Why Obamanomics Has Failed

[ndpruitt03]

Uncertainty about future taxes and regulations is enemy No. 1 of economic growth.
By ALLAN H. MELTZER

The administration's stimulus program has failed. Growth is slow and unemployment remains high. The president, his friends and advisers talk endlessly about the circumstances they inherited as a way of avoiding responsibility for the 18 months for which they are responsible.

But they want new stimulus measures—which is convincing evidence that they too recognize that the earlier measures failed. And so the U.S. was odd-man out at the G-20 meeting over the weekend, continuing to call for more government spending in the face of European resistance.

The contrast with President Reagan's antirecession and pro-growth measures in 1981 is striking. Reagan reduced marginal and corporate tax rates and slowed the growth of nondefense spending. Recovery began about a year later. After 18 months, the economy grew more than 9% and it continued to expand above trend rates.

Two overarching reasons explain the failure of Obamanomics. First, administration economists and their outside supporters neglected the longer-term costs and consequences of their actions. Second, the administration and Congress have through their deeds and words heightened uncertainty about the economic future. High uncertainty is the enemy of investment and growth.

Most of the earlier spending was a very short-term response to long-term problems. One piece financed temporary tax cuts. This was a mistake, and ignores the role of expectations in the economy. Economic theory predicts that temporary tax cuts have little effect on spending. Unless tax cuts are expected to last, consumers save the proceeds and pay down debt. Experience with past temporary tax reductions, as in the Carter and first Bush presidencies, confirms this outcome.

Another large part of the stimulus went to relieve state and local governments of their budget deficits. Transferring a deficit from the state to the federal government changes very little. Some teachers and police got an additional year of employment, but their gain is temporary. Any benefits to them must be balanced against the negative effect of the increased public debt and the temporary nature of the transfer.

The Obama economic team ignored past history. The two most successful fiscal stimulus programs since World War II—under Kennedy-Johnson and Reagan—took the form of permanent reductions in corporate and marginal tax rates. Economist Arthur Okun, who had a major role in developing the Kennedy-Johnson program, later analyzed the effect of individual items. He concluded that corporate tax reduction was most effective.

Another defect of Obamanomics was that part of the increased spending authorized by the 2009 stimulus bill was held back. Remember the oft-repeated claim that the spending would go for "shovel ready" projects? That didn't happen, though spending will flow more rapidly now in an effort to lower unemployment and claim economic success during the fall election campaign.

In his January 2010 State of the Union address, President Obama recognized that the United States must increase exports. He was right, but he has done little to help, either by encouraging investment to increase productivity, or by supporting trade agreements, despite his promise to the Koreans that he repeated in Toronto. Export earnings are the only way to service our massive foreign borrowing. This should be a high priority. Isn't anyone in the government thinking about the future?

Mr. Obama has denied the cost burden on business from his health-care program, but business is aware that it is likely to be large. How large? That's part of the uncertainty that employers face if they hire additional labor.

The president asks for cap and trade. That's more cost and more uncertainty. Who will be forced to pay? What will it do to costs here compared to foreign producers? We should not expect businesses to invest in new, export-led growth when uncertainty about future costs is so large.

Then there is Medicaid, the medical program for those with lower incomes. In the past, states paid about half of the cost, and they are responsible for 20% of the additional cost imposed by the program's expansion. But almost all the states must balance their budgets, and the new Medicaid spending mandated by ObamaCare comes at a time when states face large deficits and even larger unfunded liabilities for pensions. All this only adds to uncertainty about taxes and spending.

Other aspects of the Obama economic program are equally problematic. The auto bailouts ran roughshod over the rule of law. Chrysler bondholders were given short shrift in order to benefit the auto workers union. By weakening the rule of law, the president opened the way to great mischief and increased investors' and producers' uncertainty. That's not the way to get more investment and employment.

Almost daily, Mr. Obama uses his rhetorical skill to castigate businessmen who have the audacity to hope for profitable opportunities. No president since Franklin Roosevelt has taken that route. President Roosevelt slowed recovery in 1938-40 until the war by creating uncertainty about his objectives. It was harmful then, and it's harmful now.

In 1980, I had the privilege of advising Prime Minister Margaret Thatcher to ignore the demands of 360 British economists who made the outrageous claim that Britain would never (yes, never) recover from her decision to reduce government spending during a severe recession. They wanted more spending. She responded with a speech promising to stay with her tight budget. She kept a sustained focus on long-term problems. Expectations about the economy's future improved, and the recovery soon began.

That's what the U.S. needs now. Not major cuts in current spending, but a credible plan showing that authorities will not wait for a fiscal crisis but begin to act prudently and continue until deficits disappear, and the debt is below 60% of GDP. Rep. Paul Ryan (R., Wisc.) offered a plan, but the administration and Congress ignored it.

The country does not need more of the same. Successful leaders give the public reason to believe that they have a long-term program to bring a better tomorrow. Let's plan our way out of our explosive deficits and our hesitant and jobless recovery by reducing uncertainty and encouraging growth.

