James Pethokoukis

Politics and policy from inside Washington

Obama on CNBC

Sep 20, 2010 19:26 UTC

The president participated in a town hall meeting earlier today on CNBC. A few thoughts on the event:

1. He noticeably dodged a question about whether, in the name of fiscal prudence, all the Bush tax cuts should eventually be left to expire. That is the position of his former budget chief, Peter Orszag, as well as that of many deficit hawks. It does seem strange for him to say America cannot afford the upper-income tax cuts, but also support the lower-income tax cuts which cost far more, according to the Congressional Budget Office.

2. He seems to think the Tea Party crowd is a “Party of No” manifestation with no real agenda other than to complain about his policies. But that is not how I read them at all. For instance, many activists are big fans of the Fair Tax and  Paul Ryan’s budget-cutting Roadmap for America’s Future.

3. The POTUS said tax rates were as low as they were under Ronald Reagan. When Reagan left office, the top marginal rate on ordinary income was 28 percent. Today it is 35 percent, and Obama wants it to go to 40 percent. More evidence the White House thinks America undertaxed.

4. More evidence the economic New Normal may create a political New Normal. The first question was telling. It was from an Obama supporter who was very frustrated by the pace of the recovery:

I’m one of your middle class Americans. And quite frankly I’m exhausted. I’m exhausted of defending you, defending your administration, defending the mantle of change I voted for, and deeply disappointed with where we are right now.

Obama stuck to his guns, arguing the measures he had undertaken since taking office in January 2009 were slowly pulling the country back to health:

My goal here is not to try to convince you that everything’s where it needs to be — it’s not. That’s why I ran for president. But what I am saying is … that we’re moving in the right direction.

5. Overall, the crowd seemed anti-bank, anti-China, pro-Obama.

6. Certainly the big quote of the day was when he said his economic team had done an “outstanding job.”

COMMENT

James, I enjoy your commentary on CNBC. That “Town Hall Meeting” was a sham. 1) The audience was packed with progressive democrats as evidence by the overwhelming applause after the President’s comment about how”assuming Sen. Boehner would be Speaker of the house was premature”. 2) Scaramucci obviously made some deal with the administration to be publically but gently chided by the POTUS in return for a shameless, “rubbing me on the back with a soul brother handshake photo-op” after the meeting. Can you say Shiela Jackson Scarramucci? I mean, seriously. And 3) why can’t the administration start these things on time? I mean, really….how far ahead was this scheduled? If it is supposed to start at 12:00, why make the American people wait. Obama has had….oh I quit counting….up-teen press conferences and I don’t believe even one has started on time.

Posted by Bentover | Report as abusive

Will Obamanomics slow the economy?

Sep 20, 2010 16:15 UTC

These two charts pretty well sum up one version of the economic impact of the White House tax plan — such as raising high-end tax rates — at least according to a computer model run by the conservative Heritage Foundation. You can disagree with the modelling, I suppose. But I am not sure any model would show higher taxes boosting the economy right now.

obamatax2

obamatax

COMMENT

the destruction of the u.s. in the making , he is doing what no al qaida ever could .

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A chat with Peter Navarro, co-author of ‘Seeds of Destruction’

Sep 20, 2010 15:57 UTC

Looking for some bipartisan solutions to America’s economic problems?

Well, I just read a great book on U.S. economic policy that is definitely worth checking out: “Seeds of Destruction” written by Glenn Hubbard and Peter Navarro. Hubbard is the former head of the Council of Economic Advisers under George W. Bush and is now dean of Columbia Business School. Navarro, a Democrat, is a business professor at the University of California, Irvine and author of  ”The Coming China Wars.”

Here are some excerpts of a chat I recently had with Navarro. (Later this week, I will post my interview with Hubbard.):

What’s wrong with the policy ideas coming out of Washington?
The Democrats are infatuated with the idea of using fiscal and monetary policies to spend our way to prosperity. And the Republicans have long been infatuated with the idea that the only way you can get to where we need to go is to cut taxes. And both of these solutions either don’t work or are too simplistic or both.

How must our economic approach to China change?
We identify a set of mercantilist and protectionist policies that China engages in to gain a competitive advantage, not just over American manufacturers, but manufacturers throughout the world. And our whole policy thrust is constructive trade reform with China. I think the big ones are the export subsidies they continue to engage in despite [World Trade Organization] prohibitions, the undervalued currency is certainly a big one, the intellectual property issue, and of course when you are competing with a nation that has very lax environmental and health and safety standards, that is difficult as well.

So if you are going to engage in trade reform on the mercantilist side, you need to deal with all of those things. At the same time, there are protectionist measures that China now engages in, things like non-tariff barriers such as forced technology transfer as a condition of entry into a market, and things like forced offshoring of research and development — all of which are prohibited under free trade rules.

What has gone wrong with the U.S.-China policy?
My own view is that the Bush administration wasn’t watching China because of their free market ideology. And the Obama administration thinks they need China’s money to finance their budget deficits.  I think that is a really bad bargain. At some point, the White House has got to acknowledge that these are really important issues and that simply relying on China to voluntarily go forward isn’t working.

