Indiana, California, New York, Pennsylvania, etc.? Or is this the start of a GOP November rout, where the GOP finds an improbable way to secure 10 seats and control of the Senate.
No one can know at this point. We'll see what the polls do in the next few days in the aftermath of the State of the Union speech.
If you like this site, tell your friends.
The Bureau of Economic Analysis on Friday released it's quarterly report on the performance of the United States Gross Domestic product, which included the preliminary estimate of economic growth in the 4th quarter of 2009. The US Economy grew at an annualized rate of 5.7% in the 4th quarter of 2009, the fastest rate in over 6 years. This, following the revised 2.2% growth rate for the third quarter of 2009, marks two consecutive quarters of positive economic growth. For all intents and purposes, we can declare that the "Great Recession" ended in the summer or fall of 2009, although an official pronouncement won't be made until long after the fact.
So what exactly does this mean and how does this jive with the current 10.0% unemployment rate and the even more scary "underemployment rate" which counts those who are unemployed, those who are no longer classified as unemployment because they have given up looking for work and those who are working part-time but are seeking full-time work, of 18.3%?
First, let's take a step back and remember what these numbers mean.
The Gross Domestic Product of the United States is the value of all goods and services produced in the United States within a year. This is a very important bottom-line economic number as the the value of all the goods and services produced directly correlates to the standard of living people have as all goods and services produced here are either consumed here or exported, with the value of the exports used to buy other goods. A very good metric for the overall standard of living in a country is its Per Capita GDP, that is the Gross Domestic Product divided by the population. This is how many goods and services the average person can expect to receive. This explanation is a little over-simplified, but generally true.
The US population is not static. It is growing at a rate of about 2% per year. Therefore, the GDP has to grow at a rate of 2% per year just to maintain the existing standard of living. When growth falls below 2%, even if it does not go negative, living standards decline. When it exceeds 2%, living standards increase.
The chart below shows the quarterly GDP growth rates since 2007. The green line is the actual GDP growth rate. The blue line is the "gap to 2%", that is the amount by which the standard of living in the United States is below where it was before the recession started.
There are two key lessons that I believe that you can glean from this graph.
(1) Economic performance under President Obama has been remarkable good
It's an odd thing to say with unemployment extremely high, but if you look at the growth curve, the economy was in utter free-fall in the 4th quarter of 2008 (before the President took office) and in the 1st quarter of 2009 (after the President took office, but before any reasonable impact from his economic policies could take effect.)
Of course, giving him full credit for the recovery would be silly. The actions to stabilize the financial system taken by the Bush administration in its last days, as lacking as they may have been in terms of proper accountability, was critical in preventing an even greater slide. The natural economic cycle obviously also plays into this -- economies go up and down to a certain extent irrespective of government policy. The Fed has also been critical, slashing interest rates to their lowest levels ever and providing large amounts of liquidity by taking on a large balance sheet.
Still, it's hard to deny the impact of President Obama's policies. Cash for Clunkers and the First Time Homebuyer credit spurred auto sales and arrested the free fall of home prices. Tax credits stabilized consumer spending. Infrastructure spending spurred construction employment, albeit not at a fast enough pace.
The bottom line is, in just three quarters, the rate of economic growth went from a pace of 6.4% contraction to a pace of 5.7% growth, over a 12% swing.
(2) How Far We Still Have to Go
If you look at the gap to 2% growth, the economy is still 5.8% smaller than it needs to be just to restore the standard of living prior to the recession. That may not sound like a lot relative to a 5.7% growth rate, but it is. Let me explain.
Keep in mind that going forward, the economy will continue to have to grow at 2% just to hold its ground, so a year of 5.8% growth wouldn't restore the standard, it would require a year of 7.8% growth, 5.8% to fill the hole and 2.0% to account for population growth. Nobody thinks 7.8% growth is going to happen.
So, based on more realistic scenarios, how long before we get back to where we were?
At 5% growth, it would take 2 years to get back to where we were at the start of the recession -- in other words we wouldn't be back to where we were until the end of 2011.
At 4% growth, it would take 3 years, or the end of 2012.
At 3% growth, it would take 5.75 years, or the fall of 2015.
And the 5.7% growth number includes a lot of inventory recovery - businesses restocking inventories following holding them at historic lows during the recession, growth that is not repeatable. 4% is probably a pretty rosy scenario. Which means that we are going to see elevated unemployment for some time to come.
So, in the end, the news is good, but we have a long way to go. The Fed will have to balance growth with controlling inflation and will ultimately need to increase interest rates to more normal levels if economic growth continues. There is still anxiety and depressed consumer spending thanks to high unemployment. But it's hard not to feel a lot better than we did a year or nine months ago.
Stimulus Spending and the Proposed "Jobs Bill"
The latest government report shows that stimulus money continues to slowly go out the door. The latest figures:
Tax Cuts: $92.8 billion spent out of $288 billion (32.2%)
Spending: $195.6 billion spent out of $499 billion (39.2%)
Total: $288.4 billion spent out of $787 billion (36.6%)
Given that 63.4% of the stimulus money remains unspent, why is President Obama saying that a "jobs bill", also known to those of us paying attention, as another stimulus bill, should be the top priority of congress this year?
Clearly part of it is political, the President is trying to pivot to an economic focus after the bloody fight over health care sapped his public approval. This is understandable. The Democrats want to be seen as doing something with people still hurting under the scourge of unemployment.