Mr. Meltzer is a professor of economics at Carnegie Mellon University, a visiting scholar at the American Enterprise Institute, and the author of "A History of the Federal Reserve" (University of Chicago Press, 2003 and 2010).

http://online.wsj.com/article/SB10001424052748704629804575325233508651458.html?m od=rss_opinion_main

[XingTheRubicon]

or

spending too much



the end

[Chuck Bao]

Economists are the stupidiest smartest people alive. The validation of their theories are always couched in an ancient history lesson. Economic policies from 30-50 years ago do not work today. The new global economy is not the same. Outsourcing and global fund flows and exchange rates and weight of intellectual property rights and the value of human capital are not the same. The dude may not be wrong, but I give more credence to any economic policy comment that is more based on future likely realities than the past. Economists don't seem that smart.

[delhalew]

Economists are the stupidiest smartest people alive. The validation of their theories are always couched in an ancient history lesson. Economic policies from 30-50 years ago do not work today. The new global economy is not the same. Outsourcing and global fund flows and exchange rates and weight of intellectual property rights and the value of human capital are not the same. The dude may not be wrong, but I give more credence to any economic policy comment that is more based on future likely realities than the past. Economists don't seem that smart.

So a course of action that has never worked will suddenly work because time has passed.
Even mice learn which button to push.
The public sector growing can't save an economy and massive debt is bad.
That wisdom from the smartest dumb guy in the room is free of charge.;)
To prove I'm a good capitalist, the next one will cost you double.

[ndpruitt03]

Economists are the stupidiest smartest people alive. The validation of their theories are always couched in an ancient history lesson. Economic policies from 30-50 years ago do not work today. The new global economy is not the same. Outsourcing and global fund flows and exchange rates and weight of intellectual property rights and the value of human capital are not the same. The dude may not be wrong, but I give more credence to any economic policy comment that is more based on future likely realities than the past. Economists don't seem that smart.

We are doing the same economic policies of about 60-80 years ago and that didn't really work either.

[tommieharris91]

That wisdom from the smartest dumb guy in the room is free of charge. ;)
To prove I'm a good capitalist, the next one will cost you double.

OK, throw out another nugget.

[tommieharris91]

We are doing the same economic policies of about 60-80 years ago and that didn't really work either.

Actually, those worked quite well. It's great when the rest of the world rebuilds while you don't have to.

[ndpruitt03]

Actually, those worked quite well. It's great when the rest of the world rebuilds while you don't have to.

When did any of FDRs policies ever work? We got deeper and deeper into a depression after all his spending. It didn't stop till after the war when we had a switch from democrats to republicans and they cut spending by about 60%

[tommieharris91]

When did any of FDRs policies ever work? We got deeper and deeper into a depression after all his spending. It didn't stop till after the war when we had a switch from democrats to republicans and they cut spending by about 60%

Nope. (http://upload.wikimedia.org/wikipedia/commons/thumb/f/f7/Gdp29-41.svg/800px-Gdp29-41.svg.png)
Sorry. (http://en.wikipedia.org/wiki/File:Us_unemployment_rates_1950_2005.png)

[Okla-homey]

John Maynard Keynes = FAIL.

Put another way, you can't "stimulate" your way out a recession by throwing everyone a few hundred bucks. You just waste a hell of a lot of money we had to borrow. And you shouldn't expect the government, who can't even manage to operate the Postal Service on a paying basis, to manage the US economy.

What works, is lowering taxes and the rest will take care of itself.

[ndpruitt03]

Nope. (http://upload.wikimedia.org/wikipedia/commons/thumb/f/f7/Gdp29-41.svg/800px-Gdp29-41.svg.png)
Sorry. (http://en.wikipedia.org/wiki/File:Us_unemployment_rates_1950_2005.png)

FDRs New Deal failed to get unemployment under 14%. The GDP and Stock Market went up and down the entire 15 years he was there but unemployment didn't start going down till WW2 started.

After the war ended when Republicans took over congress it was predicted that the economy would fall apart with all the cuts that happened. That didn't happen in the 40s. The only thing they didn't do was cut taxes which wouldn't be done till Kennedy took office. That's probably what led to some of your stats in the 50s. But there wasn't a great depression during the 50s and 60s in this country.

[Ike]

John Maynard Keynes = FAIL.

Put another way, you can't "stimulate" your way out a recession by throwing everyone a few hundred bucks. You just waste a hell of a lot of money we had to borrow. And you shouldn't expect the government, who can't even manage to operate the Postal Service on a paying basis, to manage the US economy.

What works, is lowering taxes and the rest will take care of itself.

You can however stimulate your way out of a recession by spending on things that the private sector wouldn't demand in the first place. This is why WWII helped bring us completely out of the depression. The govt was demanding lots of tanks and planes and ships and guns and bullets. Lots of them. To an economy, war and many other types of govt spending look identical. The problem is you've got to do a whole lot of it. You can't blink at short-term deficits, AND you have to make sure those deficits really ARE short term.

