James Pethokoukis

Politics and policy from inside Washington

Unemployment and the 2010 midterms

Feb 22, 2010 20:28 UTC

Charlie Cook has it exactly correct in this piece of analysis:

I’ve spent the last couple of days talking to some of the brightest Democrats in the party that are not in the White House. And it’s very hard to come up with a scenario where Democrats don’t lose the House. It’s very hard. Are the seats there right this second? No. But we’re on a trajectory on the House turning over….
There are nine months, certainly things could happen, but the odds of unemployment being below 9 percent are minimal by the time of this election. We’re probably going to have a year of basically, more or less, 10 percent unemployment, which hasn’t happened since the Great Depression. I mean, in fact, in an even-numbered year there’s only been one month of double-digit unemployment in the post-War era. One month. And now we’re going to have probably about a year.

Me: Unemployment is The Variable. Anything other than a sharp drop is terrible news for Democrats. And there seems little chance the US economy will generate the level of economic growth this year necessary to generate hundreds of thousands of job per month.

COMMENT

Dear friend,
You have already appreciated of my new found theory of world economics by email,and i acknowledged it.
Todays writing on America!s ruling parties pros and cons,likely to lose charm,popularity from Americans are imminent.
On any democratic elections, many political leaders knew very well on their present anger, failure of their expectations from ruling parties and these known thoughts will convert and give more mileage to upcoming political parties.
Here,Democratic party had en cashed it to their favor.
Now, true color comes out.
Daily, i am reading, and knowing from American friends, and relatives from overseas on America!s latest economic scenes.
Some despair had already on Americans faces.
What to say an end to this topic.
We hope that, they will do some serious introspections,analysis and where,what went wrong and for quick damage control exercises for any further set back.
Time has come to learn from India,China, South Korea,Brazil,Russia!s progress on their economic upbeat,consolidation, and growing their export,IT sectors and more job oriented schemes to jobless segments.
Best wishes to you,your family and to this great news provider to entire world.

New Obama health plan moves hard in wrong direction

Feb 22, 2010 18:06 UTC

Well, let’s see: It costs $75 billion more than the Senate plan. It delays the one sure-fire cost-control measure, the tax on high-end plans. And it gives the federal government new authority to block insurers from increasing premiums. That last one is particularly wrong-headed. The policy thrust of ObamaCare was supposed to be to reduce costs by changing how healthcare was delivered, not through rationing. But price caps are nothing more than rationing. As Cato’s Mike Cannon puts it:

As I have written elsewhere, artificially limiting premium growth allows the government to curtail spending while leaving the dirty work of withholding medical care to private insurers: “Premium caps, which Massachusetts governor Deval Patrick is currently threatening to impose, force private insurers to manage care more tightly — i.e., to deny coverage for more services.” No doubt the Obama administration would lay the blame for coverage denials on private insurers and claim that such denials demonstrate the need for a so-called “public option.
Who knows if this thing can actually pass, but using reconciliation to do it will only amp up the partisan and polarized nature of Congress.

COMMENT

This health bill will force the average small business to fire 3-4 workers on account of the hefty fines. I work for http://storyburn.com, and I can see why folks are pulling their hair out over the temp job being the new full time job, China stealing our mojo, Wall Street bonuses at record highs, and people taking a 10% paycut and asked to work unpaid overtime. We have the most read home foreclosure story as well as several job hunting stories

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Obama deficit commission is a path to crisis

Feb 19, 2010 15:42 UTC

First, here is a bit from my Reuters Breakingviews column:

President Barack Obama might have stumbled upon a three-step path to financial crisis: 1) admit nation is dangerously in debt; 2) create high-profile deficit commission to find solution; 3) have commission fail. Subsequent market tumult could, of course, force a sudden, dramatic and harsh fix to America’s fiscal ills. But a rush job would be a poor way to solve the country’s long-term financial problems.

The immediate casualty of failure, however, would be the markets. Recall the House’s first vote against the $700 billion bank bailout in September 2008. The Dow industrials fell an unlucky 777 points in a flash. The bill passed two days later when panic set in on the Hill. Failure of the commission would send a frightful message to investors globally who have continued to buy trillions in Treasuries under the assumption hard budget choices would eventually be made.

