James Pethokoukis

Politics and policy from inside Washington

$10 trillion for clean energy? Maybe a bit overambitious

Oct 6, 2009 17:23 UTC

Working for the International Energy Agency must be hoot. Where else can you recommend a $10 trillion investment and kinda-sorta be taken seriously? From the WSJ:

The IEA, energy adviser to the world’s richest nations, urges more-aggressive reductions in carbon emissions than what many nations are currently planning. In the report, to be released Tuesday, the IEA calls for investment — in clean-energy initiatives such as solar power, new nuclear plants and other measures — of $500 billion a year over the next 20 years.

That is 37% more investment than what the IEA estimated was necessary just a year ago. Some analysts put the current level of investment in clean energy at around $100 billion a year.

And this is my favorite line in the story:

The IEA’s projections, though sometimes seen as overly ambitious, are generally regarded as relevant guideposts for the energy industry.

COMMENT

This is not really a huge deal compared to the size of the energy problem.
Large numbers should always be considered in context.
Let’s see, OECD primary energy consumption is ~5.5 bill tonnes oil equivalent per year. (http://www.iea.org/Textbase/stats/balan cetable.asp?COUNTRY_CODE=28) This corresponds to about 40.4 billion barrels of oil-equivalent. So $500 billion per year is $12.37/bbl oil-equivalent used in OECD per year.
Or, 29 cents/gallon-oil-equivalent. That seems quite reasonable.

Posted by Paul Leiby | Report as abusive

Obama and the VAT: Now it’s Pelosi’s turn

Oct 6, 2009 17:12 UTC

You can add House Speaker Nancy Pelosi to the group of Democrats or Obama allies (John Podesta, Paul Volcker, Roget Altman) calling for a value-added tax. (I predicted all of this days ago.) Here is Pelosi (via The Hill):

Pelosi, appearing on PBS’s “The Charlie Rose Show” asserted that “it’s fair to look at” the VAT as part of an overhaul of the nation’s tax code.

“I would say, Put everything on the table and subject it to the scrutiny that it deserves,” Pelosi told Rose when asked if the VAT has any appeal to her.

The VAT is a tax on manufacturers at each stage of production on the amount of value an additional producer adds to a product.

Pelosi argued that the VAT would level the playing field between U.S. and foreign manufacturers, the latter of which do not have pension and healthcare costs included in the price of their goods because their governments provide those services, financed by similar taxes.

“They get a tax off of that and they use that money to pay the healthcare for their own workers,” Pelosi said, using the example of auto manufacturers. “So their cars coming into our country don’t have a healthcare component cost.

“Somewhere along the way, a value-added tax plays into this. Of course, we want to take down the healthcare cost, that’s one part of it,” the Speaker added. “But in the scheme of things, I think it’s fair look at a value- added tax as well.”

COMMENT

Actually a combination of Soylent Green, Logan’s Run(the old are expendable), Brave New World (social conditioning and population control and 1984 (doublespeak and History if Bunk). I feel like I’m trapped in Room 101.

Posted by R McGrew | Report as abusive

Is America stuck with high unemployment?

Oct 5, 2009 20:02 UTC

Is there a “new normal” for the American labor market? Are the days of an unemployment rate of just 4 to 5 percent a thing of the past?

That is the contention of some economists who see the sharp rise in joblessness during this recession as a warning sign of structural changes in the job market.

Yes, the U.S. unemployment rate of 9.8 percent is as high as it’s been since June 1983. And if you add in discouraged workers and those working part-time who would prefer a full-time job, the unemployment rate is 17 percent.

But it’s not just that unemployment is high. It’s that it’s far higher than what economists would have expected given the depth of the downturn.

The current unemployment rate is 5.4 percentage points above the nadir of the previous expansion. (During the terrible 1981-82 recession, by contrast, unemployment rose just 3.6 percentage points, although the peak was higher at 10.8 percent.)

According to an economic rule of thumb called Okun’s Law, which analyzes the relationship between unemployment and economic growth, peak unemployment should have been more like 8 percent. Indeed, that was the White House forecast at the start of the year. If Okun’s Law no longer works, that would be a sign of a tectonic shift in the labor market.

As would the findings of Jacob Funk Kirkegaard, an economist at the Peterson Institute for International Economics. After a sector-by-sector analysis of the U.S. economy, he concluded that such industries as finance, retail trade, publishing and broadcasting are suffering from structural job losses that won’t likely turn around with an expanding economy.  What’s more, the employment share of industries seeing net structural employment losses during the current cycle is 36.2 percent, the highest level since the early 1950s.

And the special skills of workers from those sectors may be mismatched for higher-potential industries like healthcare and education. Once fiscal and monetary stimulus abates, Kirkegaard concludes, “the U.S. labor market is in for a long, hard slog.”

America’s new natural rate of unemployment may be more like 7 percent rather than roughly 4.5 percent. If so, then Kirkegaard’s policy recommendation of new spending on worker retraining is probably a smart one.

