The Terrible Cost of Bush II’s Deficit

Posted on April 9, 2012 by Popular Economics Weekly

Popular Economics Weekly

It is now becoming evident just how much damage the GW Bush budget deficit has done to the U.S. In part from the tax cuts of 2001 and 2003, which sharply reduced taxes on income, capital gains, and corporations, two wars, and the Great Recession that began in the last month of Bush’s second term, the deficit now threatens not only our fiscal soundness, but status as the world’s economic powerhouse.

It was VP Cheney who maintained that Reagan had said deficits don’t matter, but President Reagan raised taxes 11 times during his tenure to save the budget, and economy, as his Budget Director David Stockman described so well in The Triumph of Politics. In other words, President Reagan didn’t dare go as far as Dubya and VP Cheney in creating a deficit that siphoned off revenues to the wealthiest 1 percent and raised corporate profits to the highest in history as a percentage of GDP, while almost causing the disappearance of our middle class and endangering Medicare and social security.

So it shouldn’t be a surprise that Republican Paul Ryan’s 2013 budget proposal passed by the Republican House follows in GW Bush’s footsteps. President Obama assailed it as “…a Trojan horse, disguised as deficit-reduction plans,” said the president at an Associated Press luncheon in Washington on April 3. “It is thinly veiled social Darwinism.”

Obama was referring to the fact that Ryan’s plan doesn’t really reduce deficits. Because it calls for $trillions in spending cuts without raising revenues, 62 percent of which would come from low-income programs, just as the Bush II budgets did. And both revenue increases and spending reductions are necessary to pay down the budget deficit. In fact, the new tax cuts at the top would dwarf those for middle-and lower-income families, says The Center for Budget and Policy Priorities, a non-partisan think tank. After-tax incomes would rise by 12.5 percent among millionaires, but just 1.9 percent for middle-income households. It’s Bushonomics all over again.

What was most unconscionable about the Bush tax cuts was that they occurred during his first recession — from March to November 2001, caused mostly by the dot-com bubble bust. In fact, he was starving the government of revenues at the same time that he was planning two wars, as has been revealed in several books by Ron Susskind, including The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O’Neil.

Now we have a yawning federal deficit that continues to grow past $15 Trillion. Bush Treasury Secretary Paul O’Neill, who was fired by VP Cheney for advocating that the four Clinton years of budget surpluses be used to put social security and Medicare on a more secure footing, described the result of the debate that led to such a disastrous decision in The Price of Loyalty. It was return government to its 1900 size, the era of William McKinley and the Robber Barons, by reducing government spending enough “to shrink it down to the size where we can drown it in the bathtub”, said Grover Norquist once famously, architect of the no tax increase pledge signed by more than 200 Republican legislators.

So we now know what makes up the current $15 trillion federal debt. Most of the deficit was created by the Bush tax cuts, war spending, and the second Great Recession that occurred under the Bush presidency — from December 2007 to June 2009– says the CBPP. It resulted in the most anemic recovery since WWII, with just 5 million jobs created, not even recovering from the 8 million jobs lost since 2000, and the median household income decline from $56,000 in 2000 to $52,000 in 2011 dollars, where it was in 1997, according to the New York Times and Moody’s Analytics.

clip_image002

Graph: CBPP

That cost of the Bush II deficit is just now becoming evident, because of its growing size and the fact that budget matters are so arcane and hard to understand by the public and politicos alike. But all of the Bush tax cuts contributed to the deficit, because they weren’t paid for. GW Bush wouldn’t cut back spending to match the loss in revenues because he wanted to pay for his wars, so he borrowed the monies. Whereas during the Clinton era, legislators had agreed to pay-as-you-go rules, where spending cuts had to match tax cuts.

And the Great Recession has continued to grow the deficit. In fact, if just the Bush tax cuts were extended it would increase that deficit by $4.6 trillion over the next 10 years, says Andrew Fieldhouse and Ethan Pollock of the Economic Policy Institute, a labor think tank. That means we are now facing its terrible cost. Republicans have proven their ideology of starving the beast of government ends up starving the economy of growth, except for the 1 percent who are their supporters.

