James Pethokoukis

Politics and policy from inside Washington

Low Obama approval ratings could mean huge Dem losses in Congress

Jul 7, 2010 17:45 UTC

My pal Dan Clifton, political analyst over at Strategas, sees Democrats losing 50-60 seats in the House and 5-7 in the Senate. Noting Obama’s low approval rating — 44 percent according to Gallup — he produced this chart:


Why time has run out for 2010 Democrats

Jul 7, 2010 02:27 UTC

More and more, the political cake looks fully and thoroughly baked. Oh sure, perhaps congressional Democrats can sidestep the coming Republican wave through clever campaign tactics. Perhaps they can de-nationalize the November midterm elections by successfully waging dozens of bloody, up-close-and-personal knife fights coast to coast. Make every Republican a controversial Sharon Angle or Ron Paul with a radiation vibe.

Yet for that “fight them on the beaches” approach to really work, Democrats probably need a bit of  breeze at their backs. They need some some help from the economy, the dominant issue with American voters. As last week’s miserable jobs report made clear, however, help does not appear to be arriving anytime soon. Just 83,000 private sector jobs were created in June, after a mere 33,000 in May.

Sure, the unemployment rate fell to 9.5 percent from 9.7 percent. But that’s because the workforce shrunk by 650,000, hardly sign of a burgeoning boom. Had it only stayed stable, the jobless rate would have climbed back up to 9.9 percent. The unemployment rate has now been been 9.4 percent or higher for 14 months. That’s twice the level Americans have becomes used to during the past two decades.

If history is any guide, pushing the unemployment rate below 9 percent by Election Day would take a sudden and dramatic surge in GDP growth to a six or seven percent annual rate. But something between one and three percent seems more likely given recent economic data. Also likely is an unemployment rate back above 10 percent. Even Mark Zandi, Nancy Pelosi’s favorite economist thinks that. Republicans will surely remind voters that Obamanomics was supposed to keep unemployment below eight percent.

So expect more erosion in President Barack Obama’s approval ratings, historically a key driver of his party’s performance in midterm elections. Now for a month of so last spring, it looked as if Obama’s audacious political and economic gamble from 2009 might pay off. Back then, the economy seemed to be growing at a steady clip of three to four percent. And it was adding private-sector jobs in modest bunches, 158,000 in March and 241,000 in April.

More importantly for the November midterms, the slow bleed in the president’s polls had stopped. Obama’s approval ratings seemed to stabilize right around 50 percent, disapproval in the mid-to-low 40s. Thanks to a bit of an economic bounce, Team Obama could not only plausibly suggest its $800 billion economic stimulus package had brought America back from the brink, but also that it had put America firmly on the road to recovery. The Spring Thaw would surely turn into Recovery Summer – both for the economy and Democrats long fearful of an Autumn Annihilation.

“Summer Swoon” looks like the better description, both economically and politically. The decline in Obama’s approval ratings has resumed. He’s now down to 44 percent approval, 46 percent disapproval, according to Gallup. Unemployment and oil seem to be topping legislative achievements likes healthcare and financial reform during this brutally hot summer.

Perhaps the economy will kick into gear in 2011. But for the Obama agenda beyond 2010, it’s all about preventing a historic political reversal in November. And with just three employment reports left until Election Day, the economic cake may already be baked, too.