Right now, our economy is suffering from a lack of demand across all sectors of the economy. In normal times lack of demand hits one or two sectors, but total demand stays roughly the same, and jobs just move from one sector to another. Thats not happening now. Thus there the high unemployment. And it's a vicious cycle...because spending less leads to spending less and less and less. Tax cuts may have some effect, but not enough to bring demand back to where it needs to be to wipe out the excess unemployment. Because A) as was discussed here a few months ago, about 50% of people pay no tax. B) Any tax cuts will only be marginal improvements to people and businesses budget realities. And C) if we are being honest with ourselves and 'paying' for these tax cuts by cutting spending somewhere else, then the beneficaries of that spending (employees, contractors, old people, etc) no longer have that money to contribute to the economy.

I said above that demand is low across all sectors of the economy. That's almost true. There is one thing for which demand is high. T-bills. Go look at US treasury rates right now. Yields are extraordinarily low, especially considering we've added something like 2T worth of debt in the last couple of years. The 'market' knows we'll probably have to inflate ourselves out of this at some point, yet is still very much OK with incredibly small yields on long term bonds. The market is saying "Uncle Sam, please, borrow my money!" Mainly because the market thinks Uncle Sam is the safest place to park it's money. We are able to borrow incredibly cheaply right now. Even after we've put more than 2 Trillion bucks on the national credit card recently. The market seems unfazed by that. That is not an insignificant signal.

The 'market' wants to invest in us. IMO, that means we need to be looking at how best to take that money and invest it in ourselves. How do we take that and use it to expand the tax base so we can pay it off? IMO, thats what we need to be looking at. Things like funding higher speed cargo transportation to increase the speed of commerce maybe? Or maybe more energy research and perhaps the beginnings of a new energy infrastructure (or other technology that we can sell beyond our borders)? IMO, now is the time to be bold. To look at what is nearly within our grasp, and go balls to the wall for it in hopes of a big payday when the dust settles.

[Ike]

FDRs New Deal failed to get unemployment under 14%. The GDP and Stock Market went up and down the entire 15 years he was there but unemployment didn't start going down till WW2 started.

After the war ended when Republicans took over congress it was predicted that the economy would fall apart with all the cuts that happened. That didn't happen in the 40s. The only thing they didn't do was cut taxes which wouldn't be done till Kennedy took office. That's probably what led to some of your stats in the 50s. But there wasn't a great depression during the 50s and 60s in this country.

The new deal failed to get unemployment down primarily because the guy doing the unemployment studies decided not to count people employed by the WPA as being employed. (which was a large number of people)

[JLEW1818]

spend dat money bitches!!! make them babies!!!! spend !!!! drugs!!! illegals!!!

[GKeeper316]

But there wasn't a great depression during the 50s and 60s in this country.

because of socialist programs like the montgomery g.i. bill and the veterans administration's home and small business loans, subsidized by the taxpayers.

[SoonerStormchaser]

you can't "stimulate" your way out a recession

IBTD...oh wait, you're talking about stimulating your way out of THAT recession...NM.

[OklahomaTuba]

Things like funding higher speed cargo transportation to increase the speed of commerce maybe? Or maybe more energy research and perhaps the beginnings of a new energy infrastructure (or other technology that we can sell beyond our borders)? IMO, now is the time to be bold. To look at what is nearly within our grasp, and go balls to the wall for it in hopes of a big payday when the dust settles.

Japan's been going "balls to the wall" for 20+ years, and its done notta.

Same with most of Europe.

You cannot spend yourself into prosperity. This has been proven time and time again. Why some people cannot seem to grasp this is beyond me.

[OklahomaTuba]

The new deal failed to get unemployment down primarily because the guy doing the unemployment studies decided not to count people employed by the WPA as being employed. (which was a large number of people)

Uh, no.

Unemployment didn't start going up until there was a "New Deal".


Although the big stock-market crash occurred in October 1929, unemployment never reached double digits in any of the 12 months after that crash. Unemployment peaked at 9 percent, two months after the stock market crashed — and then began drifting generally downward over the next six months, falling to 6.3 percent by June 1930.

This was what happened in the market, before the federal government decided to “do something.”

What the government decided to do in June 1930 — against the advice of literally a thousand economists, who took out newspaper ads warning against it — was impose higher tariffs, in order to save American jobs by reducing imported goods.

This was the first massive federal intervention to rescue the economy, under Pres. Herbert Hoover, who took pride in being the first president of the United States to intervene to try to get the economy out of an economic downturn.

Within six months after this government intervention, unemployment shot up into double digits — and stayed in double digits in every month throughout the entire remainder of the 1930s, as the Roosevelt administration expanded federal intervention far beyond what Hoover had started.

