James Pethokoukis

Politics and policy from inside Washington

Huntsman tax plan goes big and bold

Aug 31, 2011 15:18 UTC

Current polls say Jon Huntsman, former Utah governor and ambassador to China, isn’t a top tier candidate for the 2012 Republican presidential nomination. But he certainly has a top-tier economic plan. Huntsman will offer a broad proposal later today – covering taxes, regulation, trade and energy. But I already had a peek at the tax part. And I think it is excellent. Huntsman says he would do the following:

1) Eliminate all deductions and credits in favor of three drastically lower rates of 8%, 14% and 23%.

2) Eliminate the Alternative Minimum Tax.

3) Eliminate taxes on capital gains and dividends in order to eliminate the double taxation on investment.

4) Reduce the corporate rate from 35% To 25%. Huntsman would also shift to a territorial tax system and implement a tax holiday for the repatriation of foreign earnings.

Basically, this is the “zero option” Bowles-Simpson tax plan that lowers marginal tax rates and broadens the tax base. But there is at least one big difference. B-S would use part of the money from axing some $1 trillion in annual tax breaks to lower marginal rates and part for deficit reduction – a net tax hike. Huntsman would divert that extra tax revenue into “paying for” the elimination of investment taxes.

At first glance, this looks like perhaps the most pro-growth, pro-market (and anti-crony capitalist) tax plan put forward by a major U.S. president candidate since Ronald Reagan in 1980. But it is not without political risk. In addition to killing tax breaks for businesses, Huntsman would eliminate the mortgage interest deduction, healthcare exclusion, and the child tax credit among other “tax expenditures. ” We’re talking about a whole herd of sacred cows. Both his fellow presidential candidates and Washington lobbyists will likely attack him for some of those ideas.

I would like to see an analysis of the plan’s distributional impact on various household income tax levels. In addition, a CBO-style revenue and spending breakdown would be helpful.  Keep on the look out for a chat I had with Huntsman about his economic plan. I will post it sometime after his speech later today on the proposal.


Where would the elderly fit in to this tax plan of 8%, 14% and 23%? Thank you.

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Obama’s new chief economist, Alan Krueger

Aug 29, 2011 16:16 UTC

First, the 411 on Alan Krueger, new chairman of the White House Council of Economic Advisers, from Reuters:

U.S. President Barack Obama said on Monday he has chosen Princeton University labor economist Alan Krueger to become the top White House economist. Krueger would succeed Austan Goolsbee as chairman of the White House Council of Economic Advisers. The decision comes as Obama prepares to unveil a jobs package in a speech planned for shortly after the September 5 Labor Day holiday.

“As one of this country’s leading economists, Alan has been a key voice on a vast array of economic issues for more than two decades,” Obama said in a written statement. “Alan understands the difficult challenges our country faces, and I have confidence that he will help us meet those challenges as one of the leaders on my economic team.”

Krueger’s expertise in labor-market issues is in keeping with the administration’s efforts to underscore a focus on jobs. At Treasury, Krueger was assistant secretary for economic policy and chief economist. He is also a veteran of President Bill Clinton’s administration, serving as chief economist for the Department of Labor from August 1994 to August 1995. Krueger holds a Bachelor of Science degree in industrial and labor relations from Cornell University. He earned his PhD in economics at Harvard University. While at Princeton, Krueger was a regular contributor to the Economic Scene column in The New York Times. Krueger has written extensively on unemployment and the effects of education on the labor market.

Anyone still looking for a turn to the right from Obama will be mightily disappointed. Krueger is part of the center-left economic consensus that believes a) America is undertaxed, b) government must become permanently bigger as America ages, and c) climate change requires a vast new regulatory scheme to control carbon emissions. His big idea to boost the U.S. economy and bring the budget in balance is ginormous consumption tax on top of the current income tax system:

Why not pass a 5 percent consumption tax to take effect two years from now? … In the short run, the anticipation of a consumption tax would encourage households to spend money now, rather than after the tax is in place. Along with the rest of the economic recovery package, this would help jump-start spending in the economy and thereby increase production and employment. In the long run, a 5 percent consumption tax would raise approximately $500 billion a year, and fill a considerable hole in the budget outlook. In addition, a consumption tax would encourage more saving in the long run. Many economists consider a consumption tax an efficient way of raising tax revenue, especially in a global economy. The prospect of greater revenue flowing into federal coffers would probably help lower long-term interest rates because the government would need to borrow less down the road, and further bolster the economy.

