James Pethokoukis

Politics and policy from inside Washington

White House: 10-year deficit up $2 trillion to $9 trillion

Aug 21, 2009 21:44 UTC

My Reuters colleagues break the news that the White House is revising upward its ten-year budget forecast to $9 trillion from $7 trillion:

“The new forecasts are based on new data that reflect how severe the economic downturn was in the late fall of last year and the winter of this year,” said the official, who is familiar with the plans.

“Our budget projections are now in line with the spring and summer projections that the Congressional Budget Office put out.”

The CBO said in June that deficits between 2010 and 2019 would total $9.1 trillion. The official said the 2010-2019 cumulative deficit projection replaces the administration’s previous estimate of $7.108 trillion.

Me: Expect the CBO to also crank up its forecast, which will be higher than the administration’s. Also, this is further evidence that the common wisdom that people don’t care about budget deficits (no matter what the polls say) is wrong. C’mon,  leaking such news on a late Friday afternoon?


FRANK is a moron! Devalued the dollar a little. What planet are you from?

The New York Times, the super-rich, income inequality and taxes

Aug 21, 2009 18:22 UTC

Some thoughts on today’s NY Times story about the falling fortunes of the once super-rich:

1) Yay! It actually made the point that tax rates affect economic behavior:

In the three decades after World War II, when the incomes of the rich grew more slowly than those of the middle class, the top marginal rate ranged from 70 to 91 percent. Mr. Piketty, one of the economists who analyzed the I.R.S. data, argues that these high rates did not affect merely post-tax income. They also helped hold down the pretax incomes of the wealthy, he says, by giving them less incentive to make many millions of dollars.

2) Boo! It also seems to accept this explanation, by Piketty co-author Emmanuel Saez, as to why income inequality has risen in recent decades (via a Saez paper):

A number of factors may help explain this increase in inequality, not only underlying technological changes but also the retreat of institutions developed during the New Deal and World War II – such as progressive tax policies, powerful unions, corporate provision of health and retirement benefits, and changing social norms regarding pay inequality.

3) Boo! It underplays the role of globalization and technology in creating greater income inequality in favor of blaming asset bubbles and tax rates. Here is bit from a story I wrote about income inequality, quoting Saez:

At the top, what you primarily have is executives at large companies who are paid very large salaries with bonuses and stock options,” Saez says. “It has really become a truly global market for the talent of executives.” So it’s not so much that globalization has driven down wages because the average U.S. worker has to compete with a low-paid competitor in China or India. (About a quarter-million jobs are lost annually to offshoring, which works out to only 0.18 percent of the workforce.) Rather, globalization has increased the demand for top corporate managers, and it has made companies more valuable as it has spurred economic growth and higher stock market values. That has boosted executives’ income-from salaries, stock options, and capital gains.

Then there’s technology:

Rapid technological change, which itself is driving globalization, is also pushing wage inequality. “Inequality is related to technology, and … you really require more skills to operate in a challenging economy driven by technology,” says Daron Acemoglu, an economics professor at MIT. According to the liberal Economic Policy Institute, inflation-adjusted wages for male high school graduates have slipped 6 percent since 1980, while rising 20 percent for college graduates and 35 percent for those with an advanced degree. Technology places a premium not only on computer skills but on the managerial and organizational abilities needed to run a modern, networked company.

4) Boo. It failed to mention how globalization had made real-world income inquality virtually non-existent. Again, from me:

More and more research is revealing that the supposed rise in income inequality is a bit of a crock. One reason is the “China Effect.” A recent University of Chicago study found official income inequality statistics fail to take into account that lower-income Americans tend to consume more inexpensive Asian goods. As the study’s authors conclude, “This price effect offsets almost all the rise in inequality measured by official statistics.” And whatever slight rise in inequality that’s left over can easily be explained by technology and the expanded global market for CEO talent.

‘Wee weed up’ (thanks Obama!) about some things and not others

Aug 21, 2009 15:07 UTC

Things I am “wee weed up” (which I think means “agitated”) about: the long-term budget deficit, the Long Recession, the state of U.S. competitiveness, the cancellation of “The Sarah Connor Chronicles” (now and forever!),  breaking my Kindle by putting my elbow on the screen and then leaning my full 205 pounds on my elbow (I mean, Amazon never said “not” to do that),  Washington humidity, not being at Jackson Hole, health exchanges, the housing market, Rick Schroeder in “24″ in season six (currently watching on DVD via NetFlix), my six-day summer cold,  my commute which is even slower in the summer (something about “hot” rails, the Cubs falling out of the pennant race (now and forever, apparently) …


Fans of Terminatora:TSCC worldwide are wee weed about Fox’s decsion not to produce a third season. We are doing something about it. Join the Global Resistance Rally every Sunday 1 PM EST. Go to http://www.savethescc.com for details on this and other things YOU can do to bring back this beloved show.

If you are reading this you are the resistance. Will you join us?

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Death panels, rationing and Medicare

Aug 21, 2009 13:53 UTC

A good post on the healthcare debate from Alex Harris of the OpenMarket blog:

Any arguments about providing more entitlements somehow reducing the total amount of entitlements just don’t work. Insurance produces moral hazard. People overconsume goods they get for free on the margin. That’s Econ 101. The Democrats may have realized this and so proposed various cost-cutting measures, like panels to determine who gets care and who doesn’t.

A bunch of nutters on the right got all up in arms about the panels. Why? Because they would reduce benefits. Of course if you want government-run health care, you’ll have to ration. But, my god, isn’t this better than government-run health care that doesn’t ration?  … Instead, we basically face the choice between government-run health care that rations and government-run health care that doesn’t and so utterly destroys the nation’s economy. Which would we rather have? This is the choice that’s lost in the “death panels” rhetoric. …  Which should libertarians prefer: a limited new government package that provides minimal care (e.g. with high deductibles) or a big luxury package that provides everything? I would think we should prefer the minimal package (so long, of course, as private health care isn’t outlawed and so people can still get additional care elsewhere).

Me:  So that is the choice, I think. A minimalist government-run plan with high deductibles (and the option of getting extra care in the marketplace), or a private-insurance system that subsidizes the poor. Simple, yes?

Political woes could push Obama to nix Bernanke

Aug 21, 2009 13:35 UTC

The great Andy Busch of BMO Capital Markets draws up a scenario that could see Ben Bernanke get pushed toward the exits:

David Wessel in his book, “In Fed We Trust: Ben Bernanke’s War on the Great Panic” said this, “But in what would prove a colossal mistake, they (Bernanke, Paulson, Geithner) hadn’t come prepared with a plan to prevent a bankruptcy if they couldn’t sell Lehman as they had managed to sell Bear Stearns.” This ability to see the danger and yet not being prepared to stop it is truly troubling.

However, this is not why Ben Bernanke may lose his job. It will be due to someone taking the fall for the crisis and for why the unemployment rate remains above 9.5%. This is Bernanke’s Mendoza Line. This is what Moody’s John Lonski and I agreed upon last night on the Kudlow Report: Bernanke can be the fall guy for a weak US economy.

Envision a political world for President Obama in which he’s not getting his major pieces of legislation through Congress. Imagine then, he’s also got an economy that is not rebounding enough to generate job gains and an economy that may be experiencing a strange form of commodity inflation leading to higher gasoline prices. Something has to change and that change could cost Bernanke his job.

If we’ve learned anything from last fall, we know that what was once deemed rock solid can crumble away amidst the pressure of an outside force.