If more government regulation of business is the magic answer that so many seem to think it is, the whole history of the 1930s should have been different. An economic study in 2004 concluded that New Deal policies prolonged the Great Depressionhttp://article.nationalreview.com/print/?q=NDYwODlmZjBhOGY5ZmYxNjE2M2FlY2NjZGI0NmIxMGU=

[OklahomaTuba]

Heh.

Those who are convinced that the government has to “do something” when the economy has a problem almost never bother to find out what actually happens when the government intervenes.

The very fact that we still remember the stock market crash of 1929 is remarkable, since there was a similar stock-market crash in 1987 that most people have long since forgotten.

What was the difference between these two stock-market crashes? The 1929 stock-market crash was followed by the most catastrophic depression in American history, with as many as one-fourth of all American workers being unemployed. The 1987 stock-market crash was followed by two decades of economic growth with low unemployment.

But that was only one difference. The other big difference was that the Reagan administration did not intervene in the economy after the 1987 stock-market crash — despite many outcries in the media that the government should “do something.”

Unfortunately it appears that the liberals have "done something" again, with the same predictable results as well.

[Sooner in Tampa]

Just a layman's view on how to fix the economy:

Cut taxes and give the small buisness owners the breaks...let them hire people and get people working

It is sad that government jobs are out growing private sector jobs...that's a recipe for disaster

[ndpruitt03]

I think it's important to make sure taxes are cut for business. Not necessarily all taxes. But I also think our tax system has gotten way too big and complicated. Everything would be a lot simpler if we just went to the Fair Tax and taxed on consumption.

[OklahomaTuba]

Well put...

Obama has sought to remake America into a social democracy — like Germany or France — with a larger public sector, expanded entitlements, stronger labor unions and a changed political structure. He’s doing quite well so far.
http://www.politico.com/news/stories/0610/39234.html#ixzz0sRVnyM51

With France’s unemployment levels.

[Ike]

Uh, no.

Unemployment didn't start going up until there was a "New Deal".

http://article.nationalreview.com/print/?q=NDYwODlmZjBhOGY5ZmYxNjE2M2FlY2NjZGI0NmIxMGU=

http://edgeofthewest.wordpress.com/2008/10/10/very-short-reading-list-unemployment-in-the-1930s/

First: The new deal did lower unemployment. It did mostly stay in the double digits, but it came down from somewhere in the 20-25% range when it was began in 1933 to somewhere around 10% by 1937. A pretty significant improvement. You can argue all you want about whether unemployment would have gotten much better without the new deal...nobody knows the answer to that because there is no data point. We don't have another time in history with unemployment near 20%. IIRC, 1987 did not see significant changes in unemployment either. Making it a comparison to the new deal seems a little wierd. If you want to make it a comparison to what Hoover did, that's maybe a little more apt. But to my memory, one thing we have not done in response to this current crisis is to invoke protectionist policies, as Hoover did.

[Ike]

Just a layman's view on how to fix the economy:

Cut taxes and give the small buisness owners the breaks...let them hire people and get people working

It is sad that government jobs are out growing private sector jobs...that's a recipe for disaster

IMO, thats a chicken-or-the-egg thing. If you just gave business owners breaks right now, I don't think they'd immediately go out and hire people. IMO, they aren't going to hire people until demand for their products pick up and they NEED to hire people. Tax breaks may make some demand come back, but it won't be anything close to what it used to be.

[ndpruitt03]

It went down because government was hiring at a high rate. In the private sector where most jobs were created it never really went down. I think unemployment in the private sector was in the 30% for much of the 30s.

I think the next time that unemployment was even close to the 20% area was in Reagan's first year before his tax cuts.

[Ike]

It went down because government was hiring at a high rate. In the private sector where most jobs were created it never really went down. I think unemployment in the private sector was in the 30% for much of the 30s.

I think the next time that unemployment was even close to the 20% area was in Reagan's first year before his tax cuts.

The 'official' numbers at BLS claim that at the beginning of Regans term (1981), unemployment was at 7%. In 1982 and 1983 (right after his first tax cut), unemployment went to 9.9%. before slowly going down to 5 or so percent at the end of his second term....

I wouldn't call any of that as being close to 20%. It may be the closest we got since 1940, but it's not that close.

I would also say that Regan also faced a much different problem than just high unemployment. He faced high inflation (>10%) coming into office. That was not part of the problems of the 30s, nor is it part of the problem right now. (it may be part of the problem later, but that still remains to be seen)

[Okla-homey]

It is sad that government jobs are out growing private sector jobs...that's a recipe for disaster

<start rant>

I agree, If I hear one more news report, or read one more story about how the school system is being forced to lay-off teachers and what a tragedy that is, I'm going to hurl.

The public schools in this country are bloated with far too many "administrators" and other non-classroom types sucking from the gubmint teat.

Peeling a few hundred off here or there won't make a lick of difference to the crappy product being delivered in most of them. If they really beleived the bull they're spreading, and cared about "the children," they wouldn't do their lay-offs based on seniority.