But authorizing more spending may not be the best course to chart. The best course is probably to focus on effectively deploying the almost half a trillion dollar already available under the stimulus package, working to close out TARP and collect remaining outstanding loans to the financial services industry, chart a course back to private enterprise for GM, which may well earn a profit this year and chart a plan to deficit reduction that will prevent future economic growth from being impaired by massive amounts of investment capital being absorbed through government bonds.
That work isn't as sexy, but is probably what is needed. Hopefully that will all happen in the background. But we are probably going to get at least a token jobs bill in the meantime.
Feingold at Risk?
A theoretical Rasmussen poll matching incumbent Senator Russ Feingold (D-WI) against popular former Republican Governor and former Secretary of Health and Human Services Tommy Thompson, shows Thompson leading Feingold by 3%. This is a theoretical poll as Thompson has not indicated that he is going to run. Still, it is a worrisome number for Feingold, as it shows that he IS vulnerable this November. It is enough to move Wisconsin from a Likely Democratic Hold to a Lean Democratic Hold.
Other polls released this week showed the GOP continuing to lead in North Carolina and the DEM's continuing to lead in California, but neither was significant enough to move the rating of the races, which were both already listed as leaning in those respective directions.
The GOP is slowly chipping into one Democratic seat after another. Is this just a low point for the DEM's and will the ultimately recover or hold on and win Wisconsin, Indiana, California, New York, Pennsylvania, etc.? Or is this the start of a GOP November rout, where the GOP finds an improbable way to secure 10 seats and control of the Senate.
No one can know at this point. We'll see what the polls do in the next few days in the aftermath of the State of the Union speech.
If you like this site, tell your friends.
Saturday, January 9, 2010
Complete Latest Senate Rundown, The Jobs Deficit and John Edward's 2 Americas, Closing in on 1 Year
2010 -- Plenty of Reasons for the DEMs to Be Getting More Scared
The Pro-GOP or at the very least, anti-Democratic trend appears to continue to build. President Obama's numbers are stable, at least for now, around the +3% to +5% range...this is better than being negative, but puts him in a similar position to where President Clinton was leading into the year that saw Newt Gingrich's revolution that led to a GOP-controlled House and Senate. It isn't that bad yet, so let's take a look at where the races are tracking, with our new updates from this week:
Safe DEM Hold (6)
Maryland, New York (Schumer), Oregon, Vermont, Washington, Connecticut
Likely DEM Hold (5)
California, Indiana, Wisconsin, Hawaii, Massachusetts*
* Special Election January 19th
Lean Democratic Hold (2)
New York (Gillebrand), Illinois
Lean Democratic Pick-Up (1)
Missouri
Toss-up -- DEM Controlled (2)
Pennsylvania, Delaware
Lean GOP Pick-up (4)
Colorado, Nevada, North Dakota, Arkansas
Lean GOP Hold (5)
New Hampshire, Kentucky, Ohio, North Carolina, Arizona
Likely GOP Hold (5)
Georgia, Alaska, Kansas, Louisiana, Florida
Safe GOP Hold (7)
Iowa, South Dakota, Alabama, Idaho, Oklahoma, South Carolina, Utah
Total Projection: GOP Pick-up of 3 to 5 Seats
Best Case GOP (all leaners go to GOP): GOP +8 Seats
Best Case DEM (all leaners go to DEM): DEM +6 Seats
It certainly seems, given the national mood, that the Best Case GOP scenario is a heck of a lot more plausible than the Best Case DEM scenario at this point. This is because of all the states that fall in the "lean" category currently, the GOP is winning all but 3 of them. It does show, however, the vast impact a 5 point swing in the national mood can have on how races shape up.
The other things worth noting are that we do not have particularly recent polling in Missouri and Pennsylvania. One could surmise from the trend in other swing states that there is a reasonable probability that they will tip red when we do get such polling. This would push the GOP closer to their "best case" scenario.
Having said all this, I don't see a path to 51 for the GOP. In addition to picking up Missouri and Pennsylvania, they would have to win Illinois to get to +8, which is certainly possible, but probably no better than 50/50. On TOP of that, they would have to beat Gillebrand in New York (possible only if Pataki runs against her, and no sure thing even then), AND win at least 2 out of 5 in California (where they have a good candidate but are trailing), Indiana (where they don't even have a candidate yet against a well-liked moderate in Evan Bayh), Wisconsin (against Russ Feingold, seems like a no-hope race), Hawaii (when was the last time Hawaii sent a GOPer to the Senate?) and Massachusetts (closing fast at -9%, but still a long shot.)
So, the most realistic scenario to get there for the GOP would be to pull off the upset in Massachusetts, then win all the ones they are leading. Win the two toss-ups -- Delaware with Mike Castle and Pennsylvania with Pat Toomey. Win Missouri with Rep. Roy Blunt, New York's 2nd seat via convincing George Pataki to run. Finally, pull off the big upset with Carly Fiorna in California (hey -- they love tech celebrities there.) And you have 51 seats.
A long, long, shot, for sure. But for the first time I can actually construct a scenario where it could happen. First key, of course, is the Massachusetts special election a week from Tuesday, which I expect them to lose. But if they win that one, all bets are off.