Harlan Green © 2012

Posted in Economy, Macro Economics, Weekly Financial News | Tagged , , , , , , , , , | Leave a comment

Jobs Key to 2012 Election

Posted on April 5, 2012 by Popular Economics Weekly

Popular Economics Weekly

We know what will win or lose the 2012 Presidential election—jobs. Will enough jobs be created to give Obama a second term? Or, will enough independent voters change horses (to elephants) and become Republicans, because not enough jobs were created? The polls aren’t clear on this. The Pollster Gallup, for one, believes that Obama will be reelected if current job creation trends continue.

For starters, Gallup believes March’s unemployment rate will decline to a seasonally adjusted 8.1 percent. Gallup’s Job Creation Index reported that March’s four-percentage-point increase is the largest one-month jump in the index that Gallup has recorded since instituting the measure in 2008..

clip_image002

Graph: Econoday

The monthly ADP private payroll survey is also just out, which closely tracks the BLS unemployment survey out tomorrow, also shows strength with some 209,000 jobs created in March. And ADP revised February upward from 216,000 to 230,000, so March’s number may be low. Economists’ consensus for the Labor Department’s employment report is that up to 230,000 public and private payroll jobs were created in March, and the unemployment rate will drop from 8.3 to 8.2 percent.

clip_image004

Graph: Econoday

There are still questions whether overall economic growth can top last year, which had bottomed out for the second time in Q1 2011, but has risen steadily since then. For its final estimate, the Commerce Department kept fourth quarter GDP growth at 3.0 percent, matching the second estimate for the overall number.  The latest quarter was stronger than the 1.8 percent rise in the third quarter.

Economists are now saying that we might see slightly higher average growth in 2012—maybe averaging 2.5 percent. Europe, which absorbs some 25 percent of U.S. imports is the main reason for uncertainty. Another worry is domestic wages and salaries, which have been rising approximately 1 percent annually after inflation of late, but isn’t enough for robust growth. Households lost some 6 percent of incomes from 2000-08, so they have a lot to make up.

clip_image006

Graph: Econoday

Personal spending seems to be also increasing along with GDP growth, particularly retail sales. Spending on all items is up 4 percent annually.

clip_image008

Graph: Econoday

Very good news was that both the industrial and service sector economies have been expanding for 27 months. This will also give a boost to GDP growth this year, with its employment index near the post-recession high, another reason to be optimistic about job creation this year.

Harlan Green © 2012

Posted in Economy, Macro Economics, Weekly Financial News | Tagged , , , , , , | Leave a comment

2012 Election—The Propaganda Campaign Begins

Posted on April 5, 2012 by Popular Economics Weekly

Financial FAQs

Now that Mitt Romney seems to have sewed up the Republican delegates needed for his Presidential candidacy, the war for the Hearts and Minds of Americans begins in earnest. And we can trust that the Lee Atwater—Karl Rove propaganda machine that elected Ronald Reagan and the Bushes will be in full swing.

For starters, we heard Wisconsin Republican Paul Ryan congratulate Mitt Romney on his Wisconsin primary win with the assertion that Obama was the divider, not the uniter he had promised to be. And then ‘Mitt’ repeated his assertion that more jobs had been lost during Obama’s tenure that at any time since WWII.

This is classic Rovian tactics. Republicans since Lee Atwater—Rove’s mentor—have always attempted to project their own weaknesses on their opponents—to blame their opponents for their own shortfalls, in other words.

But it is the Republicans who are the classic dividers, of course, in attacking women, immigrant and minority rights with their culture wars. And Bush had the worst job creation record since WWII on his watch—just 5 million jobs created in his 8 years, plus a record deficit and the Great Recession, which caused the loss of a record 8 million jobs. Whereas 3.6 million jobs have been created in just Obama’s first 3+ years.

clip_image002

Graph: BLS

President Obama is already in full campaign attack mode, as he pointed out how extreme is Paul Ryan’s 2013 budget, “an attempt to impose a radical vision on our country. It is thinly veiled social Darwinism”….In fact, “broad-based prosperity has never trickled down from the success of a wealthy few,” he said.