Then again, the U.S. economy and its marvelously flexible labor market have shown a knack for dealing with structural change without the government. Until the financial meltdown, the unemployment rate was below 5 percent despite the disappearance of 3.5 million manufacturing jobs during the decade to offshoring and
automation.

To JPMorgan Chase economist Jim Glassman, that performance “demonstrates that permanent job losses don’t have to stand in the way of bringing unemployment back down.”

Moreover, the high U.S productivity rate is a long-term plus for the labor market because it shows America’s innovative capabilities remain robust.

Not that government investment in job training, as well as infrastructure and basic research aren’t important as well. Reducing an onerous corporate income tax is also critical.

The deep resilience of the American economy may surprise the pessimists.  But we won’t know for some time. The unemployment rate typically peaks around 18 months after a recession concludes. So if the current downturn ended in June, we will be well into 2010 before we have a firmer feel on whether the “new normal” is here to stay.

COMMENT

no

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A second stimulus?

Oct 5, 2009 14:37 UTC

A NY Times story by my pal John Harwood hints at a second stimulus package may be brewing:

Publicly, White House aides and Congressional leaders have responded with incessant attempts to highlight benefits from the $787 billion economic stimulus package they enacted earlier this year. Privately, Mr. Obama’s economic advisers are sifting options for a new package of tax cuts and other job creation measures to be unveiled in next year’s State of the Union address — or earlier if pressure for action becomes irresistible.

Me:  They certainly won’t call it “stimulus,” which is a toxic word these days. I could see more aid to state and local governments, an expanded housing credit, expanded unemployment benefits. They could surprise with a payroll tax cut. But any pricey packages could be met by a negative bond market reaction. They would really, really like to avoid doing this.

When the US labor market will begin to recover

Oct 5, 2009 14:13 UTC

Ed Yardeni has been crunching the numbers:

Based on the previous two cycles, employment might recover within the next 11-21 months after June, or between May 2010 and March 2011! It fell 289,000 during the 11 months following the recession trough of March 1991 and 1.08mn during the 21 months following the November 2001 trough. So far, it is down 768,000 from June through September. A similar analysis suggests that the unemployment rate should peak 15-19 months after June, or sometime between September 2010 and January 2011!

Obama, the Un-Reagan when it comes to the dollar and stocks

Oct 2, 2009 19:12 UTC
David Goldman notices the tight relationship of the dollar and the stock market, comparing it to the Reagan years.
We have only had one period in which the dollar and the stock market were so correlated, and that is in 1983-1984, the beginning of the great Reagan stock market rally. The world bought the dollar and sold the US economy, before the Mundell twist (tight money and lower marginal tax rates) kicked in and the Reagan recovery began. Now we have the opposite: The dollar is selling off in tight correlation with rising stock prices, again with rising stock prices.
Think of Obama as the un-Reagan: rather than a monetary squeeze hurting stocks, monetary easy is helping stocks, as the world goes to the great American fire sale assets. We’ve had an un-rally, and now it’s going undone. … This is a unique situation: never before has the US stock market traded as if it were a banana-republic equity market reprices to the dollar. Now the stock market is repricing to a basket of alternatives to the dollar. That doesn’t spell the end of the dollar as a reserve currency, at least not for the foreseeable future. As former Fed chairman Paul Volcker told Charlie Rose last night, there’s no alternative to the dollar. Bt that’s for now. Keep it up, and the world will eventually find a substitute for the dollar.
COMMENT

Wake up America,

your president is doing a photo op with DAVID LETTERMAN,

and EVERY NEWS CHANNEL for another photo op,

and now hes in Copenhagen to run for the Olympics with OPRAH WINFREY.

Lost the Olympic bid, spent 3 million of YOUR MONEY.

IS THAT THE CHANGE?

Not for me thank you very much!

Posted by Ian | Report as abusive

Is the US labor market broken?

Oct 2, 2009 19:00 UTC

US unemployment has been far worse than economists would have expected given the magnitude of GDP decline. Has something structurally changed with the American labor market? An interesting angle on this from Brian Wesbury and Bob Stein of First Trust Advisers:

The employment situation has remained much weaker much longer than the overall economy. In September, the jobless rate rose to the highest level since 1983, total hours worked fell at a 5.9% annual rate, and wage gains were a soft 0.1%. Payrolls came in worse than anticipated, falling 263,000, although payrolls fell a smaller 210,000 in the private sector. There are two reasons for the disconnect between the economic recovery and the labor market. First, productivity growth has been rapid of late, part of the ongoing process of technological change that rivals (and may surpass) the industrial revolution. Second, corporate leaders still think the recent spurt in growth will be short-lived and so are being overly cautious. In the short term, productivity growth lets companies raise production even as they continue to cut jobs. Over time, though, higher output with lower labor costs mean more profits, which will help stimulate rapid job growth once companies become more confident about the staying power of the recovery. When the labor market eventually turns positive, it will do so with a vengeance.

COMMENT

@ Frank:

Although I’m not a fan of unions, when it comes to any comparison between corporate management and unions the greater levels of douche baggery exist on the management side of the equation.