Krueger, who was Tim Geithner’s economist over at Treasury, is probably best known for his 1990s study that showed raising the minimum wage in New Jersery didn’t increase unemployment among fast-food workers. But that study seems to have been debunked. This is just one example (among many):

We re-evaluate the evidence from Card and Krueger’s (1994) New Jersey-Pennsylvania minimum wage experiment, using new data based on actual payroll records from 230 Burger King, KFC, Wendy’s, and Roy Rogers restaurants in New Jersey and Pennsylvania. We compare results using these payroll data to those using CK’s data, which were collected by telephone surveys. We have two findings to report. First, the data collected by CK appear to indicate greater employment variation over the eight-month period between their surveys than do the payroll data.  …  Second, estimates of the employment effect of the New Jersey minimum wage increase from the payroll data lead to the opposite conclusion from that reached by CK. For comparable sets of restaurants, differences-in-differences estimates using CK’s data imply that the New Jersey minimum wage increase (of 18.8 percent) resulted in an employment increase of 17.6 percent relative to the Pennsylvania control group, an elasticity of 0.93. In contrast, estimates based on the payroll data suggest that the New Jersey minimum wage increase led to a 4.6 percent decrease in employment in New Jersey relative to the Pennsylvania control group.

But for good or ill, I don’t think Krueger’s ideas will have much impact on the Obama White House.  Krueger won’t even be sitting in the job when Obama rolls out his new jobs plan on Sept. Moreover, it’s the political shop running policy right now, not the propellerheads. And the reelection team believes little can be done to alter the economy’s path over the next 15 months. Any big stimulus plan, even assuming effectiveness, would open Obama to GOP charges of being a reckless spender. Better, they think, to instead make the case that Obama has the best ideas to improve the economy over the next four years, not Rick Perry or Mitt Romney. In short, the Obama reelection plan is the Obama jobs plan. Krueger’s job will be explain away the bad jobs and GDP numbers and tell American why the GOP is wrong.


James Pethokoukis

U’re a terrible debater.

U say nothing and interrupt everyone else to ensure that the cnbc viewers are left with nothing.

I want to hear what people have to say, and u totally ruin that on cnbc. It’s sickening that someone pays u to do what u do.

love all ways
-Mitch R. Corburn

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Will Hurricane Irene be a black swan for the U.S. economy?

Aug 25, 2011 19:01 UTC

The U.S. economy is growing very slowly, just 0.4 percent in the first quarter, 1.3 percent in the second. And it might not do a whole better the rest of the year. That’s a problem. A recent study from the Federal Reserve finds that that since 1947, when two-quarter annualized real GDP growth falls below 2 percent, recession follows within a year 48 percent of the time. (And when year-over-year real GDP growth falls below 2 percent, recession follows within a year 70 percent of the time.

So while we may be in a recovery, it’s a fragile one, at best. In short, nothing can go wrong or we’ll end up back in recession. That’s a big reason everyone is so focused on Europe and its ongoing sovereign debt and banking troubles. And why problems at Bank of America cause flashbacks of 2008.

But what about the nasty storm making its way up the East Coast? What’s the potential it causes enough economic damage and disruption to nudge the American economy back into a downturn? Well, I suppose the worst-case scenario would be a direct strike on New York City. That would be pretty bad:

In the city, a hurricane’s storm surge would cause sudden, extensive flooding, submerging much of Lower Manhattan and crippling the subway system and tunnels.

The powerful winds would uproot thousands of trees, down power lines and send debris flying in all corners of the city. And those winds could shatter windows on skyscrapers, especially in the taller buildings that would bear the brunt of powerful gusts that occur at higher elevations. The canyons of Manhattan could magnify the winds, and would be a deadly place for anyone caught beneath the raining glass.

Other comparisons to Hurricane Katrina are hard to ignore. Katrina, the most costly natural disaster in U.S. history, caused insured losses of more than $40 billion in 2005. AIR Worldwide, a firm that models disaster scenarios for insurance companies, has said that a repeat of the Long Island Express would cost $33 billion if it happened today. In the most dire projections, a direct hit on New York City could cost upwards of $100 billion.