So it strains credibility that Mitt Romney even has an economic platform to stand on. As we have pointed out in past blogs, Republicans have neither had a good growth or employment record for at least the past 30 years. Why? Because they have consistently taken the wrong side of the economic argument. They have always advocated for the ‘rentiers’, owners of wealth, rather than those that produce it as well as create the demand for those products—the employees, 80 percent of which are wage and salary earners. In so doing, Republicans have demonized all who would oppose their most-vested interests; including labor unions, public education, and even publicly-owned assets and activities that they assert are more efficiently run by private entities.

That just isn’t so, of course. Government regulated Medicare has just a 3 percent administrative overhead, whereas private health care providers have a 25 percent overhead, much of it spent on advertising to sell their products. The record of private armies isn’t better, as Blackwater, Kellogg, Brown and Root, mercenaries, et. al., spent $billions in Iraq that have never been accounted for. And privatized prisons are known for overcharging governments, as well as abusing their prisoners.

The worst Republican propaganda has been with federal debt, as they continue to advocate tax cuts, while asserting that Democrats are responsible for the soaring deficits. But this is again Rovian reasoning, as it was Presidents Reagan and GW Bush who created most of the current deficit with their ‘supply-side’ theory that lower taxes created more wealth for everyone. Well, it certainly helped the 1 percent, but has almost bankrupted the federal government, as the historical deficit chart shows.

clip_image004

Graph: Wikipedia

Public debt had come down to 40 percent of Gross Domestic Product by 1970s, and had almost paid off the remaining $1 trillion of WWII debt when Clinton left office in 2000 after 4 years of budget surpluses.

This is while Republicans even today insist in further lowering tax rates. Ryan’s 2013 budget has even upped the ante, with cuts to Medicare and other social programs to pay for the Republican tax cuts that continue to mostly flow to the wealthiest. The Republican recipe for reviving our economy won’t work, in other words.

Harlan Green © 2012

Posted in Economy, Macro Economics, Weekly Financial News | Tagged , , , , , , , , | Leave a comment

Corporations Plus NRA Equals Greater Lawlessness

Posted on April 4, 2012 by Popular Economics Weekly

Financial FAQs

“Florida’s now-infamous Stand Your Ground law, which lets you shoot someone you consider threatening without facing arrest, let alone prosecution, sounds crazy — and it is,” said New York Times columnist Paul Krugman recently. “And it’s tempting to dismiss this law as the work of ignorant yahoos. But similar laws have been pushed across the nation, not by ignorant yahoos but by big corporations.”

“Specifically, language virtually identical to Florida’s law is featured in a template supplied to legislators in other states by the American Legislative Exchange Council, a corporate-backed organization that has managed to keep a low profile even as it exerts vast influence (only recently, thanks to yeoman work by the Center for Media and Democracy, has a clear picture of ALEC’s activities emerged). And if there is any silver lining to Trayvon Martin’s killing, it is that it might finally place a spotlight on what ALEC is doing to our society — and our democracy.”

And thereby we are beginning to see where the National Rifle Association, backed by some elements of Big Business, is leading this country—into a greater lawlessness, at the very least. For the Stand Your Ground Law enshrines the gangster code—shoot first and ask questions later. Krugman was exposing the links between corporations and the NRA that continues to push for guns to be worn by everyone everywhere, with or without background checks or even licenses.

And this is when the U.S. has the highest rates of gun violence of anywhere in the world. The last time such violence was this high was during the Great Depression, when we had the likes of gangsters like Al Capone, John Dillinger, and Bonnie and Clyde.

“Specifically, language virtually identical to Florida’s law is featured in a template supplied to legislators in other states by the American Legislative Exchange Council,” said Krugman, “a corporate-backed organization that has managed to keep a low profile even as it exerts vast influence (only recently, thanks to yeoman work by the Center for Media and Democracy, has a clear picture of ALEC’s activities emerged). And if there is any silver lining to Trayvon Martin’s killing, it is that it might finally place a spotlight on what ALEC is doing to our society — and our democracy.”

Why the push by the NRA, and Big Business for more guns? The reason most gun advocates and the NRA give, is that it is for the purpose of self-defense in an increasingly violent world. In fact, the NRA asserts it decreases violence. But studies cited in an excellent book, Gun Violence: The Real Costs by Philip J. Cook and Jens Ludwig show that in fact gun use tends to increase gun violence—i.e., there are almost 4 times more fatalities in gun-related robberies than other robberies with knives, clubs, etc.