<end rant>

[EnragedOUfan]

Many of you seem to have forgotten the past 8 years..................My only complaint against Obama is the oil crisis....but nothing else.

People, from 2000-2008, our country has been under REPUBLICAN LEADERSHIP! Does George W. Bush ring a bell?????????

The whole housing crisis started back in 2007, then Frannie May and Mac, then the Wall street bailout.......That crap happened under Republican leadership......

Then Obama gets into office and inherits a nightmare....And you people expect it to be fixed immediately......Wow......

And how typical for the conservative, big Republican Arizona govenor to flex her muscle to the president to fix her borders........What has Senator McCain, or the Red Arizona State done about their borders while Bush was in Office? What has Bush done for the borders?

Recently, the Republicans increased my reasoning for never, ever affiliating myself with that party.......The ending of unemployment benefits.....BS. I guess homelessness and starvation is the key to economic recovery.......

"because of socialist programs like the montgomery g.i. bill and the veterans administration's home and small business loans, subsidized by the taxpayers"

Dude, pack your bags and get out of America... Me on the other hand, I'll proudly use my GI Bill when I get out of the service and I'm proud that our nations veterans have services offered to them.....BOOMER!

[GKeeper316]

Many of you seem to have forgotten the past 8 years..................My only complaint against Obama is the oil crisis....but nothing else.

People, from 2000-2008, our country has been under REPUBLICAN LEADERSHIP! Does George W. Bush ring a bell?????????

The whole housing crisis started back in 2007, then Frannie May and Mac, then the Wall street bailout.......That crap happened under Republican leadership......

Then Obama gets into office and inherits a nightmare....And you people expect it to be fixed immediately......Wow......

And how typical for the conservative, big Republican Arizona govenor to flex her muscle to the president to fix her borders........What has Senator McCain, or the Red Arizona State done about their borders while Bush was in Office? What has Bush done for the borders?

Recently, the Republicans increased my reasoning for never, ever affiliating myself with that party.......The ending of unemployment benefits.....BS. I guess homelessness and starvation is the key to economic recovery.......

"because of socialist programs like the montgomery g.i. bill and the veterans administration's home and small business loans, subsidized by the taxpayers"

Dude, pack your bags and get out of America... Me on the other hand, I'll proudly use my GI Bill when I get out of the service and I'm proud that our nations veterans have services offered to them.....BOOMER!


you want to quote my post as an indictment of all things liberal, you need to go back and re-read, son... (and learn how to use the quote function)

and i already used my gi bill to get my degree from OU.

[AggieTool]

Ever wonder why the most prosperous time we had (early '50s), was when marginal tax rates were the highest?

Just curious.

[bluewcc]

Many of you seem to have forgotten the past 8 years..................My only complaint against Obama is the oil crisis....but nothing else.

People, from 2000-2008, our country has been under REPUBLICAN LEADERSHIP! Does George W. Bush ring a bell?????????

The whole housing crisis started back in 2007, then Frannie May and Mac, then the Wall street bailout.......That crap happened under Republican leadership......

Then Obama gets into office and inherits a nightmare....And you people expect it to be fixed immediately......Wow......

And how typical for the conservative, big Republican Arizona govenor to flex her muscle to the president to fix her borders........What has Senator McCain, or the Red Arizona State done about their borders while Bush was in Office? What has Bush done for the borders?

Recently, the Republicans increased my reasoning for never, ever affiliating myself with that party.......The ending of unemployment benefits.....BS. I guess homelessness and starvation is the key to economic recovery.......

"because of socialist programs like the montgomery g.i. bill and the veterans administration's home and small business loans, subsidized by the taxpayers"

Dude, pack your bags and get out of America... Me on the other hand, I'll proudly use my GI Bill when I get out of the service and I'm proud that our nations veterans have services offered to them.....BOOMER!


interesting that none of the people you named are conservatives. and ending unemployment benefits doesnt promote homelessness and starvation. it promotes self-reliance and personal responsibility.

[Serge Ibaka]

interesting that none of the people you named are conservatives. and ending unemployment benefits doesnt promote homelessness and starvation. it promotes self-reliance and personal responsibility.

I'm curious what you think about this in regards to:

The mentally ill
The physically ill
People who cannot find work

Is private charity the answer to all of this?

Public charity doesn't offend me. I like that we, as a collective and voting public, set up the institutions necessary for a good society (and even if you're going to play the "personal-responsibility" card, you must recognize that extreme poverty and homelessness is bad for society as a whole). This is why schools, firehouses, and post-offices are neat things. Even the detractors of our welfare systems own them just as much as the people who vote for them or the people who are aided by them.

People need to know even if inequalities are a part of life (and, indeed, this is the structure of Capitalism), the state still has their back. As a part of the collective's institutions, every single person should be equal, and they should have an equal shot at success--this is not quite how it is, but it is how it should be. Every person should have a place to live, food to eat, an education, and (imho) access to necessary medical technologies. Why? Because we're the United States of America, and that's the standard of a people who value humanity.