The impact would be felt long after flood waters recede. Coch predicts that the salt water in the subway would corrode the switches and cripple the system for months or years, and disable much of the communications infrastructure in Lower Manhattan. “In 1893, Wall Street was cut off from the rest of the country when the telegraph lines went down,” he said. “Imagine what would happen now when the fiber optic cable failed.”

Sounds a lot worse than Hurricane Katrina given the incredible importance of Manhattan to the U.S. and global economy. Tough to quantify, of course. But, for comparison purposes, here is a Congressional Research Service analysis of the economic impact of Katrina in 2005:

Since the storm, a number of economic forecasters have adjusted their predictions to reflect its effects. Most indicate that, as a result of the storm, national economic growth is expected to be 0.5%-1.0% slower than in the second half of 2005. However, as economic activity recovers in the affected region, and rebuilding begins, growth in the first half of 2006 is now expected to be more rapid than was previously forecast.

Back in 2005, the economy was growing at a 3-4 percent clip. Today, it’s less than 2 percent. Maybe even less than 1 percent. It seems pretty clear a devastating hit on the Big Apple might well send the economy back into recession. And given the current fragility of consumer and business confidence, how likely is it that the economy would quickly bounce back into growth in a quarter or two? Here’s how Japan is doing, by the way, after its pair of natural disasters earlier this year:

Five months after a tsunami and nuclear meltdown assailed Japan, the economy has been pummelled by fresh blows. Share prices have followed global stockmarkets down, with the Nikkei 225 index revisiting its nadir in the days after the earthquake in March. As if the fears about a global slowdown that have depressed equity investors were not enough, the yen has been soaring, which will hurt Japanese exporters. Adding to the pain, Moody’s, a credit-rating agency, downgraded Japan’s debt rating one notch to Aa3 on August 24th because of its huge public debt and chaotic politics.


The economy should not be the main concern here, we should be focused on preparing. Our lives, homes, and families are in danger. We always worry about the economy, we know this storm could potentially be a huge downfall, but that’s not the issue right now. We need to make sure we are safe until the hurricane is over. The economy should be the least of our concern. Don’t you just love how people are more worried about money than their lives?

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On climate change, Romney is pretty consistent

Aug 25, 2011 16:49 UTC

What Mitt Romney is saying today about climate change is pretty much what he’s been saying all along. First, here is what he said yesterday:

Asked about global warming at a town hall meeting in Lebanon, New Hampshire, Romney said he believed the world is getting hotter and humans contribute in some way to the change — but could not judge to what extent. ”Do I think the world’s getting hotter? Yeah, I don’t know that but I think that it is,” he said. “I don’t know if it’s mostly caused by humans.”

“What I’m not willing to do is spend trillions of dollars on something I don’t know the answer to.”

In June, a day after launching his second bid for the White House, Romney caused a stir by saying he thought humans had contributed to climate change to some extent. At that time he made a call for a reduction of “emissions of pollutants and greenhouse gases that might be significant contributors” to climate change — a suggestion that was not made on Wednesday.

A Romney aide said the candidate has not altered his position on climate change.

Still, using additional domestic nuclear, natural gas, and other resources could have a side benefit of cutting carbon emissions, Romney said. “My view is pursue a strategy which gets us into energy independence which has as a byproduct it gets us into less CO2 emitting.”

He criticized a bill backed by President Barack Obama that would have capped carbon emissions and allowed polluters to buy and sell rights to emit carbon. ”I do not believe in cap and trade and I do not believe in putting a carbon cap” on polluting industries, Romney said.

In his book “No Apology,” Romney describes his position this way, far more directly:

I believe that climate change is occurring — the reduction in the size of global ice caps is hard to ignore. I also believe that human activity is a contributing factor. I am uncertain how much of the warming, however, is attributable to man and how much is attributable to factors out of our control. … Internationally, we should work to limit the increase in emissions in global greenhouse gases, but in doing so we shouldn’t put ourselves in a disadvantageous position that penalizes American jobs and economic growth.

Romney is clearly in favor of limiting carbon emissions — at least in theory — but does not want to cripple the U.S. economy or spend trillions of dollars for “extreme and expensive measures” like cap-and-trade to do it. He mentions the work of Danish economist Bjorn Lomborg who believes “addressing the remediation of the effects of global warming [is] far more economic and far more humane than massive spending to reduce emissions.”