And another study cited in the Justice Department’s National Crime Victimization Survey (NCVS) on home invasions found that just 3 percent were able to use guns against someone who broke in (or attempted to do so) while they were at home, when 40 percent of households have guns.

So it turns out guns are not very helpful in self-defense. Also overlooked is the fact that criminals are predators, and predators prey on the weakest and most vulnerable, not someone who looks like they can defend themselves. So really, does the agenda of the NRA to abolish all gun controls do more than reinforce the fear factor, the fear that your neighbor may be your assailant?

“But where does the encouragement of vigilante (in)justice fit into this picture?” asks Krugman. “In part it’s the same old story — the long-standing exploitation of public fears, especially those associated with racial tension, to promote a pro-corporate, pro-wealthy agenda. It’s neither an accident nor a surprise that the National Rifle Association and ALEC have been close allies all along.”

Or, has it become a symbol of opposition to government, as an argument for fewer laws, in fact? The real argument isn’t about whether the availability of guns makes us safer, but advocating fewer gun controls is a way of opposing all forms of regulation, which leads us to their real agenda.

What is ALEC? “Despite claims that it’s nonpartisan, it’s very much a movement-conservative organization, funded by the usual suspects: the Kochs, Exxon Mobil, and so on. Unlike other such groups, however, it doesn’t just influence laws, it literally writes them, supplying fully drafted bills to state legislators. In Virginia, for example, more than 50 ALEC-written bills have been introduced, many almost word for word. And these bills often become law.

“What this tells us, in turn, is that ALEC’s claim to stand for limited government and free markets is deeply misleading. To a large extent the organization seeks not limited government but privatized government, in which corporations get their profits from taxpayer dollars, dollars steered their way by friendly politicians. In short, ALEC isn’t so much about promoting free markets as it is about expanding crony capitalism.”

And that is what we had in the Great Depression as well, a greater lawlessness that is part vigilantism, but this time robbing from the public coffers to fill private pockets. President GW Bush called it the ownership society, but it’s really the reverse Robin Hood effect. The drive to privatize government services — such as social security, Medicare, the military, schools, prisons — is the drive to eliminate public services that serve all, to benefit the few. This is when corporations already make record profits as a share of total income, while the share of household incomes continues to decline. The wealthiest will continue to prey on the poorest, in other words, if their methods are not exposed.

Harlan Green © 2012

Posted in Economy, Macro Economics, Weekly Financial News | Tagged , , , , , , , , | Leave a comment

2012 Housing Recovery Fuelled by Affordability

Posted on March 29, 2012 by Popular Economics Weekly

The Mortgage Corner

Housing prices needs one more year to begin to recover, according to several pundits and economists, including Barron’s Magazine and Professor Karl Case, co-creator of the S&P Case-Shiller Home Price Index. And that mostly depends on two factors—increased household formation and record housing affordability. Employment shouldn’t impede the recovery, as the unemployment rate will continue to drop, while the Fed is committed to keep interest rates low through 2014.

JPMorgan Chase CEO Jamie Dimon also said the U.S. housing market is very close to a bottom and there are already signs its improvement is giving a boost to the overall economy, in a CNBC interview. “”I believe we’re very close to the inflection point. People look at prices that are still coming down but all the other signs are flashing green,” Dimon said during a job fair in New York for hiring veterans. Housing is more affordable and “the shadow inventory everyone talks about is lower today than it was 12 months ago. It will be a lot lower 12 months from now,” he said.

This is mainly because housing affordability conditions have reached the highest level since recordkeeping began in 1970, according to the National Association of Realtors. NAR’s Housing Affordability Index rose to a record high 206.1 in January, based on the relationship between median home price, median family income and average mortgage interest rate. The higher the index, the greater the household purchasing power.

Affordability rose so high in January because the median existing home price fell to it lowest level since the recession–$154,400—while the 30-year fixed mortgage rate held at 4.37 percent. This meant that the monthly payment as a percentage of median income fell to just 12.1 percent.