For almost a year now, we have been exposed to report after report stating that we have turned the corner and the economy is on the mend, that things are not that bad, that happy days are here again. There is a problem with these messages. They ring hollow at best!
The real unemployment rate (that which includes all of the unemployed, not just those still collecting unemployment benefits) is at 21.7%. Yes, the government figures state that unemployment is at 9.6% but that percentage reflects only those individuals still collecting unemployment benefits. The individuals who have already collected the maximum, are self-employed but without work, or have given-up looking for work after a year or more are not counted by the government. The “U6″ figures are the most accurate unemployment figures and even the “U6″ figures do not include all of the unemployed. Remember when we were told that unemployment would not exceed 8%?
An recent AP article titled “Homes lost to foreclosure on track for 1M in 2010″ and written by ALEX VEIGA states that the number of homes foreclosed on in 2010 will exceed 1 million. In 2009, the number of homes foreclosed on was just over 900,000. The number of foreclosures prior to 2009 averaged just 100,000 homes. That is a 900% increase in yearly foreclosures since Obama took office. Only Obama, Pelosi, or Reid would try to rationalize this as being on the right track.
RealtyTrac® (http://www.realtytrac.com/gateway_co.as p?accnt=137300), the leading online marketplace for foreclosure properties, released its Midyear 2010 U.S. Foreclosure Market Report, which shows a total of 1,961,894 foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 1,654,634 U.S. properties in the first six months of 2010, a 5 percent decrease in total properties from the previous six months but an 8 percent increase in total properties from the first six months of 2009. Does this sound as if we are headed in the right direction?
Check what you are paying for groceries now vs. 2008. Is bread, milk, eggs, meat, seafood, cereal, or for that matter, anything you regularly buy the same or cheaper that it was in 2008. Has your income kept up with the increase in the price of groceries? Most individuals reading this article would have to say no and that is certainly not being on the right track.
Is your savings account (providing you still have one) earning the same or more than it did in 2008? Right track? Not likely!
40.2 million Americans are currently on food stamps (up 21% from just a year ago) and the White House estimates that food stamp usage will increase to 43.3 million Americans during the 2011 fiscal year. No one could possibly believe that this indicates that we are on the right track!
Those lucky individuals who managed to either keep their jobs or find new jobs did so at a reduced pay rate. Benefits at many jobs have either been drastically reduced or eliminated. Jobs are being shipped off shore at an astounding rate and many foreign nationals are being brought to the U.S. to fill existing jobs at a lower rate of pay than the U.S. citizens who once held those jobs were making. Again, I ask, “Do you think this is heading in the right direction”?
The current administration and Congress should have been promoting and passing legislation that would (1) give companies a reason to create new private sector jobs, (2) give companies a reason to keep jobs held by taxpaying U.S. citizens here in the U.S. and filled by U.S. citizens, and (3) give companies a reason to bring jobs that have been sent off shore, back to be filled by U.S. citizens. How, you might ask, could they do that? The answer is quite simple really, tax breaks! You see, companies are in business to make a profit for the individuals who invest in them. When taxes go up, those companies will find a way to reduce expenses, thus keeping profits up and one way to do that is to find cheaper labor, which usually translates to off shore hiring. Large enough tax breaks for employing taxpaying U.S. citizens would provide the impetus necessary to reverse the trend to replace taxpaying U.S. workers with foreign nationals.
Until the government realizes that the average U.S. citizen prefers a leg-up to a handout, the deterioration we are currently experiencing will continue. The bottom-line is this: Rather than taking steps that would create a job rich environment, the current crop of career politicians chose and are choosing to focus on programs that push spending (and ultimately taxes) to obscene levels. Programs like Cap and Trade, Obamacare, Stimulus, Cash for Clunkers, Suing Arizona for trying to protect their citizens (and the country) against the results of illegal immigration, Bank Bailouts, and Automotive Company Bailouts have created a fiscal chasm that will probably take generations to bridge. Once again . . . this is absolutely not the right direction!
When U.S. citizens are told the truth and work together, they can accomplish any task but these two elements are key to beating the economic morass we currently find ourselves in. The truth has been quite scarce coming out of Washington recently and those elected officials (from both sides of the political aisle) warming the seats there offer divisiveness and partisanship . . . not leadership.
So, the next time you hear “The recovery plan is working” or “We are in a slow recovery”, question the intelligence, the veracity, and possibly even the sanity of the speaker. Common sense tells me that BS belongs in a pasture . . . not the Whitehouse or the Halls of Congress!