In the House,
Democrats could be in huge trouble. Now, it's hard to tell, because we continue to be plagued by drastically different polls numbers (Rasmussen has it at GOP +9%, Gallup has it at DEM +3%), driven largely not by the fact that pollsters are asking the questions somehow differently, but more by the fact that they are making dramatically different modeling assumptions about who is actually going to vote in the mid-term. And the quagmire is real...after a massive turnout in 2008, clearly we all expect it to fall off for the mid-terms, but will it revert back to the normal for an off-year election? Will any of the newly registered voters in 2008 show up to vote for congress in 2010? We don't really know.
At any rate, my philosophy has always been that by building a larger sample poll, as well as looking at means and medians, we can mitigate the sample or weighting errors of any one given pollster. An our methodology produces a current projection of GOP +3.6%.
This leads to a House projection of: GOP +43 Seats
So, for the second projection in a row, I'm projecting a GOP takeover of the House. The margin is still slim, although it is 2 seats wider than it was last week. It could change obviously, with circumstances. But for now, the House Republicans are looking pretty darn strong. I doubt we'll see anything like Health Care reform moving through that chamber come 2011.
The Jobs Deficit -- John Edwards Was Right
I wrote about this some months ago, but I was struck recently by a personal experience. The company that I work for, which is a Fortune 500 company, was in the process of hiring entry-level engineers for a number of our factories, a process that I was involved in. We were recruiting principally for those who graduate this spring and conducted interviews over November and December, made offers in mid-December to 5 candidates and....were rejected 4 out of 5 times. Every single one of the 5 young engineers we were trying to recruit had multiple offers from multiple great companies. These are kids who are extremely intelligent, but let's face it, haven't actually DONE anything yet. And this punctuated my point -- the economy looks a lot different if you are a high school dropout who has been working at a factory in Michigan than it does if you are an Electrical Engineer from the University of Michigan.
The latest employment report, released yesterday, showed the unemployment rate remained flat at 10.0%, just a tick below the peak of 10.1% from two months ago. But the important numbers were even wore than that, with actually jobs declining by 85,000 and the unemployment rate only holding constant by virtue of people giving up on looking for work and dropping out of the work force, with this number rising to 929,000, it's largest level since 1985. So, with "normal" unemployment being in the 5% range, we have a gap of 7.6 million jobs, 8.5 million adding in the discouraged workers.
How does this relate to my story? Let's look at the unemployment rate by educational attainment one more time:
High School Dropout -- 15.3%
High School Graduate -- 10.5%
Some College or Trade School Graduate -- 9.0%
College Graduate with Bachelor's Degree or Higher -- 5.0%
The economy IS normal if you are a college graduate. Sure it isn't the heady days of the late 90s or the mid-00s when you could name your price, your location and your work hours. But you CAN find work if you have a degree and skills that are in demand. If you are a factory worker, however, your prospects are dim.
Which brings me to my point...we have focused so much on just creating jobs that we have neglected the other half of the equation...how do we raise the skill level of the unemployed to make them more productive and more attractive to potential employers? College tuitions continue to surge and achievement gaps between rich and poor school districts have sustained. How do we give the kid from Compton, rural Tennessee, Detroit or Mississippi a shot at being in the tier of people who are in demand? We have had zero political discussion in the past year about higher education and lifetime learning. And that's a crime.
In terms of what we have been discussing politically, we have the stimulus bill and we have the "jobs" bill creeping it's way through congress. The bill, which has been blasted by the GOP as "Son of Stimulus", would largely do more of the same that the American Recovery and Reinvestment Act did...that is the threefold approach of transfer payments to states to stabilize state governments (to "save" jobs), infrastructure projects (to "create" jobs) and temporary extensions / expansions of various social programs to provide money for the unemployed and needy (to generate consumer demand.)
The approach has its merits as a short-term buffer to an economy still dealing with the aftershocks of a massive financial crisis. My criticism is that the way the original stimulus was laid out, we haven't really had a chance to see how that program, which was designed as a 3-year reshaping of the economy, will really play out.
Here are the latest stats on the first stimulus bill:
Tax Cuts -- $92.8 billion out of $288 billion paid out (32.2%)
Spending -- $164.2 billion out of $499 billion paid out (32.9%)
Total -- $257.0 billion out of $787 billion paid out (32.7%)
With more than two thirds of the first stimulus bill left to spend, why craft another measure?
The answer simply is political reality. Congressional Democrats want people to see they are doing SOMETHING, even if the best course might be to simply let the tools that are already out there work. Liberal economist Paul Krugman, who never believed the first bill was nearly large enough, has been leading the charge for a second stimulus for some time. And it appears likely that SOME sort of jobs bills will pass in the new congress.
But the reality is that we will all have to wait and see whether what they did the first run around will actually work.
Almost 1 Year of Obama
The President of the United States will cross the 1 year in office threshold, 25% of his term, right as voters in Massachusetts are picking a Senator that will potentially represent the 60th vote in the Senate for final passage of health care legislation. It's almost time to break out the red pens and grade the President's year. Given the amazingly high bar he set for himself with his early speech to congress, I suspect when I sit down to write his review, he will have some significant short-comings. The President's inner-circle is fond of talking about him taking the "long view". But you do have to produce results at some point.
So, next up, our 1 year report card on President Obama. We'll look at my assessment of grades against his key initiatives. We'll look at his public opinion polls and the American people's grades of his performance. And we'll tap our old friends at Politifact to look at how well he is keeping his promises. Stay tuned.
If you like this site, tell your friends.