NAR President Moe Veissi said this latest data underscores buyer opportunities in today’s market. “This is the first time the housing affordability index has broken the two hundred mark, meaning the typical family has roughly double the income needed to purchase a median-priced home,” he said. “For buyers who can qualify for a mortgage, now is a very good time to become a homeowner.”

And household formation is projected to grow from approximately 600,000 in 2011 to the more historical average of 1 million households per year in coming years, says the U.S. Census Bureau.  This should soak up excess existing and new-home inventories that have already dropped to 6 months’ levels.

“According to one recent estimate, the number of excess vacant housing units in the existing housing stock can be attributed to a steep decline in demand during the Great Recession,” says the Census Bureau report. “Household formations (e.g., adult children leaving parents’ households, singles leaving shared housing arrangements, etc.) are the largest component of demand for additions to the housing stock. These new households are accommodated by additions to the housing stock when vacancy rates are low, and are absorbed into the existing vacant stock when vacancy rates are high. Since 1965, the number of households in the US has grown at an average annual rate of 1.5 percent, adding an average of roughly 1.3 million new households per year, according to the Census Bureau’s Housing Vacancy Survey.”

clip_image002

Graph: U.S. Census Bureau

And the Pending Home Sales Index, a forward-looking indicator based on contract signings, eased 0.5 percent to 96.5 in February from 97.0 in January but is 9.2 percent above February 2011 when it was 88.4. The data reflects contracts but not closings.

NAR chief economist Lawrence Yun said we’re seeing the continuation of an uneven but higher sales pattern. “The spring home buying season looks bright because of an elevated level of contract offers so far this year,” he said. “If activity is sustained near present levels, existing-home sales will see their best performance in five years. Based on all of the factors in the current market, that’s what we’re expecting with sales rising 7 to 10 percent in 2012.”

Harlan Green © 2012

Posted in Economy, Housing, housing market, Weekly Financial News | Tagged , , , , | Leave a comment

States are Making A Comeback

Posted on March 21, 2012 by Popular Economics Weekly

Financial FAQs

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for January 2012 that are a measure of current activity, and so a good measure of how widespread is the recovery. In the past month, the indexes increased in 48 states, decreased in one (Alaska), and remained unchanged in one (Wisconsin) for a one-month diffusion index of 94. Over the past three months, the indexes increased in 48 states, decreased in one, and remained unchanged in one for a three-month diffusion index of 94, said Calculated Risk.

clip_image002

Graph: Calculated Risk

The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.

clip_image004

Graph: Philadelphia Fed

Pundits and economists will soon ask why Wisconsin is lagging. It also had the lowest job creation rate in 2011. Was it because of Governor Scott Walker’s abolishment of union collective bargaining rights? Wisconsin has been hurting ever since. Time and the fall recall election of Governor Walker will tell if its voters realize this.

Harlan Green © 2012

Posted in Economy, Macro Economics, Weekly Financial News | Tagged , , , | Leave a comment

HARP 2.0 Loan Modifications Begin This Week

Posted on March 20, 2012 by Popular Economics Weekly

The Mortgage Corner

The revamped HARP 2.0 loan modification program for Fannie Mae and Freddie Mac loans kicks off this week, which allows unlimited loan-to-values for existing 30 or 15-year fixed rate mortgages owned by Fannie and Freddie, and maximum 105 percent ltvs for adjustable rate mortgages. It should stimulate as many as 9 million refinances of conforming loans, reports Fannie Mae in it press release.

And, nationwide housing starts edged down 1.1 percent to a seasonally adjusted annual rate of 698,000 units in February. This was the second-best pace of new construction since October of 2008 following an upwardly revised 706,000-unit pace in January.

clip_image002

Graph: Inside Debt

“Builders are reporting increased buyer interest and are expecting demand for new homes to improve in the coming months, but continue to exercise caution regarding new projects until that interest translates into more signed sales contracts,” noted Barry Rutenberg, chairman of the National Association of Home Builders (NAHB). “This process is certainly being slowed by today’s overly tight lending conditions, the difficulty of obtaining accurate appraisals on new construction and competition from distressed properties that can make it tough for prospective new-home buyers to sell an existing home.”

