James Pethokoukis

Politics and policy from inside Washington

A phony recovery?

Jun 16, 2009 15:50 UTC

From former Morgan Stanley economist Andy Xie:

Contrary to all the market noise, there are no signs of a significant economic recovery. So-called green shoots in the global economy are mostly due to inventory cycles. Stimuli might juice up growth a bit in the second half 2009. Nothing, however, suggests a lasting recovery. Markets are trading on imagination. … The noise would be to emphasize the “temporary” nature of the stimulus. The market will probably be fooled again. It will fully wake up only in 2010. The United States has no way out but to print money. As a rational country, it will do what it has to, regardless of its rhetoric. This is why I expect a second dip for the global economy in 2010. … The world is setting up for a big crash, again. Since the last bubble burst, governments around the world have not been focusing on reforms. They are trying to pump a new bubble to solve existing problems. Before inflation appears, this strategy works. As inflation expectation rises, its effectiveness is threatened. When inflation appears in 2010, another crash will come.

Obama’s bad healthcare day

Jun 16, 2009 15:31 UTC

First, Obama gets booed by the doctors at the AMA conference. Then the Congressional Budget Office prices the Kennedy-Dood healthcare bill at $1 trillion over ten years but only covers an additional 16 million people. The analysis does not include an expansion of Medicaid — which, of course, would mean more people would be covered but at a higher cost. Drip, drip, drip …

Amazing stat of the day!

Jun 15, 2009 19:41 UTC

I don’t know what this means, but I think it means something that will change all of our lives in a deep and profound way. From the wonderful Mark Perry:

Using the sortable Major League Baseball historical database, there were 1,226 active professional baseball players in the major leagues in 2008, and there were 4,877 total home runs for the season. The top 5% of the MLB players raned by the number of home runs hit in 2008 (63 players with between 22 and 48 home runs for the season), hit 1,779 home runs, or 36.5% of the total.

Interestingly, in 2006 (most recent year) the IRS reported that the top 5% of American taxpayers earned 36.6% of the total taxable income that year.

In other words, home runs are distributed just about as unequally as income – the top 5% earn a disproportionate share of income, about 36%; and the top 5% of baseball players hit a disproportionate amount of home runs, about 36%.

Obama vs. Obama on healthcare

Jun 15, 2009 19:36 UTC

Obama today, in front of the AMA: “What are not legitimate concerns are those being put forward claiming a public option is somehow a Trojan horse for a single-payer system. ”

Candidate Obama: “I happen to be a proponent of a single payer, universal health care plan.”

COMMENT

Thought for the day – It’s time something is done, as the doctors are extremely overpaid for what they do, after all life is just not worth what they seem to think it is and the health insurance companies are merely professional ponzi skimmers. The citizens then get stuck paying inflated prices for medical care based on unnecessary tests that doctors think need to be done to minimize their legal liability. The whole “doctor” thing is a joke especially when we all know that the vast majority of medical care is provided by medical assistants making $8/hr. I will never pay into a system like this and know many people who reject the whole idea of routine medical care. More and more Americans are self-medicating with inexpensive outstanding results.

Posted by Frank | Report as abusive

My quick take on the Obama financial reform plan

Jun 15, 2009 16:19 UTC

You can find the broad strokes of the Obama-Geithner-Summers plan here. Here is my spin:

1) Giving the Fed more regulatory power is a terrible idea. It will a) further politicize the central bank (which, in fact, just hired a lobbyist),  and b) set up the Fed to fail since it would have to evaluate a broader swath of the financial sector that it has scant expertise in. And good luck determining where the next systemic risk is and which firms are involved.

2) Who knows how this council of regulators will mesh with the SuperFed. Rather than streamlining the regulatory process, another level of complexity and potential source of infighting has been added.

3) If you were starting up a regulatory system from scratch, you wouldn’t have the sort of patchwork system  that currently exists. The White House plan pretty much leaves it all intact in order to placate Congress and avoid turf battles.

4)  The securitization chunk, forcing the orginator/sponsor/broker to retain a 5 percent interest, makes a lot of sense in that it firms up the necessary links between risk and reward.

5) It is unclear where there will be a new consumer finance regulatory body. Better unclear than certain. Even better would be a push toward financial literacy.

6) Will new powers to “resolve” non-financial firms ever be used given the toobigtoofailapproach that has taken root in Washington?  Hmmm …

COMMENT

Jimmy P.
Glad to see you back in the blogosphere!
Best of luck, Pat D.