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Goldman Sachs: Economy needs fiscal, monetary boost

Jul 6, 2010 17:04 UTC

The econ team at Goldman Sachs is sounding worried. Here are a few snippets from a new report:

1.   Friday’s jobs numbers were disturbing.  At best, they show an economy that is growing only quickly enough to keep the unemployment rate flat near 10%.  At worst, they suggest that the labor market is once again turning down.

2. With inventory investment now again close to a normal rate, GDP growth is likely to converge to final demand growth, which has averaged only 1½% since mid-2009 and is unlikely to accelerate given the various headwinds facing the economy.

3. The weak labor market implies not only a great deal of hardship for workers, but also a growing risk of deflation.

4. So what is to be done?  On the monetary side, the possibilities include additional purchases of Treasuries and mortgage-backed securities, as well as TALF-like structures—i.e., special purpose vehicles that lend to nonbanks using equity provided by the Treasury and debt provided by the Fed.

5. On the fiscal side, we hope that Congress passes the extension of emergency unemployment insurance, continued aid to state and local governments, and at least a temporary extension of the bulk of the 2001/2003 tax cuts beyond the end of 2010.

6. A failure to enact additional stimulus—at a minimum, extended unemployment benefits, state fiscal assistance, and extension of the bulk of the 2001/2003 tax cuts—would imply a downside risk to our GDP and employment forecasts, specifically for 2011.


Regretfully, Goldman’s recommendations are too little, too late — the US is headed straight into deflation and depression from this point forward…

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Kudlow: Time for a tax cut

Jul 6, 2010 16:44 UTC

Larry Kudlow thinks it’s time for Team Obama to consider a different path:

Fred Smith, the CEO of FedEx, does not have a Nobel Prize in economics. But he founded from scratch a gigantic global transportation and delivery company that has employed tens and tens of thousands of workers, something the Nobelists have never done. And Smith argues that the best job-creating measure would be a significant reduction in the corporate tax rate and a move to full expensing for business-investment tax write-offs. He’s exactly right.

Japan intends to cut its corporate tax rate. So does Great Britain. But the U.S. corporate tax rate of 35 percent, or 40 percent when states are included, is not even remotely competitive anymore. So why aren’t people talking about the economic benefits of unleashing business power? The rapidly growing Asian economies treat capital and business better than they’re treated in the United States. Same for Europe. What are we waiting for?

Me:  Even Krugman-ite Democrats — folks more worried about jobs than deficits — should support this. Lowering taxes is the one form of  ”stimulus” that might get GOP support.  Might this mean a bigger deficit in the short run? Perhaps, but I see little evidence that markets are too concerned right now about red ink.


Not for nothing is Larry Kudlow known as the great one! A corporate tax cut is a great idea. Here in Canada business tax rates are tumbling.

Nonetheless, given the dismal electoral prospects faced by Team Obama as outlined in your later article above, it’s quite doubtful Mr. Obama will do anything smacking of doing a favour for American business in the near term. Quite the contrary; this fall election will likely see the Democrats bashing big business, big oil, big banks &c in a last-ditch attempt to shore up their electoral base. With luck, Mr. Obama will lose his super-majority in congress and then, and only then, after being sharply upbraided by the voters, will he look at something like a corporate tax cut. The unemployed will have to wait some while longer, sadly.

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Surprise! Obama budget panel might work

Jul 1, 2010 18:24 UTC

Washington commissions are usually political punchlines. Even President Barack Obama has mocked them in past. Yet his much-hyped deficit commission is a symbol of White House plans to fix America’s long-term budget problems. Actually, it kind of is the White House plan, it kind of is the fiscal strategy.

And maybe skepticism over the commission is overdone. Erskine Bowles, the panel’s Democratic co-chair, surprisingly favors big spending cuts over huge tax increases. That may be the best policy, but looks like increasingly savvy politics, too. Such an approach makes a deal with Republicans — and therefore real results – a bit more likely.