The rest of the unemployment problem rests with our government which enabled the abandonment of the American worker. America is no longer the greatest force to be reckoned with thanks to political infatuation with cash and power among the very few. Is America better than it used to be? Not from where I’m standing! Thanks a lot you guys!

Posted by Unemployed | Report as abusive

September jobs report: -263,000, unemployment at 9.8 percent

Oct 2, 2009 15:22 UTC

The silver linings here are tough to find, at least according to this summary from IHS Global:

The September employment report signaled a painfully slow path to stabilization in the private employment market, and sharper declines in government jobs. It also suggested that the unemployment rate is likely to hit 10% by the turn of the year.

The leading indicators in the report were not promising. The workweek fell, and is now back at its June low. And temporary help jobs – while declining only fractionally – still haven’t moved into positive territory.

There was nothing to support the view that the economy will be adding jobs before the end of the year. And nothing to support the view that the consumer can sustain the spending increases that we saw in August – employment and hours worked were down, and hourly earnings only inched higher, implying that wage and salary incomes fell.

State and local governments have now shed 160,000 jobs over the past four months as budget cuts bite. This month, 29,000 of those losses came in education as the school year began. The education sector as a whole lost 46,000 jobs this month.

The economy has now lost 7.2 million jobs since the recession began – but the story is even worse than that. The BLS now tells us that it expects to revise down March 2009 employment by 824,000, based on a full employment count from unemployment insurance statistics. That implies that the total loss is now 8.0 million.

COMMENT

I think the “early adoption” of 21st energy and health care reform is capable of putting the job market on a solid ground. As a major driver, IT industry stalled and stranded in a game industry for the lack of 21st energy policy over the stretch of two wars needs to evolve into the all but indefinite energy, medical, and academic industry where the investors are eagerly waiting for policy-makers to act now, which I guess is why the far-reaching and long overdue health care and 21st energy bill have come into focus.

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VAT Attack! Greenspan: Raise taxes with a value-added tax

Oct 2, 2009 15:13 UTC

At the Atlantic magazine symposium I am attending, former Federal Reserve chairman again said he thinks taxes are going up and that a value-added tax would be the “least worst” way of doing it.  This dovetails nicely with what I wrote yesterday:

Does President Obama have a secret plan to raise taxes on middle-class Americans — and,well, pretty much everybody else — with a European-style, value-added tax? Actually, it’s not such a big secret. Connect the dots:

1) The joint statement from the just-concluded G20 Summit in Pittsburgh called for balanced global growth — which means Americans must spend less and save more and reduce its budget deficit.

2) That same weekend, John Podesta, co-chairman of Obama’s presidential transition team and an outside White House adviser, tells a Bloomberg reporter that a value-added tax is “more plausible today” than ever, adding that “there’s going to have to be revenue in this budget.” A VAT is a kind of consumption tax.

3) Yesterday, the Center for American Progress, the liberal think tank with close White House ties, holds a conference on the rising national debt. While speaker after speaker — Paul Krugman, Roger Altman, CAP President Podesta (again), Laura Tyson — admits entitlement spending must be reduced, they also agree that taxes must be raised. Altman suggests $400 billion in new tax revenue is needed almost immediately to calm financial market fears, and a VAT would be a great way of doing it. That’s $400 billion a year, by the way, not over ten years.

4) Also, yesterday was the first meeting of President Obama’s tax reform panel led by former Federal Reserve Chairman Paul Volcker. In a two-part interview with Charlie Rose airing yesterday and today, Volcker says that if Washington can’t get spending under control, either a VAT or a carbon tax would be effective revenue raisers. “Those are two big ones,” he says.

5) As they used to say in the Soviet Union, “It’s no coincidence.” This is also the conclusion of one Washington insider with ties to the White House economic team: “Does this all add up to a trial balloon? Of course, it’s a trial balloon. And I expect the administration will propose major tax reform, including a VAT.”

John Taylor on the Lehman anniversary

Oct 1, 2009 18:15 UTC

From his blog:

Two weekends ago the big news was the one-year anniversary of the Lehman Brothers bankruptcy and the ensuing panic. But when you look at the data, the real one-year anniversary of the panic is closer to now.

In the four weeks from Friday September 12, 2008, just before the Lehman bankruptcy, through Friday October 10, the S&P 500 fell by a huge 28 percent. But the decline was relatively modest (3 percent) in the first two weeks of that period, from September 12 to September 26, a year ago today. It is not unusual to see that size of change in a one or two week period. The real panic (the remaining 25 percent of that 28 percent decline in the S&P 500) occurred later, from September 26 to October 10. If you look at interest rate spreads or stock prices in other countries you see the same timing. Such facts have led me and others to be skeptical about the commonplace claim that it was simply the decision not to intervene and bail out Lehman’s creditors that triggered the panic. Rather I focus on the chaotic rollout of the TARP which began later and continued through October 13 when its ultimate use was finally defined.

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