So what should we do?
If I were Tim Geithner, I would fly over without any public announcements or press at all — a secret mission to China — and sit down with the “powers that be” over there and say, “Look, for both political and economic reasons, we can no longer tolerate this, but we do not want to confront you publicly on it. And unless you deal with this, then we are going to have to take these steps. We don’t mean to impugn your honor or integrity, but that is what is going to happen. And then I would go back home and see what happens, but not breathe a word of that to the press.

And if they don’t play ball?
Brand them a currency manipulator. And as I have written before, all you need is simple bill in Congress that says we will trade with anyone that abides by rules of free trade and leave it at that. Don’t mention China or anyone else.  There is a legitimate difference between taking measure for self defense vs. engaging in protectionism. If China dumps goods in the U.S. that are substantially below costs and countervailing duties are imposed, that is not protectionism. That is self defense. A lot of Republicans seem to not quite understand that free trade does not mean export subsidies and an undervalued currency and things like that. And Democrats, with things like “buy American,” drive me nuts, too.

Many economists contend that China needs to consume more and move beyond export-driven growth. Does China see it that way?
The people in power have seen China prosper with these “beggar-thy-neighbor” policies. But what we are advocating is in as much their interest as ours.

Were there any areas of sharp disagreement while co-authoring the book?
We began at the outset seeking a middle ground, and I think once you’ve analyzed the problem, the solutions become, if not obvious, then kind of evident and it makes it easier to figure out what to do. We really never had a substantive disagreement on anything.

COMMENT

I work at a very big software company that all of you have heard of — there is only one reason why this company hires Indian IT firms — PRICE!!!!! In India and China, there is plenty of SLAVE LABOR and the U.S. Govt. has decided to equalize U.S. JOBS and Salaries with these SLAVE LABOR conditions to do one thing: support a CEO to average worker pay gap of 400X (see below.) Don’t listen to anything else that the companies say, it’s about price. We could easily train Americans to develop these skills on the job in about three months. Price includes training and having to deal with workers who require health benefits and everything else that a person working should get.

There’s a big difference from the old days when American people cared about one another and nowadays where greed rules the day: while corporations have robbed pension funds that were committed to, banks have falsely appraised real estate for the past 10 years and aren’t held to account for the fraud when the borrowers are held to the falsely valued loans, and executives get paid 400 TIMES the average worker — see the following article:(http://www.opednews.com/article s/The-Wide-Divide–You-Are-B-by-Steve-Ell iott-080616-912.html), Americans continue to vote for the creators of these schemes: Republican schemers. It’s crazy how you are shooting yourself in the feet, ladies and gentlemen. Please get a clue. Yeah, Obama is not the best and is having a hard time, but if you think cutting more decent jobs is the answer, watch out because I can replace ANY U.S. Worker, and I mean any, (skilled or not, doctor, lawyer, IT, CEO, McDonald’s person, whatever) with a Chinese or Indian worker who will cost 5% of your total salary — want to compete with that? And I mean ANY job.

Posted by NoMoreUSDream | Report as abusive

How will the midterms affect the stock market?

Sep 20, 2010 13:33 UTC

The always insightful and interesting Ed Yardeni gathers some numbers on elections and market returns:

So what do stocks do just before and just after midterm elections and in the third year of the Presidential Cycle? They usually go up, and by quite a lot. Let’s review:

(1) According to my friend Laszlo Birinyi and former colleague at Deutsche Bank, in the 12 midterm election years going back to 1962, the S&P 500 has on average risen 2.4% in the two months prior to the election and gained 7.5% in the three months following. The only post-election downer was during 2002, when the Republicans under George W. Bush retook the Senate and held on to their slight majority in the House. The biggest gain was 14.6% during 1998 (under Clinton) and the smallest gain was 3.3% during 1994 when the Democrats under Bill Clinton lost both the House and Senate.

(2) According to Deutsche Bank chief U.S. equities strategist Binky Chadha, the S&P 500 has produced gains in 18 out of the last 19 midterm election cycles. The S&P has returned an average of 13% in the six months after midterm elections, and 17% over the next 12 months. The indicator works regardless of which party wins control of Congress, but it’s especially strong when there is a Democratic president and Republican legislature. When that scenario is in place, stocks average 14.6% annual returns, according to Bill Stone, chief investment strategist at PNC Wealth Management. “It’s the best of all iterations,” he says.

(3) The DJIA has risen 24 times and fallen 5 times in the 29 third calendar years of the Presidential Cycle since 1891. The overall, average gain for the 29 third calendar years is 12.31%, with the 16 Republican presidencies averaging gains of 5.12% and the 13 Democratic presidencies averaging gains of 21.14%.

(4) Joe analyzed the four-year Presidential Cycle of the S&P 500 since 1952. He found that this index increased on average by 4.4% during the first year, 4.8% during the second, 18.4% during the third, and 5.7% during the fourth. Excluding second terms of reelected Presidents, he found that the first term of all of them since 1952 averaged 3.2% during the first year, 2.2% during the second year, 21.6% during the third year, and 11.5% during the fourth year. In other words, third years tend to be the best ones, and have been up years during every Presidential Cycle since 1955.

While the historical record suggests that the stock market is likely to do very well over the rest of this year, and even better next year, might it be different this time? I’ll discuss this possibility tomorrow.

Me: This also plays into the “gridlock into good” mantra. And certainly there should be less anti-market legislation in the second half of Obama’s term than the first half. But the U.S. does have real problems that need attending to — budget reform and tax reform, in particular.

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