The Pro-GOP or at the very least, anti-Democratic trend appears to continue to build. President Obama's numbers are stable, at least for now, around the +3% to +5% range...this is better than being negative, but puts him in a similar position to where President Clinton was leading into the year that saw Newt Gingrich's revolution that led to a GOP-controlled House and Senate. It isn't that bad yet, so let's take a look at where the races are tracking, with our new updates from this week:
Safe DEM Hold (6)
Maryland, New York (Schumer), Oregon, Vermont, Washington, Connecticut
Likely DEM Hold (5)
California, Indiana, Wisconsin, Hawaii, Massachusetts*
* Special Election January 19th
Lean Democratic Hold (2)
New York (Gillebrand), Illinois
Lean Democratic Pick-Up (1)
Missouri
Toss-up -- DEM Controlled (2)
Pennsylvania, Delaware
Lean GOP Pick-up (4)
Colorado, Nevada, North Dakota, Arkansas
Lean GOP Hold (5)
New Hampshire, Kentucky, Ohio, North Carolina, Arizona
Likely GOP Hold (5)
Georgia, Alaska, Kansas, Louisiana, Florida
Safe GOP Hold (7)
Iowa, South Dakota, Alabama, Idaho, Oklahoma, South Carolina, Utah
Total Projection: GOP Pick-up of 3 to 5 Seats
Best Case GOP (all leaners go to GOP): GOP +8 Seats
Best Case DEM (all leaners go to DEM): DEM +6 Seats
It certainly seems, given the national mood, that the Best Case GOP scenario is a heck of a lot more plausible than the Best Case DEM scenario at this point. This is because of all the states that fall in the "lean" category currently, the GOP is winning all but 3 of them. It does show, however, the vast impact a 5 point swing in the national mood can have on how races shape up.
The other things worth noting are that we do not have particularly recent polling in Missouri and Pennsylvania. One could surmise from the trend in other swing states that there is a reasonable probability that they will tip red when we do get such polling. This would push the GOP closer to their "best case" scenario.
Having said all this, I don't see a path to 51 for the GOP. In addition to picking up Missouri and Pennsylvania, they would have to win Illinois to get to +8, which is certainly possible, but probably no better than 50/50. On TOP of that, they would have to beat Gillebrand in New York (possible only if Pataki runs against her, and no sure thing even then), AND win at least 2 out of 5 in California (where they have a good candidate but are trailing), Indiana (where they don't even have a candidate yet against a well-liked moderate in Evan Bayh), Wisconsin (against Russ Feingold, seems like a no-hope race), Hawaii (when was the last time Hawaii sent a GOPer to the Senate?) and Massachusetts (closing fast at -9%, but still a long shot.)
So, the most realistic scenario to get there for the GOP would be to pull off the upset in Massachusetts, then win all the ones they are leading. Win the two toss-ups -- Delaware with Mike Castle and Pennsylvania with Pat Toomey. Win Missouri with Rep. Roy Blunt, New York's 2nd seat via convincing George Pataki to run. Finally, pull off the big upset with Carly Fiorna in California (hey -- they love tech celebrities there.) And you have 51 seats.
A long, long, shot, for sure. But for the first time I can actually construct a scenario where it could happen. First key, of course, is the Massachusetts special election a week from Tuesday, which I expect them to lose. But if they win that one, all bets are off.
In the House,
Democrats could be in huge trouble. Now, it's hard to tell, because we continue to be plagued by drastically different polls numbers (Rasmussen has it at GOP +9%, Gallup has it at DEM +3%), driven largely not by the fact that pollsters are asking the questions somehow differently, but more by the fact that they are making dramatically different modeling assumptions about who is actually going to vote in the mid-term. And the quagmire is real...after a massive turnout in 2008, clearly we all expect it to fall off for the mid-terms, but will it revert back to the normal for an off-year election? Will any of the newly registered voters in 2008 show up to vote for congress in 2010? We don't really know.
At any rate, my philosophy has always been that by building a larger sample poll, as well as looking at means and medians, we can mitigate the sample or weighting errors of any one given pollster. An our methodology produces a current projection of GOP +3.6%.
This leads to a House projection of: GOP +43 Seats
So, for the second projection in a row, I'm projecting a GOP takeover of the House. The margin is still slim, although it is 2 seats wider than it was last week. It could change obviously, with circumstances. But for now, the House Republicans are looking pretty darn strong. I doubt we'll see anything like Health Care reform moving through that chamber come 2011.
The Jobs Deficit -- John Edwards Was Right
I wrote about this some months ago, but I was struck recently by a personal experience. The company that I work for, which is a Fortune 500 company, was in the process of hiring entry-level engineers for a number of our factories, a process that I was involved in. We were recruiting principally for those who graduate this spring and conducted interviews over November and December, made offers in mid-December to 5 candidates and....were rejected 4 out of 5 times. Every single one of the 5 young engineers we were trying to recruit had multiple offers from multiple great companies. These are kids who are extremely intelligent, but let's face it, haven't actually DONE anything yet. And this punctuated my point -- the economy looks a lot different if you are a high school dropout who has been working at a factory in Michigan than it does if you are an Electrical Engineer from the University of Michigan.
The latest employment report, released yesterday, showed the unemployment rate remained flat at 10.0%, just a tick below the peak of 10.1% from two months ago. But the important numbers were even wore than that, with actually jobs declining by 85,000 and the unemployment rate only holding constant by virtue of people giving up on looking for work and dropping out of the work force, with this number rising to 929,000, it's largest level since 1985. So, with "normal" unemployment being in the 5% range, we have a gap of 7.6 million jobs, 8.5 million adding in the discouraged workers.