True, a market jolt would again focus Congress’s attention. But that risks a hasty, ill-considered budget fix such as hiking taxes without a structural reform of America’s social insurance system. That would really be no solution at all.

Me: It’s like there arent’t all kinds of plans to cut spending. But Americans need to decide if they want to close the long-term budget gap through lower spending or higher taxes.

COMMENT

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Where Obama’s deficit commission is headed

Feb 18, 2010 19:13 UTC

So, like, this thing isn’t going to work. You all know that, right? Rs pretty much have zero interest in higher taxes. Zero. And Ds pretty much have zero interest in cutting spending anywhere unless the money is shifted to some new program, as with healthcare. I read Greg Mankiw’s list of what Rs should get into turn for higher taxes

1) Substantial cuts in spending. Ensure that the commission is as much about shrinking government as raising revenue. My personal favorite would be to raise the age of eligibility for Social Security and Medicare.

2) Increased use of Pigovian taxes. Candidate Obama pledged 100 percent auctions under any cap-and-trade bill, but President Obama caved on this issue. He should renew his pledge as part of the fiscal fix. A simpler carbon tax is even better.

3) Use of consumption taxes rather than income taxes. A VAT is, as I have said, the best of a bunch of bad alternatives.

4) Cuts in the top personal income and corporate tax rates. Make sure the VAT is big enough to fund reductions in the most distortionary taxes around. Put the top individual and corporate tax rate at, say, 25 percent.

5) Permanent elimination of the estate tax. Conservatives hate the estate tax even more than they hate the idea of the VAT. If the elimination of the estate tax was coupled with the addition of the VAT, the entire deal might be more palatable to them.

Rs aren’t going for a VAT, unless maybe it replaces income, investment and corporate taxes. So the commission will fail, followed by perhaps a debt/currency market freakout. And that will be followed by calls for emergency tax increases.

COMMENT

No cuts in spending until the Obama gang is gone, it appears. It is probably safe to say that Medicare and cap’n'trade are both DOA, banking re-regulation is a no-show and just about everything else on the Obama agenda – ‘change we can believe in’ – is toast. Slim pickings for the Democrats to run on in November, so more Democrat ‘retirements’ are likely. If the Republicans play it right, they can reprise Newt Gingrich’s 15 minutes of fame in 1994 and this whole progressive agenda can be tossed like so much rubbish. THEN tax cuts and spending cuts become reality. Have faith, fellow conservatives, and lots of patience.

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The Volcker Rule: It’s not happening

Feb 16, 2010 19:07 UTC

A few points:

1) The much-hyped Volcker Rule proposal is failing fast in the U.S. Congress. But Paul Volcker himself probably isn’t that surprised. The former Federal Reserve chairman joked he was “just a photo op” even after President Barack Obama’s public embrace of his proposal to limit bank proprietary trading. More evidence that the moment for sweeping reform has probably passed.

2) The hope for any reform at all rests with the U.S. Senate’s new negotiating tag-team of Democrat Chris Dodd, chairman of the Banking committee, and Republican freshman Bob Corker. But Corker says the Volcker Rule isn’t going to be a “major topic” for discussion. And that is probably OK with much of the committee. As one banking industry lobbyist told me, “There is just not a lot of appetite among members of the minority or the majority to add [bank trading limits]. So I just don’t think you’re going to see it.”

3) Increasingly, the Volcker Rule looks more stunt than viable solution. Though Volcker had been pushing it for months, White House advocacy surprised both the Banking committee and banking industry. A poor way to introduce serious legislation in Washington. Lame-duck Dodd, who sees reform as his legacy, hears the clock ticking. A bill not passed by early summer is probably dead for the rest of this election year. His view: The Volcker Rule is a sudden and unwelcome complication.