Bowles, a North Carolina investment banker and former Clinton White House chief of staff, is suggesting a cap on overall government spending and revenue of 21 percent of gross domestic product. The federal government currently spends 25 percent of GDP and takes in 15 percent as revenue, though both numbers are a bit distorted by the recent recession. By 2035, according to the Congressional Budget Office, spending could leap to 35 percent of GDP with revenue at 19 percent. By those numbers Bowles is suggesting that some 90 percent of the gap should be closed by cutting the spending side of the ledger.

The economic logic is sound. Spending cuts tend to be less injurious to growth than tax increases. Few countries have escaped debt traps through austerity alone. Canada is often pointed out as an example of successful austerity. But its 1990s economy also had an export boom thanks to a weak currency and more trade with the United States. Emphasizing reduced spending over higher taxes is even one of the fiscal ten commandments of the International Monetary Fund:

Strong growth has a staggering effect on public debt: a one percentage point increase in potential growth – assuming a tax ratio of 40% – lowers the debt ratio by 10 percentage points within 5 years and by 30 percentage points within 10 years, if the resulting higher revenues are saved. An acceleration of labor, product and financial market reforms will thus be critical. …

This will require a bias towards (current) spending cuts, as spending ratios are high in advanced countries and require highly distortionary tax levels. Some cuts should be no-brainers: for example, shifting from universal to targeted social transfers would involve significant savings, while protecting the poor. Containing public sector wages – which have risen faster than GDP in several advanced countries in the last decade – will be necessary.

All this would, of course, require massive restructuring of social entitlements. In return, other panel Democrats would demand higher taxes — a supposed “no go” zone for Republicans. But perhaps such a heavy bias toward spending cuts could pry loose a couple of GOPers if tax increases focused on eliminating breaks rather than raising rates.

Then again, tax increases of any sort might not be necessary, assuming spending cuts. If the economy grows somewhat more like it has through the 20th century than what is assumed by dreary CBO forecasts, that alone would reduce projected budget deficits by 25 percent in 2035.

Bowles is a dealmaker. And he’s been here before, leading political negotiations in the mid-1990s that helped create a string of balanced budgets. He just might pull off the trick again.

One VAT to rule them all!

Jul 1, 2010 17:31 UTC

Just how big a value-added tax would it take to solve America’s budget woes through tax increases alone?  Monstrously big, according to the Tax Foundation:


Recovery Summer and the big fade

Jul 1, 2010 17:24 UTC

So how goes the economic news today? The job market?

The jobless claims data remain the weakest indicator of labor market activity. On the face of it, the rise in the four-week average to the highest level since the beginning of March points to a weakening in the labor market and a potential decline in private payrolls. … we find the level and direction in jobless claims somewhat troubling and the increase is likely to feed double-dip fears.  (RDQ Economics)

How about on the factory floor?

Forward momentum is slowing down in the manufacturing sector … price pressures have virtually vanished in the short space of a month.” (IHS Global)

How about overall economic growth?

Incoming data have led us to lower our tracking of second quarter GDP from 4.0% to 3.2%. In addition, the ongoing tightening in financial conditions is leading us to mark down our projection for third quarter GDP from 4.0% to 3.0%. Since the intensification of the European crisis in late April, the risks to US economic growth have been tilting to the downside. The latest round of data confirm that the sovereign crisis transmission channels have been operative and weighing on the economy: export orders tanked, confidence has stumbled, and the hit to households’ equity wealth is becoming a considerable impediment to consumer spending (JPMorgan Chase)

Me: More and more arrows seems to be tilting the wrong way. I don’t know if there will be a double-dip recession, but the cake is rapidly being baked for a weak economy on election day in November.


And this:
http://money.cnn.com/2010/07/02/news/eco nomy/bankruptcy_filings/index.htm?source =cnn_bin&hpt=Sbin

With bankruptcy filings on the rise, how is it even possible to claim that an economic recovery ever took place here?

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