James Pethokoukis

Politics and policy from inside Washington

What the Obama economy will look like in 2012

Jul 31, 2009 20:20 UTC

You know, i don’t agree with all it, but I do agree with a lot of this analysis from Joel Kotkin:

So no matter how much the conservatives complain, Obamanomics most likely will end up with results remarkably like those of Bushonomics: more consumption, less production, expanding public debt, asset inflation on Wall Street and a slowly declining middle-class standard of living. The only real difference will lie in who gets to rob the public — instead of pharmaceutical and oil companies, we get Gorite “renewable” energy traders and well-connected “green” venture capitalists.

Americans need to place a pox on both these flawed models. We need a totally new approach that focuses on key productivity-enhancing investments such as improved transportation infrastructure — new roads, bridges, ports and waterways to meet the demands of an expanded economy for a growing population. We should be looking at modern equivalents of the New Deal electrification program, the GI Bill, the Eisenhower highway and the space program.

Clearly, an infrastructure that is inadequate today will be utterly useless in 2050, when there are projected to be at least 100 million more Americans. Already, our energy-generating capacity in some parts sputters like that of a Third World country. Commodity exports, such as grains, unable to reach foreign markets because of a lack of rail cars and adequate waterways, are left to rot and feed rats.

This is not the way to prepare ourselves for ever greater competition from countries such as China, India and Brazil. Americans must demand a program that, while perhaps financially painful now, will make it possible for our progeny to enjoy a prosperous future rather than a declining one.


Dear James,
You have analysed Obamaeconomics in a detailed ways.
i have agreed your views by partial ways.
Entire world wants to know ,where America stands in Global economic map.
Now the time has come for America to discourage outsiders for small,unskilled jobs from third world countries.
simple logic holds good for any country,for anybody.
First, we should earn,save,spend for essential things to our family,our parents,our blood relatives and to our own country.
America!s infra structures like,new bridges,new roads,new school,college set up,small essential items to be produced locally with American citizens talents,construction of public health care sectors,encouragement to small media networks,cultivation of non-violence,away from day today,film personalities publicity gimmicks etc, will create a new awakening to Americans.
As a journalist with very wide knowledge on local and world economics ,will bring much positive outcome to economic slow down to recovery in future years.
I hope that,American planners will read your articles again and again for her country interests.
best work done by you.
Hope to get more economic lights from this network and from you,and from other editors.

Obama’s problematic surtax on the rich

Jul 31, 2009 20:10 UTC

Bruce Bartlett makes several good points about slapping a surtax on wealthier Americans to pay for expanding healthcare coverage: 1) breaks the linkage between the taxes people pay and the benefits they receive; 2) won’t actually generate enough dough to pay for reform; 3) ignores the vast tax subsidy for high-end health plans. Other than that, it is a super idea.


Exactly, this surtax that Obama is doing on people, will be his downfall.

To punish sucess is just stupid wont last.

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The declining odds of a public plan

Jul 31, 2009 18:52 UTC

A handy way of summing up what a rough patch the Obamacrats have been going through, (via Intrade and Baseline Scenario):


Or maybe it is time to shutter the Fed …

Jul 31, 2009 18:01 UTC

It took my pal John “The Professor” Tamny of RealClearMarkets about a nanosecond to respond to my blog column about Ron Paul’s plan to audit the Fed. He let loose with both barrels:

The Constitution empowers Congress to “Coin Money, and Regulate the Value Thereof”.  For Congress not to audit/control the Fed would be unconstitutional.  And while I don’t think we need physical gold backing every dollar as Paul wishes, this notion that the Fed needs to conduct “monetary policy” is absurd.

All we need is price rule whereby the dollar has a fixed, redeemable value.  Why we allow a bunch of academics with terrible track records do much of anything is beyond me.  We don’t need policy, we just need a dollar-price rule and that wouldn’t require the Federal Reserve. The Fed’s ability to create money at will has zero to do with economic growth.

Come on Jim, don’t go all statist on me.

Me: I am concerned that we wouldn’t get a dollar price rule but a Congress actively influencing monetary policy. I don’t want to trade Bernanke for Pelosi & Company. I would like a price rule, though.


Fed monetary policy is obviously becoming less and less important in a globalized world market where foreign investment can increase the domestic money supply. Eventually, as we have already somewhat seen, other countries will dictate our monetary policy, not us. See China.

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Ron Paul’s Dumb Plan to Audit the Federal Reserve

Jul 31, 2009 16:58 UTC

The Federal Reserve is at least partially to blame for the economic crisis. It left interest rates too low for too long, and laxly regulated the megabanks. Given this reality, or at least this public perception, it’s not surprising that there are plenty of economists and politicos with oodles of ideas for re-imagining the central bank’s role and function. (Linking its policymaking operations more directly to the performance of market metrics such as the greenback, bond rates, and commodities would be a good start.)

[Find out five ways to boost the economy and create jobs]

Then there is Representative Ron Paul, a Texas Republican and libertarian who would rather imagine a fantasy world without a Fed. Throughout his political career, Paul has repeatedly called for the Fed’s abolition, preferring Congress to take full control of monetary policy and eliminate fiat money in favor of a gold-backed national currency.

Since Paul can’t eliminate the Fed outright, he’s trying to emasculate it. Impinging on, and eventually ending, the central bank’s independence is the purpose of the Federal Reserve Transparency Act, Paul’s bill which would “eliminate restrictions on audits of the Federal Reserve and open Fed operations to enhanced scrutiny.”