4) Cynics saw it as a populist, knee-jerk response to the loss of a Massachusetts U.S. Senate seat held by Democrats for more than a half century. Even some Volcker Rule advocates admitted the plan didn’t directly address the regulatory failures that contributed to America’s financial meltdown. And although the proposal was introduced in January with great fanfare by Obama – Volcker standing prominently at his side – Senate Democrats say the creation of a new consumer finance regulator is actually the issue the White House is spending political capital on.

5) It is a reality that highlights the Obama administration’s scant interest in more extreme measures to limit the size of the banking sector or its activities. And if Volcker did harbor any small doubts about that, he shouldn’t any more.

COMMENT

I’ve been gone for a while, but now I remember why I used to love this site. Thank you, I will try and check back more often. How often do you update your web site?

Nuclear power and crony capitalism

Feb 16, 2010 18:53 UTC

Give the POTUS some credit for proposing something, anything on domestic policy that is certain to irk his base. Reuters:

President Barack Obama announced $8.3 billion in loan guarantees on Tuesday to build the first U.S. nuclear power plant in nearly three decades in a move designed to help advance climate legislation in Congress. … The loan guarantee will go to help Southern Co. build two reactors at a plant in the state of Georgia. “Even though we’ve not broken ground on a … new nuclear power plant in thirty years, nuclear energy remains our largest source of fuel that produces no carbon emissions,” Obama said after touring a union education center in Lanham, Maryland. “To meet our growing energy needs and prevent the worst consequences of climate change, we’ll need to increase our supply of nuclear power. It’s that simple,” he said.

Yet how viable is Big Nuclear without the help of Big Government? An interesting analysis from Cato’s Jerry Taylor:

Tufts economist Gilbert Metcalf, for instance, has calculated that, under current law, the levelized cost of nuclear power in the United States is 4.31 cents per kilowatt hour (kWh). Coal-fired electricity, on the other hand, cost 3.53 cents per kWh and “clean” coal cost 3.55 cents. But even these nuclear estimates are almost certainly too low. That’s because Metcalf uses an “overnight cost” (construction costs minus financing costs) figure of $2,014 per installed kilowatt (kW) which is much too low. The Energy Information Administration (EIA) puts this cost at $2,475 per kW at present-although even this figure is suspicious because it relies on a worldwide average for nuclear power plant construction-including the grossly unreliable estimates from state-managed economies. The Standard & Poor’s overnight cost estimate of $4,000 is likely the most reliable because it is based on nuclear plant construction costs in economies where labor and material costs are very similar to those found in the United States. Industry analyst Jim Harding, who uses overnight cost figures similar to Standard & Poor’s, puts the levelized costs for new nuclear power generation at 12-15 cents per kWh right now.

Will conservatives who complain about government debt guarantees to Wall Street complain about guarantees to energy companies?

COMMENT

The move by the President to support development of nuclear power in the U.S. is necessary and long overdue. The rest of the world generates much of its electricity from nuclear power. We have lagged behind in nuclear power out of fear (since Three Mile Island) and intense lobbying by the coal and oil industries. If the rest of the world can supply electricity through safe, efficient nuclear generation then I think we can too!

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Bayh’s good-bye

Feb 16, 2010 14:14 UTC

A few thoughts on Evan Bayh’s stunning retirement announcement:

1) It helps move the prospect of a GOP Senate takeover from a fringe idea to consensus. Not there yet, but getting there.

2) Why does that matter? It could help nudge more Democrats to retire, particularly in the House and help Republicans recruit better candidates. (George Pataki in NY for US Senate?) And a big plus for Republican fundraising.

3) Forget talk about Bayh challenging Obama in 2012. Now, if Bayh was president with a lousy economy, then a challenge from the left (like Obama) might be a possibility. Intra-party centrist insurgencies are stuff of reporters’ imaginations.

4) A year ago, Dems thought they would gain seats in 2010. A few months ago, they thought they would hold the 60-seat supermajority or maybe lose a couple. Now a loss of seven seems quite reasonable.

5) Again, keep watching the unemployment rate and Obama’s approval rating. Washington insiders certainly are.

Insta-analysis

Feb 12, 2010 20:48 UTC

BAILOUT BILL: Good piece in Daily Caller by Sam Zamarippa on how financial reform extends TBTF. If financial reform fails, that will be a big reason.