Here are the HARP 2.0 basics:

  • Unlimited LTV, CLTV, and HCLTV
  • No minimum credit score
  • All occupancy is acceptable (OO, 2nd HM, NOO, 1-4 Units)
  • Income documentation might be required, depending on u/w approval
  • Rate/Term only
  • Max 2X60 mortgage late payments in 2 years
  • Borrower must benefit with either lower payment/rate, more stable payment (longer ARM fixed rate period, or from 30 to 15 or 25 fixed rate)
  • Must be originated prior to June, 2009

Prospective borrowers can look up the Fannie Mae and Freddie Mac websites to ascertain if their mortgages are eligible for the program.

\http://www.fanniemae.com/loanlookup/

https://ww3.freddiemac.com/corporate/

Harlan Green © 2012

Posted in Economy, Housing, housing market, Weekly Financial News | Tagged , , , , , , | Leave a comment

Greater Lawlessness Causes Great Recessions

Posted on March 17, 2012 by Popular Economics Weekly

Popular Economics Weekly

We know Greg Smith’s unveiling of Goldman Sachs’ ‘culture’ of GS profits ahead of clients’ interests was nothing new. And that real laws were broken—from conflicts of interest to outright fraud. The 2010 congressional hearings unveiled much of the double dealing that was rationalized by Goldman Sachs’ buyer-beware code—its clients should be sophisticated enough to know that Goldman would try to maximize its own profits, before its clients’ profits.

But other laws were broken; as well as economic rules that govern sound business practices in the runup to the Great Recession. Pundits have traced the decline of Wall Street ethics from the morphing of partnership-owned investment banks to corporations, as well as the enormous growth of financial markets that bred outright greed.

But there is little mention of how it caused our economic decline into the Great Recession. What was behind this culture of greed and unethical behavior; a culture of greater lawlessness can be traced back to the early 1980s when President Ronald Reagan trumpeted that government was the problem and more private enterprise the solution for greater prosperity.

In attempting to downgrade governmental powers, conservative regimes in particular began to consciously disregard the laws of our land—from not enforcing existing regulations, to Iran-contra gun-running in President Reagan’s case, to abrogating international treaties such as START nuclear non-proliferation, and muzzling Department of Justice Attorneys General under GW Bush, to name just a few cases.

The number of convicted criminals in those administrations tells part of the story. President Reagan’s administration was marked by multiple scandals, resulting in the investigation, indictment, or conviction of over 138 administration officials, the largest number for any U.S. President.

And Salon.com had documented 34 incidents of law-breaking in just the first 4 years of GW Bush’s Presidency, the most blatant being unmasking covert CIA operative Valerie Plame, and its fabricated claims that Iraq had weapons of mass destruction.

But even more damage was done via blatantly disregarded economic laws of successive Republican administrations. It was really the attempt by Big Business to unravel the economic safeguards of the New Deal, first spelled out in Paul Krugman’s The Great Unraveling, by advocating massive budget deficits to pay for a Pax Americana—with especially severe consequences for the old and poor.

“Deficits don’t matter” was the infamous chant of Bush VP Dick Cheney. At a time when economic inequality had risen to levels last seen in the 1920s, these administrations wanted to divert attention from a vanishing social safety net by proposing the ago-old Darwinian solution—the free market. For only the fittest will survive in a world that is ruled by self-interest, rather than laws and regulations.

The United States, beginning in the 1980s once again became the most ardent advocate and practitioner of the oldest form of capitalism, now a primitive relic of 18th century enlightenment. This is but one part of our aging democracy that U.S. hegemonists put up as the model for western civilization. But it is a very imperfect model for the rest of the world as well.

A 2002 survey of 38,000 people in 44 countries by the Pew Center for the People and the Press found what they think of our American Way. “Since 2000, favorability ratings for the U.S. have fallen in 19 of the 27 countries where trend benchmarks are available…pluralities in most of the nations surveyed complain about American unilateralism,” says the study. They think we disregard their interests in pursuit of our own self-interest.

Few dispute that our capitalistic economic system has won the day. It produces great wealth, particularly for those at the top of the wealth pyramid. Robert Reich’s book, “The Future of Success” said it best: “By the end of the (20th) century, the richest 1 percent of American families, comprising 2.7 million people, had as many dollars to spend after taxes as the bottom 100 million.”