[See if Obama's big economic gamble is paying off]

And what’s wrong with a little more sunshine on the Fed? Nothing, many Americans apparently think. A Rasmussen poll finds that 75 percent “favor auditing the Federal Reserve and making the results available to the public.”

Now those results aren’t a big surprise given the public’s unease with the unprecedented measures the Fed has taken to bolster the economy, including the unpopular bailout of AIG. Another recent poll found that the Fed is the most unpopular government institution, ranking behind even the Internal Revenue Service.

This unease is also reflected in the nearly 300 House members who are supporting the Paul bill. It’s a worrisome level of congressional support that may be pushing Ben Bernanke to educate the public on what the Fed really does, for example through his appearance at a recent town hall meeting at the Kansas City Fed.

[Find out how healthcare taxes would affect you]

Of course, most Americans surely don’t realize that the non-policy aspects of the Fed are already audited by the GAO, nor have they watched the Fed chairman’s twice-a-year testimony, once known as the Humphrey-Hawkins testimony, in front of House and Senate committees.

But Paul’s bill would go further. An audit would create an explicit and clear congressional assessment of the Fed’s performance. “Indeed, there would be no point to this proposal, given Humphrey-Hawkins, if it were not the intention of the bill’s proponents to exert congressional control of monetary policy decisions in a way that the Humphrey-Hawkins testimony alone does not allow them to,” argues Michael Woodford, an economics professor at Columbia University.

How might more influence be exerted? Economist Anil Kashyap of the University of Chicago thinks an audit suggests the GAO and Congress could force the Fed to supply all the background information that goes into an interest-rate decision and compel all members of the FOMC to share their individual thinking on any issue in real time. “The spirit of the Paul bill seems to be that having FOMC meetings live on C-SPAN would be best way to make monetary policy. That would be a disaster.”

The effect on the economy might not be so beneficial, either. Even if the result of the Fed bill is onlymore aggressive congressional questioning and criticism, financial markets might well fear the bank would start taking congressional wishes into account when making policy.

“If the markets and foreign investors perceive it that way,” says economist Michael Feroli of JPMorgan, “it could immediately push up borrowing costs even if the audits are only a symbolic increasing of congressional oversight of monetary policy.”

More congressional authority would more likely be biased toward pushing for looser monetary policy to bring down unemployment.  If Congress were full of hard–money guys like Paul, that would be one thing. But who really wants Nancy Pelosi and Barney Frank deciding when to tighten and ease? And right now do Americans really want global investors to start questioning the Fed’s commitment to low inflation and a stable currency, right as Uncle Sam is running up record budget deficits?

The economy is only now pulling itself out of recession. Paul’s bill, if successful, could send it back the other way.



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5 quick takes on the 2Q GDP report

Jul 31, 2009 16:13 UTC

Here is a smattering of quick opinion on today’s second quarter GDP report from around the Street:

1) Nariman Behravesh,  IHS Global Insight:

Today’s GDP release is very much in line with IHS Global Insight’s view that the U.S. economy is at—or very near—the bottom of the deepest recession of the postwar period. We expect real GDP growth in Q3 to be a small positive.However, the early phases of the recovery are likely to be quite weak.We expect growth of only 1% to 1.5% in Q4 and Q1.After that, we expect growth to pick up gradually, and exceed 3% by the end of 2010.

2) Michael Darda, MKM Partners:

Full-year 2008 growth was revised lower, which means the recession is deeper than previously estimated. To wit: GDP has fallen 3.9% from one year ago, the largest annual decline in post-war history. … The  silver lining here is that the largest declines in GDP, including those in the 1930s, all produced robust recoveries, even if they didn’t last long enough to produce full-employment. This is why we continue to believe consensus forecasts for 2010 are far too pessimistic (assuming full-year real growth of just 1.8%). Our credit-based indicators, which captured the depth of this recession nearly perfectly, continue to point to 4% real GDP in 2010. A recession of this magnitude would be expected to produce at least a 6-8% GDP recovery, so our 4% growth outlook could still be considered conservative.

3) Bruce Kasman, JPMorgan:

Today’s GDP report provides considerable new information on the economy’s recent path.  … It is important to express the central point that the report bolsters confidence in both our strong growth and low inflation forecast for the coming quarters. On growth, the composition of demand looks increasing favorable with final sales stronger and inventory drawdowns larger than we had expected in 1H09. As a consequence, we are revising up our forecast for current quarter GDP growth to 3% (from 2.5%). We continue to anticipate GDP growth close to 4% over the course of 2010.

4) Robert Brusca, Fact and Opinion Economics:

The clearest point is that force of the down turn has been muted. The second clearest point is that and true upswing has not yet started. Only government spending among the main domestic components of GDP turned positive and that is on artificial stimulus although that impact should grow as the stimulus package takes hold.

More important than the government sector is that the consumer retrenchment is diminishing. Population growth continues and normal forces should restore positive growth to consumer spending, especially as job losses ease and as the fear of job is eradicated by better economic performance. It could happen in Q3.

5) Andrew Busch, BMO Capital Markets:

It will take very little snap back in either inventories or CAPEX to see a decent rebound in Q3 and Q4 GDP.  I guess where I’ve been incorrect is understanding that the economy fell so far that it has no where to go but up for a bit.  There will be questions of where earnings will come from besides cost cuts going forward, but growth should return with minimal effort.  This shift in expectations has occurred with all the subtlety of a sledge hammer the last two weeks and does draw concerns over additional strength.