BILLONS AND BILLIONS: Actually, make it $300 billion in outstanding bailout money, according to Pro Publica.

THE WAY FORWARD: Yet another insightful analysis by Nicole Gelinas on how to restructure the banking system.

VETTING A VAT: Brett Swanson tries to explain the WSJ’s editorial board position on a VAT. It is not so much that board hates a VAT (indeed a Hall-Rabushka VAT-like tax would be OK) but that it hates a VAT on top of the current tax system:

The Journal has always opposed a European style VAT on top of our current anti-growth tax code. The point is not that they hate a VAT conceptually. The point is that they don’t want the federal government’s share of the economy to grow dramatically from its already too-large and too-intrusive level. But I doubt the Journal is fundamentally opposed to a VAT-like levy under any circumstances . . . because as they surely know, it is in fact an efficient way to collect revenue.

VON RYAN’S EXPRESS: Kim Strassel outlines the Dem attack on Paul Ryan’s deficit reduction plan. She also pushes the GOP to fully embrace the plan. Well, someone should.

SICK SYSTEM: Philip Klein helpfully explains why Anthem’s health insurance rate hike makes the case for free market reform.

What’s next for financial regulatory reform

Feb 12, 2010 18:10 UTC

With healthcare on ice, financial reform is the hottest game in town. Now Dodd is trying to bypass Shelby to somehow gin up a bipartisan bill with Corker –  who takes the issue extremely seriously. A few thoughts:

1) A CFPA is still the stickler. GOP, including Corker probably, will only accept a non stand-alone regulator will narrow rule-writing and enforcement powers. But  CFPA is dominant issue for Obama WH.

2) Corker is more easily undercut by McConnell than old bull Shelby. If McConnell doesn’t want a bill, there will not  be a bill.  At this point, the smart betting is that GOP views denying Dems a victory more important than anti-populist backlash for opposing reform. They will label it a bailout bill if there is even a hint at giving Treasury TARP 2.0 powers. But if it is watered-down enough, it can pass.

3) If a Dodd-Corker bill gets to the floor, both Left and Right will push a flurry of amendments that they would’t try with Dodd-Shelby. Should be a chaotic mess.

4) Looks like the Volcker rule isn’t going anywhere.

The jobs bill

Feb 12, 2010 18:06 UTC

1) Obama administration economists reckon the jobless rate will hover around 10 percent this year, and now say the U.S. economy will generate an average of just 95,000 jobs a month. That tallies with Team Obama’s forecast of anemic 3.0 percent GDP growth. Monthly job growth of 125,000 to 150,000 is needed to start bringing the unemployment rate down from its current 9.7 percent. That’s what would normally be expected more than two years after the onset of a recession. It’s not happening — at least not yet.

2) Enter the U.S. Senate. The centerpiece jobs proposal would spare businesses from paying payroll taxes on some new hires for the rest of 2010. Based on a Congressional Budget Office analysis, this measure might create a feeble 50,000 to 90,000 jobs.

3) Aside from the bill’s limited potential effects, short-term fixes are not what’s needed. America’s job machine didn’t suddenly break down in 2008. It has been sputtering since the Internet bubble burst. Some economists now think a decline in education, innovation and other former U.S. advantages means the realistic minimum unemployment rate has gone up from 4-5 percent to as much as 7 percent.

4) That suggests legislative efforts at improving the employment picture should focus on long-term measures to improve education and help innovative businesses. Options in the latter category include a reduction in the U.S. corporate tax rate, targeted infrastructure spending and long-term tax credits for research and development. It’s a shame Washington seems able to set politics aside to accommodate special interests, but not for what’s really needed.

COMMENT

The Jobs Bill will do little to put the most disenfranchised to work, especially poor Black and Latino youth. The majority of the Bill’s incentives go to businesses rather than direct job creation. Do they really think that businesses are bursting at the seems to hire inner city youth? When will they get it – If we don…’t provide jobs for the young people with whom we work, the majority will simply be without jobs.

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