Romney also spends considerable time in his book explaining the pros and cons of a carbon tax-payroll tax swap, a plan favored by economist and Romney adviser Greg Mankiw and many other Republican-leaning economists. Among the positives, he says:  1) revenue neutrality; 2) higher energy prices would encourage energy efficiency; 3) industry would have a predictable outlook for energy costs; 4) profit incentives rather than government  subsidies would encourage the development of “oil substitutes and carbon-reducing technologies.” And there is this:

Comparative analyses of the tax-swap plan with a cap-and-trade system have demonstrated that the tax swap is likely to be five times as effective in reducing carbon dioxide emissions and, presumably, five times as effective in reducing energy consumption.

Romney does add, however, that “a great deal of work needs remains to be done if it is to become a viable option.”

Bottom line: Romney wants to use markets and incentives to reduce carbon emissions and lower U.S. dependence on overseas oil, not net tax hikes or mandates or regulations. This is not the Rick Perry position, of course. So the issue marks an interesting contrast between the two candidates. Grover Norquist puts it this way: ”If Perry was president, one of the things I’d not worry about is a carbon tax. I’d worry about big spiders eating New Jersey first.”


Sounds like Mitt doesn’t know much period.

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Gloomy CBO forecast is now Obama’s best-case scenario

Aug 24, 2011 20:16 UTC

After reading one bearish Wall Street economic report after another, the new Congressional Budget Office budget and economic forecast looks absolutely glowing by comparison. The CBO sees the U.S. economy growing 2.4 percent this year, 2.6 percent next — and then a brisk 3.6 percent through 2016.

By comparison, Goldman Sachs forecasts just 1.5 percent growth this year and 2.1 percent next. JPMorgan is even gloomier with a prediction of 1.5 percent this year and 1.3 percent next. If only the CBO knew something the bank didn’t. Actually, it’s just the opposite. The CBO forecast doesn’t include any of the deteriorating economic data from recent weeks, nor does it take into account the stock market’s stomach-churning volatility of late.

Yet even CBO’s dated optimism still shows the average annual unemployment rate staying above 8 percent until 2016. If the budget scorekeeper saw the world like Goldman and JPMorgan, its unemployment prediction would be more like their’s. Goldman sees the jobless rate hitting 9.25 percent in 2012, while JPMorgan thinks it will climb to 9.5 percent.

The rosy economic forecast is one reason I place little confidence in the CBO’s budget projections. The CBO now sees just $3.48 trillion in additional borrowing over the next decade, allowing the debt burden to fall to 61 percent a decade from now. Back in January, the CBO baseline forecast saw the federal government borrowing another $6.97 trillion from 2012 to 2021, pushing the country’s debt-to-GDP ratio to 76.7 percent from 69.4 percent in 2011. (Two-thirds of the difference between the two forecasts is due to the recent Budget Control Act. Keep your fingers crossed on that one.)  If CBO overestimates growth by just 0.1 percentage point a year, the debt will be $300 billion larger. A full percentage point equals $3 trillion in additional deb

In addition, CBO thinks that with a more realistic policy forecast,  annual deficits from 2012 through 2021 would average 4.3 percent of GDP instead of 1.8 percent. And with cumulative deficits of 8.5 trillion, total public debt would be 82 percent of GDP by the end of 2021. Once you add in the slower growth forecast, we might easily be talking about $10 trillion in new debt over a decade. And that would likely push the debt-to-GDP ratio to around 100 percent of total output (not counting Social Security IOUs.) There is nothing in this report to make one feel better about the economy, debt trajectory …  or President Obama’s chances for reelection.



James, James you keep predicting Obama as being a one-termer. Well, I wouldn’t ’cause I see him stacking
his cards and playing the angles again. One little nod from Oprah and he’s in again. It doesn’t matter if he created a birth certificate or not. It doesn’t matter if the economy is tanked. Voters aren’t that bright anymore and thinking someone else is always going to pay.
Life is going to be getting worse, trust me.

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Economy poised to make Obama a one-termer

Aug 22, 2011 17:51 UTC

Just how much would a continued weak economy hurt President Barack Obama’s 2012 reelection chances? There are a few different ways of looking at this — and none of them seem particularly promising for the man currently occupying the Oval Office:

1)  Slow Economy. Yale economist Ray Fair has a well-known election forecasting model that uses three economic variables to makes its call: a) growth rate of real per capita GDP in the first three quarters of 2012; b) growth rate of the GDP deflator in the first 15 quarters of the Obama administration, c) number of quarters in the first 15 quarters of the Obama administration in which the growth rate of real per capita GDP is greater than 3.2 percent at an annual rate.