But not for the 99 percent majority, in other words. Why so much greed, and willful lawlessness? This last happened in the 1920s run up to the Great Depression. Fear overruled both laws and common sense, so that the lobbyists of self-interest came to the fore. Our economy was being transformed from a rural to industrial economy, which drove workers into the cities. Wages plunged along with prices, and so did economic activity for more than 10 years. It was only the New Deal that brought benefits to the larger majority of citizens and leveled the economic playing field.

The same has happened today. Conservatives are again ignoring basic economic  truths in their attempt to destroy our working class as we know it, by passing laws that ban collective bargaining in states like Wisconsin, or right to work laws that say workers do not have to pay union dues even though they derive the benefits from belonging to a union. We know the results in Wisconsin after one year. Employment has plunged and is the worst of the Midwest states that surround it, according to the Economic Policy Institute.

image

Graph: EPI

It is no coincidence that those 23 states that have passed right to work laws are also the poorest states, with the highest income inequality, lowest educational achievement, and receive the most in public subsidies. Taking incomes and wealth away from workers in those states can only make them poorer in relation to other states and regions, and a continuing drain on public finances.

That is the real lesson of our greater lawlessness. By choosing to break laws and regulations that govern economic activity, economic activity is being pushed back to levels of past centuries. For workers will only have the incentive to produce more and better products and services when they have the incentive to do so.

In the end, such greater lawlessness means a disregard for everyone but one’s own clan or tribe, a greater selfishness, and no country can survive such a breakdown in social welfare. That is the lesson learned from the Great Recession. Policies that ignore economic as well as civil laws, that continue to divert incomes and wealth to the wealthiest, impoverish the majority.

Harlan Green © 2012

Posted in Economy, Macro Economics, Weekly Financial News | Tagged , , | 1 Comment

Employment Much Better Than Data

Posted on March 13, 2012 by Popular Economics Weekly

Financial FAQs

The pundits and some economists just don’t seem to get it. Friday’s unemployment report was gangbusters. The gains were not just ‘ok’, per Marketwatch, or are at a ‘speed-walk’, per Barron’s Gene Epstein. Gains are in fact accelerating with private payrolls’ 3-month average now 251,000, and unemployment rate steady at 8.3 percent, even with 428,000 re-entering the workforce in February that had stopped looking for work.

clip_image002

Graph: CBPP

This is the 24th straight month of private-sector job creation, with payrolls growing by 3.9 million jobs (a pace of 164,000 jobs a month) since February 2010, reports the Center on Budget and Policy Priorities. Total nonfarm employment (private plus government jobs) has grown by 3.5 million jobs over the same period, or 144,000 a month. The loss of 485,000 government jobs over this period was dominated by a loss of 347,000 local government jobs.

One reason for the muted optimism is that last year payrolls actually increased 261,000 through April of last year, and then plunged. This was of course due to the Japanese Tsumani, political gridlock over the budget deficit that caused an S&P credit downgrade of U.S. debt, and euro worries. But even then, job growth was better than the data, which originally showed no jobs growth in August, for instance, that turned into 103,000 nonfarm payroll jobs when revised, and an additional 50,000 jobs in September.

It was the initial jobs estimates that caused recession talk at that time, and consumer and business confidence to plunge. The same underestimation could be happening this year, also, as December and January payrolls were revised upward by 61,000. On top of that, the Labor Department’s so-called ‘payroll-compatible’ Household Survey, which subtracts agricultural and self-employed workers from the separate Household Survey, showed 879,000 jobs created in February, and a 263,000 average over the past 12 months, vs. a 168,000 per month average from the nonfarm payrolls survey.  The real average is probably somewhere between the two surveys done by the Bureau of Labor Statistics.