Posted by Pat Duggan | Report as abusive

Study: Cap-and-trade will cost U.S. families $1,200 a year

Jun 15, 2009 14:41 UTC

From the non-partisan Tax Foundation:

A new Tax Foundation calculator now shows how much a U.S. cap-and-trade system would cost individual households annually. The Tax Household Cap-and-Trade Burden Calculator is based upon a study released in March, Tax Foundation Working Paper No. 6, “Who Pays for Climate Policy? New Estimates of the Household Burden and Economic Impact of a U.S. Cap-and-Trade System.” The study shows that a cap-and-trade system designed to reduce greenhouse gas emissions by 15 percent would place an annual burden of $144.8 billion on American households. The average annual household burden would be $1,218, which would be approximately 2% of the average household income.

COMMENT

The above link wasn’t working for me, but I found the source article (1) which had the link you were shooting for, I believe:

http://www.taxfoundation.org/publication s/show/24472.html

“Using RIMS II multipliers we estimate the broader economic impact of cap and trade. Depending on how the system is structured, cap and trade could reduce U.S. employment by 965,000 jobs, household earnings by $37.8 billion, and economic output by $136 billion per year or roughly $1,145 per household. Lawmakers weighing the costs and benefits of climate policy should be aware that cap and trade would impose a significant and regressive annual burden on U.S. households, and would not represent a “tax free” way to reduce greenhouse gas emissions.”

1). http://www.taxfoundation.org/news/show/2 4750.html

Iran election, America and globalization

Jun 15, 2009 14:27 UTC

Geopolitical strategist Tom Barnett weighs in on the Iran “election” (note, especially, his final point):

That is an impressive first-round win that means: 1) the nuke program goes ahead; and 2) the Supreme Leader is nowhere near ready to reform the economy, so no desire to deal externally. My hope had always been that this was a regime far enough along in understanding how screwed-up its economy is (USSR circa 84-86), but we are clearly still in the early 1980s/Brezhnevian clueless phase when belief in external enlargement of influence is held to be a strong counterweight to internal decline. I would expect Tehran to offer more of the same. Ahmadnejad, I don’t think, was promoted by the SL for any Nixon-like opening. Hence, Israel is highly incentivized to attack this year.

COMMENT

Good excerpt. It does seem to be likely, that if there isn’t a significant political moderation in Iran, Israel (with their newly crowned conservative gov) has every excuse to attack. Any sympathy or goodwill the Iranian leadership may have acquired recently, will certainly evaporate with the confirmation of the election of Ahmadinijad.

Posted by Greg | Report as abusive

BRICs and the move to dump the dollar

Jun 15, 2009 14:18 UTC

Great, great stuff from the great Andy Busch of BMO Capital Markets:

According to the US Treasury, the two largest holders of U.S. debt are China with $768 billion and Japan with $687 billion.  Brazil owns $126.6 billion and Russia owns $138.4 billion.  Without question, markets were nervous over the actions by these players during the last auction period by the US government.  While it may seem that they are going to continue to buy US dollars and buy US debt, they are telling the world they are actively seeking alternatives.
There may not be many alternatives now, but over long enough time frames there will be.  More importantly, the BRICs are telling the world they want to find ways out of investing in a country that is fiscally irresponsible and unlikely (healthcare) to change their spending habits any time soon.  Eventually, they will find a way.

Recessions and entrepreneurs

Jun 15, 2009 14:06 UTC

A great study on recessions and creative destruction from the Kauffman Foundation:

This research study, analyzing data from the U.S. Census, the Fortune 500, and the Inc. list of America’s fastest-growing companies, presents three main findings:

1. Recessions and bear markets, while they bring pain and often lead to short-term declines in business formation, do not appear to have a significantly negative impact on the formation and survival of new businesses.

2. Well-over half of the companies on the 2009 Fortune 500 list, and just under half of the 2008 Inc. list, began during a recession or bear market. We also find that the general pattern of founding years and decades can help tell a story about larger economic trends.

3. Job creation from startups is much less volatile and sensitive to downturns than job creation in the entire economy.

Obama stimulus vs. Reagan tax cuts

Jun 15, 2009 13:59 UTC

Paul Krugman worries that phony inflation fears will lure policymakers into withdrawing fiscal and monetary stimulus too soon. In the process, he takes a shot at Reaganomics:

And Republicans, providing a bit of comic relief, are saying that the stimulus has failed, because the enabling legislation was passed four months ago — wow, four whole months! — yet unemployment is still rising. This suggests an interesting comparison with the economic record of Ronald Reagan, whose 1981 tax cut was followed by no less than 16 months of rising unemployment.

Me: But as pointed out in the wonderful book “The End of Prosperity” (authored by my pals Art Laffer and Stephen Moore),  the way the Reagan tax cuts were structured meant that familes only got a meager 1.25 percent tax cut in 1981 and 10 percent in 1982. When the Reagan cuts really kicked in 1983, so did the economy.

  •