Now Fair, who also has an economic forecasting model, is pretty bullish on the economy (at least as of July 31), predicting real per capita GDP growth of  3.6 percent and sharply lower unemployment. (In recent years, the economy overall has grown about a percentage point faster than GDP per person. So Fair is talking about 4 percent-plus GDP growth). The academic sees an Obama victory:

The prediction of an Obama victory with 53.4 percent of the two-party vote is conditional on the assumption that there will be strong growth between now and the election. According to the July 31 forecast from the US model, by election time the economy will have been growing well for five consecutive quarters, with the unemployment rate down to 7.9 percent. The economy will have turned around, and the vote equation predicts a victory for the incumbent party.

But most big bank economists aren’t nearly as optimistic. Take JPMorgan, for instance. Its economic team sees the overall economy growing just 1.3 percent next year with an unemployment rate of 9.5 as Election Day approaches. Plug in JPMorgan’s numbers and you get a decidedly different result. Under that scenario, Obama would get just 47.7 percent of the vote. And while that is a popular vote number, it is unlikely Obama could win the electoral college trailing that badly in the popular.

2)  Miserable voters. Obama’s chances also look dodgy if the electorate is as gloomy in November 2012 as it is in August 2011. There are different measures of consumer confidence. One is put out by the Conference Board, and it currently stands at an extremely low 59.5. If that index is at 100 or higher, going back to 1968, then the incumbent party is quite likely to win. (Whether it was accurate for the 2000 election depends if you judge using the electoral or popular vote.)  If not, then the opposition party wins (graphic via the National Association of Realtors):

Another index is compiled by Thomson Reuters and the University of Michigan. And it’s as low today as it was during the Jimmy Carter nadir:

Consumer sentiment dropped to its lowest point in more than three decades in early August, as fears of a stalled recovery gelled with despair over government policies, a survey released on Friday showed. The Thomson Reuters/University of Michigan’s preliminary August reading on the overall index on consumer sentiment came in at 54.9, the lowest since May 1980, down from 63.7 in July. It was well below the median forecast of 63.0 among economists polled by Reuters.

3) Economic anxiety. A recent Gallup Poll found that 76 percent of Americans mention some economic issue — the economy in general, unemployment, debt —  as the most important problem facing the country, the highest percentage since April 2009. And just 11 percent said they were satisfied with how things are going in the United States:

4) The Big, bad picture. And if you still want more, I believe this is the Mother of All Political Economy charts, with data through the end of June (from American Century Investments). Even a quick glance suggests  Obama faces an amazingly challenging environment:

Now perhaps the economy is about to ignite. Or perhaps Republicans will pick a terrible nominee. Or perhaps some international crisis will make the economy less important. Or perhaps voters will simply give Obama the benefit of a doubt since he did inherit the Great Recession.  But Gallup already has his approval at just 40 percent (with the RealClearPolitics average at 43.5 percent.)  Another year of high unemployment and show growth — much less a double-dip recession — seems likely to make Obama a one-term president.



Interesting article. Only problem I see is that this article separates the economic trends from the actual policies of the president, his cabinet, and congress. It makes it seem that the president who is elected is based on the random up and down movement of the economy.

I don’t think that it is sheer blind luck that Obama “inherited” this economy. I think he has worked very hard to ram through half-baked laws, grown the size of government even more, and squandered our chances at real economic recovery. We will now have to work even harder to first un-do the damage that Obama caused, repeal all those crazy laws, and then get our country on the right track.

He will go down in history as big a failure as Jimmy Carter. Interesting that the big liberal presidents, Johnson and Carter, both have been one term presidents, whether the economic data was good or bad. I see Obama going down that route.

Still, it is amusing to see him squirm around and blame everybody but himself for all the problems he and his policies have caused.

Nov 2012 can’t come around soon enough!

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Obama faces worst-case 2012 scenario

Aug 19, 2011 01:55 UTC

On Wednesday, Economic Forecaster-in-Chief Barack Obama said, “I don’t think we’re in danger of another recession.” Shades of John McCain’s “The fundamentals of our economy are strong.”

On Thursday, the stock market – freaked out by Europe’s spiraling debt crisis and a shockingly weak Philadelphia Fed manufacturing report – plunged 4.5 percent. In an unintentional rejoinder to Obama, investment bank Morgan Stanley opined that the United States was “dangerously close” to falling back into recession.