How does this relate to my story? Let's look at the unemployment rate by educational attainment one more time:
High School Dropout -- 15.3%
High School Graduate -- 10.5%
Some College or Trade School Graduate -- 9.0%
College Graduate with Bachelor's Degree or Higher -- 5.0%
The economy IS normal if you are a college graduate. Sure it isn't the heady days of the late 90s or the mid-00s when you could name your price, your location and your work hours. But you CAN find work if you have a degree and skills that are in demand. If you are a factory worker, however, your prospects are dim.
Which brings me to my point...we have focused so much on just creating jobs that we have neglected the other half of the equation...how do we raise the skill level of the unemployed to make them more productive and more attractive to potential employers? College tuitions continue to surge and achievement gaps between rich and poor school districts have sustained. How do we give the kid from Compton, rural Tennessee, Detroit or Mississippi a shot at being in the tier of people who are in demand? We have had zero political discussion in the past year about higher education and lifetime learning. And that's a crime.
In terms of what we have been discussing politically, we have the stimulus bill and we have the "jobs" bill creeping it's way through congress. The bill, which has been blasted by the GOP as "Son of Stimulus", would largely do more of the same that the American Recovery and Reinvestment Act did...that is the threefold approach of transfer payments to states to stabilize state governments (to "save" jobs), infrastructure projects (to "create" jobs) and temporary extensions / expansions of various social programs to provide money for the unemployed and needy (to generate consumer demand.)
The approach has its merits as a short-term buffer to an economy still dealing with the aftershocks of a massive financial crisis. My criticism is that the way the original stimulus was laid out, we haven't really had a chance to see how that program, which was designed as a 3-year reshaping of the economy, will really play out.
Here are the latest stats on the first stimulus bill:
Tax Cuts -- $92.8 billion out of $288 billion paid out (32.2%)
Spending -- $164.2 billion out of $499 billion paid out (32.9%)
Total -- $257.0 billion out of $787 billion paid out (32.7%)
With more than two thirds of the first stimulus bill left to spend, why craft another measure?
The answer simply is political reality. Congressional Democrats want people to see they are doing SOMETHING, even if the best course might be to simply let the tools that are already out there work. Liberal economist Paul Krugman, who never believed the first bill was nearly large enough, has been leading the charge for a second stimulus for some time. And it appears likely that SOME sort of jobs bills will pass in the new congress.
But the reality is that we will all have to wait and see whether what they did the first run around will actually work.
Almost 1 Year of Obama
The President of the United States will cross the 1 year in office threshold, 25% of his term, right as voters in Massachusetts are picking a Senator that will potentially represent the 60th vote in the Senate for final passage of health care legislation. It's almost time to break out the red pens and grade the President's year. Given the amazingly high bar he set for himself with his early speech to congress, I suspect when I sit down to write his review, he will have some significant short-comings. The President's inner-circle is fond of talking about him taking the "long view". But you do have to produce results at some point.
So, next up, our 1 year report card on President Obama. We'll look at my assessment of grades against his key initiatives. We'll look at his public opinion polls and the American people's grades of his performance. And we'll tap our old friends at Politifact to look at how well he is keeping his promises. Stay tuned.
If you like this site, tell your friends.
Saturday, December 19, 2009
An 11th Hour Deal?, Plodding Along With the Recovery Act
Health Care Deal, Part 2?
Senator Charles Schumer (D-NY) has announced that a deal has been struck between Senator Ben Nelson (D-NE) and Majority Leader Harry Reid (D-NV) to secure Nelson's vote to invoke cloture on the health care bill. Now, it's understandable if we are all a little skeptical, given that this comes a week after the first "deal" between liberals and moderates was announced, and then promptly criticized by Sen. Joe Liebermand (I-CT) and Nelson as unacceptable.
I get the sense that this time things are different. First of all, Senator Nelson himself was the person with whom the negotiations took place. Secondly the deal appears to deal with the abortion issue, whereas the first "deal" dealt only with a compromise on the public option. I think this deal is the real deal.
Which is not to say that passage is assured. The Democrats could still lose another Senator from the center (Jim Webb being an unofficially undecided vote who apparently was not involved in these negotiations) or from the left (Roland Burris, for instance, has indicated that he might vote down a bill that doesn't have a strong enough public option, although he has moderated his tone in recent weeks.) And the Democrats still have a calendar problem -- it is razor thin to try to even get to a cloture vote by December 24th, and you have to believe that Republicans will continue to use every tactic available to them to slow things down. Today, the Senate is working through the Defense Appropriations Bill (the last regular appropriations bill of the year, at long last), hamstrung by the fact that the previous continuing resolution expired at midnight and non-essentially Defense operations are technically unfunded at the moment (which is okay on a Saturday, but pretty bad come Monday if a bill isn't signed.)
Finally, even assuming Senate passage of the bill, there is still the whole conference process....how much will liberals in the House be willing to give ground to keep Nelson on board?
But, despite the remaining obstacles, Democrats are far closer to passage than I expected them to get this year, assuming this deal is real.
What exactly the deal contains is not yet clear. The Reid "manager's amendment" that makes all these changes is posted online at the link below:
http://www.politico.com/static/PPM145_chris.html
It is almost 400 pages long, so I haven't had time to digest it yet, but I'l provide full analysis as soon as I can.