Should we value individual creativity and hardwork? Yes, of course, and we already do. Does it suck that some people take advantage (or gain) from the system? Sure. But that doesn't mean the institutions are inherently bad: they just need to be re-worked all of the time.

[Chuck Bao]

There is yet to be anything written that I have seen that gets me all "Hell yeah, this will get us out of this mess." Easing the required employee benefits for small businesses, just takes money out of one pocket and puts it in another. In the state of the current economy, employees are more likely to spend more money on like necessary goods than employers expanding their businesses. Correct me if I am wrong, but the small business owners complain more about the required employee benefits than they do about the tax rate. Also, correct if if I am wrong but small businesses are not going to help improve our massive trade deficit and, in fact, perpetuate our spending beyond our means. Our large corporations have already sold us out through outsourcing. Government spending is more important than ever. It is not about pumping money into the economy, but making the US efficient and competitive. Ike is the smartest guy around, in my opinion, and I agree that government spending should be focused on improving the transportation infrastructure to improve international competitiveness and provide short-term stimulus to the economy at the same time. It is not about taxes, but competitiveness and efficiency. The US has a vast amount of money that is flowing around all over the world. Get the US companies to invest in Americans rather than the Chinese.

[Leroy Lizard]

This just came through my news feed:

http://www.thebusinessjournal.com/the-business-journal-national-news/13-national/5425-weak-economic-data-suggest-recovery-fizzling-


Weak economic data suggest recovery fizzling Print E-mail
Written by CHRISTOPHER S. RUGABER, AP Economics Writer
Thursday, 01 July 2010 11:04
(AP) — Fears that the economic recovery is fizzling grew Thursday after the government and private sector issued weak reports on a number of fronts.

Unemployment claims are up, home sales are plunging without government incentives and manufacturing growth is slowing.

Meanwhile, 1.3 million people are without federal jobless benefits now that Congress adjourned for a weeklong Independence Day recess without passing an extension. That number could grow to 3.3 million by the end of the month if lawmakers can't resolve the issue when they return.

All of this worries economists. As jobless claims grow and benefits shrink, Americans have less money to spend and the economy can't grow fast enough to create new jobs. Some are revising their forecasts for growth in the third quarter. Others are afraid the country is on the verge of falling back into a recession.

"We find the level and direction in jobless claims somewhat troubling and the increase is likely to feed double-dip fears," said John Ryding, an economist at RDQ Economics in a note to clients.

New claims for benefits jumped by 13,000 to a seasonally adjusted 472,000, the Labor Department said Thursday. The four-week average, which smooths fluctuations, rose to 466,500, its highest level since March.

Claims have remained stuck above 450,000 since the beginning of the year. Requests for unemployment benefits dropped steadily last year after reaching a peak of 651,000 in March 2009. Economists say they will feel more confident about sustained job growth when initial claims fall below 425,000

Adding to that is the growing number of people who stand to lose government support while they search for work.

For the third time in as many weeks, Senate Republicans blocked a bill Wednesday night that would have continued unemployment checks to people who have been laid off for long stretches. The House is slated to vote on a similar measure Thursday, though the Senate's action renders the vote a futile gesture as Congress prepares to depart Washington for its holiday recess.

During the recession, Congress added up to 73 weeks of extra benefits on top of the 26 weeks typically provided by states. Democrats in the House and Senate want them extended through November. Republicans want the $34 billion cost of the bill to be paid for with money remaining from last year's stimulus package. Democrats argue that it is emergency spending and should be added to the deficit.

Some economists say they may revise their forecasts for growth in the third quarter if the benefits are not extended.

"People whose benefits are going to run out will simply not have the spending power necessary to help drive growth," said Dan Greenhaus, chief economic strategist at Miller Tabak.

The housing market is also weighing on the economy. The number of buyers who signed contracts to purchase homes tumbled 30 percent in May, the National Association of Realtors said. And construction spending declined 0.2 percent in May as residential building fell, the Commerce Department said.

Both were affected by the expiration of government incentives to buy homes. Buyers had until April 30 to sign sales contracts and qualify for tax credits.

The tax credit's impact also showed up in the jobless claims report. Greater layoffs by construction firms fueled the increase, a Labor Department analyst said.

Separately, the Institute for Supply Management, an industry trade group, said its manufacturing index slipped in June. But it is still at a level that suggests growth in the industrial sector, which has helped drive the economic recovery.

Surveys released Thursday in China showed a slowdown in factories' growth as exports faltered and analysts worry that cutbacks in government lending will cool the economy's rapid rise. Reports from Markit Economics also indicated that manufacturing sector growth in India, South Korea, Australia and Taiwan was slowing.

The industrial sector's growth also cooled slightly in the 16 countries using the euro and the United Kingdom.

The troubling information on the economy comes a day before the Labor Department is scheduled to release the June jobs report. That is expected to show a modest rebound in private-sector hiring. Overall, employers are expected to cut a net total of 110,000 positions, but that includes the loss of about 240,000 temporary census jobs. Private employers are projected to add 112,000 jobs, according to a survey of economists by Thomson Reuters.