We also know from consumer borrowing data that consumers are spending as if they believe the jobs picture will continue to improve, based on a major five-month surge in outstanding credit, the latest a $17.8 billion gain in January versus a revised $16.3 billion gain in December. During the five months, outstanding credit has jumped $68.5 billion. At $2.512 trillion, total outstanding credit is only $70 billion below its July 2008 peak of $2.582 trillion.

clip_image004

Graph: Econoday

Are there any flies in the ointment of continued strong U.S. growth, besides worries over the euro and Middle East stability? The primary one is the federal budget deficit, and there is but one way to fix it—by restoring the Clinton-era tax rates that created 4 consecutive years of budget surpluses. It would correct the mistakes of the Bush Administration that chose to waste those surpluses on two wars and tax breaks for those who didn’t need it. This resulted in soaring corporate profits, whose executives chose to invest in excessive salaries and risky market speculation, rather than boosting the jobs and incomes of ordinary citizens.

clip_image006

Graph: CBPP

The Center for Budget Policies and Priorities said it best:

  • The average income of the top 1 percent of households rose by nearly 12 percent from 2009 to 2010, after adjusting for inflation.  The average income growth for the richest households at the very top of the income distribution was even stronger.
  • The average income of the bottom 90 percent of households, in contrast, which fell substantially during the recession in both 2008 and 2009, remained at its lowest level since 1983, in inflation-adjusted dollars.   

So without putting more money back into their pockets, consumers and the middle class in particular will not be able to bring incomes and job growth back to Clinton-era numbers—for instance, 22.3 million additional jobs during his 8 years, vs. the 5 million jobs created during GW Bush’s tenure.

Harlan Green © 2012

Posted in Economy, Weekly Financial News | Tagged , , , | Leave a comment

2012 Economic Growth Accelerating

Posted on March 8, 2012 by Popular Economics Weekly

Popular Economics Weekly

Economic growth is finally accelerating. Consumer demand plus manufacturing are continuing to increase, and even the fourth quarter was a little stronger as Q4 GDP growth broke the psychological 3 percent boundary. The Commerce Department revised fourth quarter GDP growth up to 3.0 percent from the initial estimate of 2.8 percent.  The latest figure compares to a modest 1.8 percent rise in the third quarter.

clip_image002

Graph: Econoday

The major reason was increased consumer spending. Consumer spending in January improved to a 0.2 percent gain from no change in December.   The goods components were stronger as durables gained 0.9 percent after a 0.5 percent increase in December.

clip_image004

Graph: Econoday

This mainly due to the increase in household debt, as banks are easing their credit for consumers. For the first time since the Great Recession, household debt saw a quarterly gain, according to Federal Reserve data released Thursday that shows American deleveraging has at the very least paused. Household debt edged up 0.3 percent in the fourth quarter, the Fed reported in its flow-of-funds report, as consumer credit surged an annualized 7 percent. Household debt had declined for 13 consecutive periods before the slender fourth-quarter advance.

Spending has been increasing from 4 to 5 percent per year for the past 2 years, mainly from automobile sales. Total unit sales jumped 6.5 percent in the month to an annual rate of 15.1 million. The gain was centered in cars, especially imports. But this aside, gains in February data were strong and do include trucks. January sales actually squeaked higher than the cash-for-clunkers surge in August 2009 and February notably topped that month’s 14.2 million unit sales pace, said Econoday.

clip_image006

Graph: Econoday

And as a prelude to Friday’s unemployment report, Automatic Data Processing, or ADP, a payroll servicing company, estimates that February private payrolls in Friday’s employment report will rise by 216,000, up solidly from January’s revised rise of 173,000.

clip_image008

Graph: Econoday

Even better news was that service sector activity, which is some 80 percent of U.S. business, continues to expand. Rising orders headline a very positive non-manufacturing report from the ISM where the headline composite index is up five tenths to a better-than-expected level of 57.3. But the composite may understate underlying strength in the bulk of the nation’s economy where order levels are building with new orders up nearly two points to a very strong 61.2 vs January’s already very strong 59.4. Strength in new orders is feeding a build in backlog orders which rose 3.5 points to 53.0 which is a strong level for this reading.

clip_image010

Graph: Econoday

All-in-all we are seeing a very good start for 2012, which is also a presidential election year, don’t forget. And that means the Obama Administration (and Federal Reserve) will be doing all government can do to boost growth.

Harlan Green © 2012

Posted in Economy, Macro Economics, Weekly Financial News | Tagged , , , , | Leave a comment