How Much Does H.R. 1 Matter?
It is the crowning political achievement for the still-young (although looking older) President Barack Obama -- the American Recovery and Reinvestment Act. The $787 billion stimulus bill, the heart of a brutal political fight last winter and spring and the largest economic stimulus ever passed in absolute dollar terms (although certainly FDR had a larger stimulus program relative to the size of the economy), this bill is certainly the most significant legislation signed into law of the 115 bills the President Obama has signed in the past 334 days.
But, does it matter? It was (unwisely) advertised as keeping unemployment below 8% (unemployment stands at 10.0% today, down slightly from last month's high of 10.2%). The number of jobs even its strongest advocates claim to "save" or create is dwarfed by the overall job losses in the economy. And in many ways, the actions under TARP and the massive expansion of the Fed's balance sheet, gobbling up everything from bonds to mortgage-backed securities to keep easy money flowing in the economy, contributed far more money to stabilizing the economy (TARP was $700 billion, the Fed's balance sheet has ballooned to over $2 trillion.)
Finally, the stimulus is now pretty unpopular. People don't tend to be particularly patient where unemployment is concerned (ask George Herbert-Walker Bush, who went from 91% to 38% approval in about a year, thanks to an unemployment rate nowhere near as bad as this one.)
Actions under the stimulus bill have been slow as well. The government will miss my benchmark of having 40% of the funds distributed in the 2009 calendar year. The latest government report, as of December 11th:
Tax Cuts: $92.8 billion paid out of $288 billion authorized (32.2% spent)
Spending: $152.6 billion paid out of $499 billion authorized (30.6% spent)
Total: $245.4 billion spent out of $787 billion authorized (31.2% spent)
A quarter of a trillion dollars is a lot of money to have spent this year, but is a small piece of the $3 trillion or so that all of the sources above add up to that has been pumped into the economy since the start of the financial crisis.
So was the stimulus even worth doing?
Absolutely. As amazed as you might be by this, I actually think the bill looks better in retrospect. The coordinated actions of the federal government, while imperfect, have had a huge impact in staving off a massive depression and spurring positive economic growth in the third quarter (and almost surely the fourth quarter as well.)
Consider:
(1) TARP for Banks
Without TARP (credit goes to President George W. Bush on this one for alienating the base of his party to do what needed to be done), it is very likely that Citigroup and Bank of America would have gone bankrupt, causing such a severe contraction of credit that we would likely be mired in depression for years. The banks are paying back the money with interest, meaning that on top of saving the economy, the bank-funding portion of TARP is actually turning out to be a good financial investment for the government.
Yes, the final plan looked nothing like what Hank Paulson described to congress when the bill was passed, whereby the government was supposed to buy the bad assets, not invest in the banks and certainly the original approach was better in many ways, but the government quickly determined it was not feasible in the timeline with which they needed to act.
(2) TARP for AIG
This was a bad deal. A big chunk of money was poured into insurance giant AIG ($180 billion in total) and short of a miracle, I see no path to recovering all that money. I have also been highly critical of this funding in the past -- you don't need to bail out the guy insuring the loan if you bail out the guy making the loan. There was a legitimate interest in protecting the stakeholders in other divisions of AIG (seniors who depending on a fixed annuity from AIG for retirement income, for instance), but this could have been accomplished by severing those portions of AIG and providing much smaller levels of funding to keep them afloat.
(3) TARP for the Auto Industry
Okay, so President Bush got this wrong initially, pumping more money into a losing business model. President Obama initially made the same mistake, before realizing that bankruptcy was the ONLY path to survival for GM and Chrysler. These bankruptcies should have come months earlier without the thrown-away federal money, but the structure of providing bridge capital to these companies in exchange for large equity stakes was ultimately the right way to go. Without these actions, two industrial giants would have collapsed entirely, sending manufacturing into a deadly tailspin (you think 20% unemployment in Detroit is bad, try 50%!)
(4) Ben Bernake's Management
Federal Funds rates of 0.25%, the lowest in history have spurred short-term borrowing rates as low as 4% for many consumers and even lower short-term borrowing rates for businesses. Money has been made historically extremely cheap. You think the credit crunch is bad now, try to the same environment with interest rates at 1.5x or 2x this level.
The Fed sopping up other securities to the tune of $2 trillion is another mechanism to inject liquidity into the monetary system. In essence, it amounts to the government printing money and using it to suck up debt. This would be a really bad move in an economy with even moderate inflation, but inflation risk has been extremely low to date.
(5) The Stimulus
While it doesn't look like a ton of money in the grand scheme of 1-4, the stimulus has done several very important things. First, it stabilized state governments, who can't deficit spend in a recession, avoiding massive layoffs of government workers. Second, it has started to provide infrastructure employment, which has a halo effect on economic growth beyond the immediate employment impact of those projects. Third, it has provided support for two key industries, the auto industry and the home-building industry through cleverly designed, highly effective tax subsidizes. Fourth, lest we forget, for the most part, the infrastructure spend is by and large things that NEED to be done anyway. In fact, I would argue that there wasn't ENOUGH investment in roads, bridges, rail and green energy in the bill.
The stimulus is structured to be a slow-burn: stabilizing state governments and providing the tax subsidizes immediately, but putting out the infrastructure spending on a much slower calendar. This is a politically-losing structure, at least in the short-term, but may be the right move in the long-term.