That would be an improvement from May, when businesses added only 41,000 workers. But the economy needs to generate at least 100,000 net new jobs per month to keep up with population growth, and probably twice that number to bring down the jobless rate.

The unemployment rate is expected to edge up to 9.8 percent from 9.7 percent in May.

Layoffs are rising in the public sector, as states and local governments struggle to close persistent budget gaps. New York City approved a budget Tuesday that cuts about $1 billion in spending and would eliminate 5,300 jobs from the city's 300,000-person work force.

[ndpruitt03]

The 'official' numbers at BLS claim that at the beginning of Regans term (1981), unemployment was at 7%. In 1982 and 1983 (right after his first tax cut), unemployment went to 9.9%. before slowly going down to 5 or so percent at the end of his second term....

I wouldn't call any of that as being close to 20%. It may be the closest we got since 1940, but it's not that close.

I would also say that Regan also faced a much different problem than just high unemployment. He faced high inflation (>10%) coming into office. That was not part of the problems of the 30s, nor is it part of the problem right now. (it may be part of the problem later, but that still remains to be seen)


With all the spending we are doing right now whoever gets president next will have a much tougher time then Obama ever dreamed of having. I don't see anyway he gets re-elected if his approval ratings continue to fall like they have.

But this was partly the republicans fault too. They were the spending party before this and it has led to a lot of the problem. They essentially weren't being conservatives. If the democrats turned around and only spent what they could have paid for the republican party would be dead as we know it. Instead the democrats made the republican spending look like they were saving.

[Ike]

interesting that none of the people you named are conservatives. and ending unemployment benefits doesnt promote homelessness and starvation. it promotes self-reliance and personal responsibility.

In 'normal times', I'd agree with you. In the environment we are in right now, where there are something like 10 people competing for every job opening, and few jobs to be found...with long term unemployment (people who have been unemployed for >27 weeks) approaching 6 million people (which is a record...at least since 1945 when they started counting it)...I'm inclined to disagree with you. Trust me, 10% of the working population is not off having a ball living off government handouts. Some of them may be, but the vast majority are not. These are people who have been actively looking for jobs for 6 months or more now (because unemployment stats don't count people that have given up). If there were jobs to be had, they'd be having them. But people aren't buying ****. And the government is preparing to stop buying as much ****. Nobody creates jobs for people to make **** that nobody is going to buy.

[Ike]

There is yet to be anything written that I have seen that gets me all "Hell yeah, this will get us out of this mess." Easing the required employee benefits for small businesses, just takes money out of one pocket and puts it in another. In the state of the current economy, employees are more likely to spend more money on like necessary goods than employers expanding their businesses. Correct me if I am wrong, but the small business owners complain more about the required employee benefits than they do about the tax rate. Also, correct if if I am wrong but small businesses are not going to help improve our massive trade deficit and, in fact, perpetuate our spending beyond our means. Our large corporations have already sold us out through outsourcing. Government spending is more important than ever. It is not about pumping money into the economy, but making the US efficient and competitive. Ike is the smartest guy around, in my opinion, and I agree that government spending should be focused on improving the transportation infrastructure to improve international competitiveness and provide short-term stimulus to the economy at the same time. It is not about taxes, but competitiveness and efficiency. The US has a vast amount of money that is flowing around all over the world. Get the US companies to invest in Americans rather than the Chinese.

Thanks for the compliment Chuck. I don't harbor any any such belief that I'm the smartest guy around or that I have thought of everything, but I do appreciate the recognition...I've been trying very hard to educate myself on matters macroeconomical for a while now...

But back to the idea of mine that you put a little more concisely (and better) that we should be focused on competitiveness...There's even more reason to focus on competitiveness than just the economics of the current situation. Right now, one major economy already is going balls to the wall on competitiveness. China. They are investing like mad in science and technology. They (correctly in my opinion) view the current situation as ripe for them to jump to the lead in technology and scientific progress. They also don't have many hangups over stem cell research, human cloning, and a host of other ethical issues regarding science that we have. If we don't wake up soon, it won't be terribly long before the most technologically advanced military in the world speaks Mandarin.

Yeah, right now they are playing catch-up to us, but the dirty little secret over there is that they can do it faster than anyone else because they just steal every little bit of technology they can when we ship manufacturing jobs to them. It's happened already a number of times. Company X sees that they can produce their widgets cheaper in China. So they contract with a Chinese company to make their widgets. Not too long after that, another Chinese company is selling identical (or nearly identical) widgets at far lower costs than Company X.

[ndpruitt03]

You will always have periods of more tax, and less tax and the market goes down once or twice every decade. Sometimes the market takes a fall and it has no or little change in employment. But I think the spending we've had now is just unprecedented. If we cut spending in about half and taxed the same, maybe give business a little tax break if they hire employees, or something like that, we would probably have a fairly balanced budget and afford to pay for health care and social security for americans. But right now that's got no chance of happening.