When American presidents win reelection, they usually win by a heftier margin than the first time around. Narrower victories are rare, just three or four depending if you’re looking at the electoral or popular vote. When voters break against an incumbent, it’s usually fatal for the guy in the Oval Office. And right now, things are breaking bad for Obama. Really bad. Gallup has been pegging his approval rating right around 40 percent, even sometimes dipping to 39 percent. Regarding the economy in particular, Obama registers just 26 percent approval, his lowest rating ever and way down from a high of 59 percent in February 2009.

And it may be about to get a whole lot worse for the Obama 2012 campaign. The White House’s worst-case scenario for the economy on Election Day next year has become Wall Street’s baseline scenario. After looking at a string of weak economic reports and Europe’s growing fear of debt meltdown and contagion, JPMorgan – led by Obama pal Jamie Dimon – has just come out with a politically poisonous forecast.

The megabank now thinks the economy won’t grow much faster over the next 12 months than it did during the first half of this year — and that’s assuming Europe doesn’t go all pear shaped. It sees GDP growth at just 1.5 percent this year, 1.3 percent next year with unemployment at … 9.5 percent heading into the final days of the election season. “The risks of recession are clearly elevated,” the bank said. Here’s its reasoning:

Consumer sentiment has tumbled and household wealth has deteriorated. Survey measures of capital spending intentions have moved lower and the housing market shows little sign of lifting. Small businesses, retailers, builders and manufacturers all report a weaker business environment. Global growth has disappointed and foreign growth forecasts have been taken lower. In response we are lowering our projection for growth, particularly in the quarters around the turn of the year.

Team Obama had better permanently shelve any plans of running a “Morning in America” campaign. In fact, if a) the economic forecasts of Morgan Stanley, JPMorgan and Goldman Sachs are accurate, and b) voters behave as they usually do during bad economic times, then c) Barack Obama will be a one-term president. No president in the modern era has been reelected with the unemployment rate higher than 7.4 percent, much less two percentage points higher.

But Obama’s political folks are clever, far more than the guys who ran Jimmy Carter’s horrific 1980 campaign. And maybe the Republicans will nominate a candidate that scares Midwest suburbanites silly. Or perhaps Obama’s plan for “winning the future” will imbue the gloomy American public with a a bit more hope that whatever Republicans offer. Perhaps. But if Obama wins four more years with this economy, it will be almost as historic as his win in 2008.


Any dolt knows that the economy is not the stock market. i quit reading after that. Blaming Obama just means you are too chickenshit to acknowledge the truth: we done fucked this one up uncle dad!

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Obama vs. Perry on jobs

Aug 17, 2011 15:34 UTC

All kinds of numbers have been flying around comparing President Barack Obama’s jobs record vs. Gov. Rick Perry’s. The employment number most people know is the unemployment rate. The most recent state numbers, through June, put the Texas unemployment rate at 8.2 percent. The national unemployment rate that month was 9.2 percent, worse but not dramatically so.  But that is the U-3 rate, and it does not include discouraged workers. Here is how the Labor Department describes things:

Discouraged workers (U-4, U-5, and U-6 measures) are persons who are not in the labor force, want and are available for work, and had looked for a job sometime in the prior 12 months. They are not counted as unemployed because they had not searched for work in the prior 4 weeks, for the specific reason that they believed no jobs were available for them.

Because those sorts of folks are excluding from the U-3 measure, the labor force participation rate has been falling as has the official size of the U.S. labor force.  The rate was 63.9 percent in July and 64.1 percent in June, down from 65.7 percent in January of 2009. The Texas labor force participation rate was 65.6 percent in June, higher than the national average. That means there were more folks active seeking work, a reflection of the more positive job environment.

Bottom line: So let’s do an apples-apples comparison. What if the national labor force participation rate was as high as that in Texas? Well, the national U-3 unemployment rate would have been 11.3 percent in June, sharply higher than the 8.2 percent rate in Texas. And what if the Texas labor force participation rate had been as low as the national rate? Under that scenario, the Texas unemployment rate would have been 6.1 percent, also dramatically better. So either way you cut, the unemployment rate is much better in Texas than the national average. Score one for Rick Perry.

For a more wide-ranging analysis, please check out this post at Political Math.