Working together, all these things have staved off disaster. I freely admit that looking out over the abyss, I did not see the magnitude of this crisis. Fortunately, Bernake, Paulson, Geithner and company did and the coordinated effort of the federal government is an example of government actually doing a massive program well.
There is a ton of mess to clean up:
(1) Unwinding all the TARP investments in banks. This has started, but getting all that money back is a slow process.
(2) Unwinding the AIG investment. This could take years as AIG is still in no position to pay.
(3) Unwinding the auto industry investment. GM owns a huge stake in GM (as the controlling owner) and a smaller stake in Chrysler. Unwinding this will take a stock offering that fetches a price enabler the government to recover its money.
(4) Unwinding the Fed balance sheet. This should start immediately, but in a measured way. The risk of inflation is starting to return as the economy sputters back to life. Acting too late on this could have terrible effects on our currency and the value of savings. The indications from the Fed so far is that it may take too long to act.
(5) Returning interest rates to normal levels. When the fourth quarter GDP figures come out, if they continue in the 2-3% growth range, I would argue that slowly bumping up rates should begin immediately. The currently low rates are great for borrowers, but are killing savers and people living off interest income, mostly seniors. They also risk allowing a surge in inflation, which would further destroy individual assets Historical norms put this rate around 3%. Bumping it to 0.5% in the spring wouldn't be so bad, would it? Alas, the Fed seems unlikely to touch rates until at least early 2011, at which point, the risk of inflation may be significant.
I was overcritical of men like Bernake and Geithner. Bernake deserves a second term at the Fed, having, on balance, made mostly the right moves. Geithner, for all his flaws, has done important work to stabilize the economy and deserves to stay on the job.
Here's to a better economy in 2010.
Senator Charles Schumer (D-NY) has announced that a deal has been struck between Senator Ben Nelson (D-NE) and Majority Leader Harry Reid (D-NV) to secure Nelson's vote to invoke cloture on the health care bill. Now, it's understandable if we are all a little skeptical, given that this comes a week after the first "deal" between liberals and moderates was announced, and then promptly criticized by Sen. Joe Liebermand (I-CT) and Nelson as unacceptable.
I get the sense that this time things are different. First of all, Senator Nelson himself was the person with whom the negotiations took place. Secondly the deal appears to deal with the abortion issue, whereas the first "deal" dealt only with a compromise on the public option. I think this deal is the real deal.
Which is not to say that passage is assured. The Democrats could still lose another Senator from the center (Jim Webb being an unofficially undecided vote who apparently was not involved in these negotiations) or from the left (Roland Burris, for instance, has indicated that he might vote down a bill that doesn't have a strong enough public option, although he has moderated his tone in recent weeks.) And the Democrats still have a calendar problem -- it is razor thin to try to even get to a cloture vote by December 24th, and you have to believe that Republicans will continue to use every tactic available to them to slow things down. Today, the Senate is working through the Defense Appropriations Bill (the last regular appropriations bill of the year, at long last), hamstrung by the fact that the previous continuing resolution expired at midnight and non-essentially Defense operations are technically unfunded at the moment (which is okay on a Saturday, but pretty bad come Monday if a bill isn't signed.)
Finally, even assuming Senate passage of the bill, there is still the whole conference process....how much will liberals in the House be willing to give ground to keep Nelson on board?
But, despite the remaining obstacles, Democrats are far closer to passage than I expected them to get this year, assuming this deal is real.
What exactly the deal contains is not yet clear. The Reid "manager's amendment" that makes all these changes is posted online at the link below:
http://www.politico.com/static/PPM145_chris.html
It is almost 400 pages long, so I haven't had time to digest it yet, but I'l provide full analysis as soon as I can.
How Much Does H.R. 1 Matter?
It is the crowning political achievement for the still-young (although looking older) President Barack Obama -- the American Recovery and Reinvestment Act. The $787 billion stimulus bill, the heart of a brutal political fight last winter and spring and the largest economic stimulus ever passed in absolute dollar terms (although certainly FDR had a larger stimulus program relative to the size of the economy), this bill is certainly the most significant legislation signed into law of the 115 bills the President Obama has signed in the past 334 days.
But, does it matter? It was (unwisely) advertised as keeping unemployment below 8% (unemployment stands at 10.0% today, down slightly from last month's high of 10.2%). The number of jobs even its strongest advocates claim to "save" or create is dwarfed by the overall job losses in the economy. And in many ways, the actions under TARP and the massive expansion of the Fed's balance sheet, gobbling up everything from bonds to mortgage-backed securities to keep easy money flowing in the economy, contributed far more money to stabilizing the economy (TARP was $700 billion, the Fed's balance sheet has ballooned to over $2 trillion.)
Finally, the stimulus is now pretty unpopular. People don't tend to be particularly patient where unemployment is concerned (ask George Herbert-Walker Bush, who went from 91% to 38% approval in about a year, thanks to an unemployment rate nowhere near as bad as this one.)
Actions under the stimulus bill have been slow as well. The government will miss my benchmark of having 40% of the funds distributed in the 2009 calendar year. The latest government report, as of December 11th:
Tax Cuts: $92.8 billion paid out of $288 billion authorized (32.2% spent)
Spending: $152.6 billion paid out of $499 billion authorized (30.6% spent)
Total: $245.4 billion spent out of $787 billion authorized (31.2% spent)
A quarter of a trillion dollars is a lot of money to have spent this year, but is a small piece of the $3 trillion or so that all of the sources above add up to that has been pumped into the economy since the start of the financial crisis.