[Ike]

You will always have periods of more tax, and less tax and the market goes down once or twice every decade. Sometimes the market takes a fall and it has no or little change in employment. But I think the spending we've had now is just unprecedented. If we cut spending in about half and taxed the same, maybe give business a little tax break if they hire employees, or something like that, we would probably have a fairly balanced budget and afford to pay for health care and social security for americans. But right now that's got no chance of happening.

This makes no sense at all.

Politically speaking, how are we going to cut spending in half?
Here's a graphic to help you:
http://upload.wikimedia.org/wikipedia/en/c/ce/Fy2010_spending_by_category.jpg
The first 5 categories listed there take 75% of the budget.
You could get there by wiping out social security, medicare, and unemployment. If you want to ensure everybody currently elected to federal office getting replaced, I would recommend this strategy. The blue-haired revolt would be amazing (and they are THE one demographic that reliably shows up to vote in every election). Or we can nibble at those, AND take a pretty big chunk out of the department of defense's budget, AND destroy everything else the federal government does. I'm sure that will win a lot of votes too.

The spending right now is unprecedented. But do you really think cutting it in half RIGHT NOW will help anything?!? It may make us feel better about the future for a little while...until we look around and see everything around us is falling apart faster. We will have to cut it eventually. The market will give us a pretty clear signal as to when that should be: When the interest rate we are paying on new debt rises above the interest private companies are having to pay on their debt. That will happen when the market believes that private companies are living in an economic environment that gives them a good chance of surviving (and hiring!). That will happen when jobs come back. At that point, government borrowing WILL start crowding out investment in private companies. Thats when it's time to take the foot off the gas.*



*having attacked your position as politically untenable, it is only right to acknowledge that my position is at least politically difficult, if not untenable itself. Getting politicians away from the money machine is not easy. Especially when things are looking on the up-and-up (which is exactly when we should get them away from the money machine)....but for some reason, they seem to like to step away from it when things look their bleakest (which is when, IMO, they need to join that hamster in the wheel.) Ideally, we'd have counter-cyclical government spending. In reality, we rarely do...and when we do, it's somewhat accidental.

[ndpruitt03]

Right now people in their 20s and 30s have no chance of ever getting some of these entitlements unless serious cuts are made. Basically they are trying to get entitlements added that aren't paid for and saying we can't touch that because it's an entitlement.

Move social security back to a reasonable age. When SS was introduced and it was made to pay for people that were 65 years old when the average life span was 60. So start there cut it back to about 75 or 80 that's a start. Cutting away 10-15 years of entitlement would save a decent change. The average person in the US lives to about 80 now. I understand putting it at 70 but I'm not sure that saves as much money 75+ does.

I'm also for taking a lot of the overseas defense out. Maybe almost all of it. I see no reason for America to be a colonizing force. It's too expensive to do, that's basically what happened with Britain over time. It's happening to us slowly.. Sure I'm for a strong military, but why not use the military the way we want to, not the way NATO wants us to, and for our own defense most importantly. I posted a few weeks back that we have close to 400k troops overseas. Wouldn't it be great if we used that force to defend our own borders right now and make sure they were safe? If we wanted a real war on terrorism we would be attacking where Al-Queda is at not staying in Afghanistan and Iraq for decades.

If you have low unemployment that budget goes down too. Right now our unemployment is too high. Real unemployment numbers are probably well over 12% in the private sector.

Then you have education which needs to be redone so that teachers and schools get the money. But that will never happen. It's goes to administrators, and stupid programs. When I was in school about 10 years ago I had about 4 principles, about 3 or 4 different admins that did scheduling and stuff like that for each grade, about 4 or 5 counselors if I remember right. And we had a dean or head administrator that I saw about 2 times my entire 4 years there. I'm sure he's doing a lot of things off campus in funding and stuff like that. I don't know but why have all these extra admins? Especially in a computer age where you can keep track of a larger group easier. I bet this is close to the same all over the country with our education. And we have a teacher problem with all these administrators?

Again that can easily take out the bigger parts of that pie chart you have.

I don't know how big a percentage I cut off of your chart with these solutions. But I'm sure I knocked off a good 20-40% easily.

[bluewcc]

I'm curious what you think about this in regards to:

The mentally ill
The physically ill
People who cannot find work

Is private charity the answer to all of this?



Personally, i believe that if government were small enough, private charity would skyrocket. The way it is now, with everyone of any means being milked dry to sustain degenerates (i know not everyone who gets government aid is a degenerate, just a large percentage), not many people are going to feel like donating even more than the huge amount they are giving already that is being wasted.

[yermom]

do you know what the tax rates were like when Reagan lowered them?

IMO, it's all about jobs. if you let companies exploit labor discrepancies and send jobs overseas while letting China, et, al. sell us their cheap plastic crap, this is what happens. our population gets top heavy and no one buys anything