So was the stimulus even worth doing?
Absolutely. As amazed as you might be by this, I actually think the bill looks better in retrospect. The coordinated actions of the federal government, while imperfect, have had a huge impact in staving off a massive depression and spurring positive economic growth in the third quarter (and almost surely the fourth quarter as well.)
Consider:
(1) TARP for Banks
Without TARP (credit goes to President George W. Bush on this one for alienating the base of his party to do what needed to be done), it is very likely that Citigroup and Bank of America would have gone bankrupt, causing such a severe contraction of credit that we would likely be mired in depression for years. The banks are paying back the money with interest, meaning that on top of saving the economy, the bank-funding portion of TARP is actually turning out to be a good financial investment for the government.
Yes, the final plan looked nothing like what Hank Paulson described to congress when the bill was passed, whereby the government was supposed to buy the bad assets, not invest in the banks and certainly the original approach was better in many ways, but the government quickly determined it was not feasible in the timeline with which they needed to act.
(2) TARP for AIG
This was a bad deal. A big chunk of money was poured into insurance giant AIG ($180 billion in total) and short of a miracle, I see no path to recovering all that money. I have also been highly critical of this funding in the past -- you don't need to bail out the guy insuring the loan if you bail out the guy making the loan. There was a legitimate interest in protecting the stakeholders in other divisions of AIG (seniors who depending on a fixed annuity from AIG for retirement income, for instance), but this could have been accomplished by severing those portions of AIG and providing much smaller levels of funding to keep them afloat.
(3) TARP for the Auto Industry
Okay, so President Bush got this wrong initially, pumping more money into a losing business model. President Obama initially made the same mistake, before realizing that bankruptcy was the ONLY path to survival for GM and Chrysler. These bankruptcies should have come months earlier without the thrown-away federal money, but the structure of providing bridge capital to these companies in exchange for large equity stakes was ultimately the right way to go. Without these actions, two industrial giants would have collapsed entirely, sending manufacturing into a deadly tailspin (you think 20% unemployment in Detroit is bad, try 50%!)
(4) Ben Bernake's Management
Federal Funds rates of 0.25%, the lowest in history have spurred short-term borrowing rates as low as 4% for many consumers and even lower short-term borrowing rates for businesses. Money has been made historically extremely cheap. You think the credit crunch is bad now, try to the same environment with interest rates at 1.5x or 2x this level.
The Fed sopping up other securities to the tune of $2 trillion is another mechanism to inject liquidity into the monetary system. In essence, it amounts to the government printing money and using it to suck up debt. This would be a really bad move in an economy with even moderate inflation, but inflation risk has been extremely low to date.
(5) The Stimulus
While it doesn't look like a ton of money in the grand scheme of 1-4, the stimulus has done several very important things. First, it stabilized state governments, who can't deficit spend in a recession, avoiding massive layoffs of government workers. Second, it has started to provide infrastructure employment, which has a halo effect on economic growth beyond the immediate employment impact of those projects. Third, it has provided support for two key industries, the auto industry and the home-building industry through cleverly designed, highly effective tax subsidizes. Fourth, lest we forget, for the most part, the infrastructure spend is by and large things that NEED to be done anyway. In fact, I would argue that there wasn't ENOUGH investment in roads, bridges, rail and green energy in the bill.
The stimulus is structured to be a slow-burn: stabilizing state governments and providing the tax subsidizes immediately, but putting out the infrastructure spending on a much slower calendar. This is a politically-losing structure, at least in the short-term, but may be the right move in the long-term.
Working together, all these things have staved off disaster. I freely admit that looking out over the abyss, I did not see the magnitude of this crisis. Fortunately, Bernake, Paulson, Geithner and company did and the coordinated effort of the federal government is an example of government actually doing a massive program well.
There is a ton of mess to clean up:
(1) Unwinding all the TARP investments in banks. This has started, but getting all that money back is a slow process.
(2) Unwinding the AIG investment. This could take years as AIG is still in no position to pay.
(3) Unwinding the auto industry investment. GM owns a huge stake in GM (as the controlling owner) and a smaller stake in Chrysler. Unwinding this will take a stock offering that fetches a price enabler the government to recover its money.
(4) Unwinding the Fed balance sheet. This should start immediately, but in a measured way. The risk of inflation is starting to return as the economy sputters back to life. Acting too late on this could have terrible effects on our currency and the value of savings. The indications from the Fed so far is that it may take too long to act.
(5) Returning interest rates to normal levels. When the fourth quarter GDP figures come out, if they continue in the 2-3% growth range, I would argue that slowly bumping up rates should begin immediately. The currently low rates are great for borrowers, but are killing savers and people living off interest income, mostly seniors. They also risk allowing a surge in inflation, which would further destroy individual assets Historical norms put this rate around 3%. Bumping it to 0.5% in the spring wouldn't be so bad, would it? Alas, the Fed seems unlikely to touch rates until at least early 2011, at which point, the risk of inflation may be significant.
I was overcritical of men like Bernake and Geithner. Bernake deserves a second term at the Fed, having, on balance, made mostly the right moves. Geithner, for all his flaws, has done important work to stabilize the economy and deserves to stay on the job.
Here's to a better economy in 2010.
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