Kind of like what Pethokoukis does on a daily basis. Which time frame gives the most accurate picture? “In the last year”, or “between 2007 and 2010?”

Governor Perry has floated the idea of Texas leaving the Union. Given that 47% of all government jobs created in the US between 2007 and 2010 were in Texas, and paid for with federal money, where would Texas’ unemployment rate be if Texas actually did seceed?

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Tough to be bullish on Wall Street if you’re bearish on Washington

Aug 16, 2011 20:01 UTC

Why is Wall Street so worried these days? Investment strategist Jason Trennert of Strategas Research Partners offers a crackerjack bit of analysis. Even better, he turned bearish on Aug. 3, the day before the stock market began its stomach-churning roller-coaster ride (via Yahoo Finance):

So what’s Trennert’s theory of the case? Wall Street is worried about Washington (and Brussels, too).

1) We assumed the debt ceiling bill would include some form of “stim-sterity” – a combination of targeted near-term stimulus and long-term spending cuts. The structure of the debt ceiling agreement will make pro-growth policies far harder to achieve, subjecting the economy to the full brunt of austerity measures in 2013 and 2014.

2) While we will all receive a welcome respite from the internecine battles in Washington for the next month, the 2012 Presidential election cycle will kick-off in earnest over Labor Day. It is likely that the entire focus of the election will be on the size and role of government. Perhaps more important for the performance of the market in the short-term, however, is that the Congressional committee charged with coming up with an additional $1.5 trillion in spending cuts is likely to be fractious enough to lead to what we might term the “Amity Shlaes” problem1 - the uncertainty and the unpleasantness surrounding the nature of future cuts in spending is likely to lead capital to go on strike. Despite the strength in corporate profits and large cash balances, most businesses will be unwilling to hire in great numbers or seek to expand their operations until they have a better idea of what the new “rules of the game” will be.

3) The sclerosis in business decision-making will be coming in the context of a maturing business cycle. The recent GDP revisions, ISM figures, and employment numbers underscore the vulnerability of the U.S. economy.

4) The “bill” for wanton fiscal profligacy in Europe has already arrived. A combination of tight monetary policy from the ECB, an over-valued Euro, and significantly higher long-term interest rates in Greece, Ireland, and, more importantly, Italy makes the chances of a full-fledged recession in the EU high. America’s fiscal “crisis” is currently not nearly as serious as the credit crisis taking place in Europe. This is mainly due to the fact that the U.S. debates are being played out among two different sets of borrowers (Republicans and Democrats) rather than the far more typical tension between borrower and lender. American interest rates have, as a result, stayed low, while European interest rates have soared.

Both the stock market and “real economy” are screaming for pro-growth policies: deep and permanent tax cuts, regulatory reform, entitlement reform. And the sooner, the better. The top event that could change Trennert’s mind-set to positive from negative: “A bipartisan effort aimed at pro-growth policies designed to encourage capital formation and, by extension, employment.”

But it doesn’t look like much of anything meaningful will happen until at least 2013.  For the moment, Team Obama is playing small ball, as it tries to squeak out a narrow electoral vote victory in 2012. No wonder Wall Street has been slashing its economic forecasts. Strategas, for instance, has increased its odds of a recession in 2012 to 35 percent (from 20 percent) and its odds of a recession in 2013 to 60 percent (from 50 percent). Indeed, if you look at the typical frequency of recessions, the U.S. would actually be due for one in 2013 — exactly as Strategas predicts — even though the current recovery more or less feels like an extension of the 2007-2009 Great Recession. If Trennert’s right, we just might have to change that name to the Long Recession.

Perry vs. Romney on Ben Bernanke

Aug 16, 2011 19:03 UTC

Gov. Rick Perry’s tough comments on Federal Reserve Chairman Ben Bernanke are another sign that the Fed and monetary policy will be big topics in the Republican primaries and the general election. There is certainly a stark difference between how Perry talks about the Fed, and how Mitt Romney does. First, here is Perry from yesterday:

If this guy prints more money= between now and the election, I don’t know what y’all would do to him in Iowa, but we — we would treat him pretty ugly down in Texas. Printing more money to play politics at this particular time in American history is almost treacherous — or treasonous in my opinion.

Now here is Romney from April on CNBC’s The Kudlow Report:

Kudlow: What kind of job is Ben Bernanke doing right now? The guy is depreciating the dollar, we’re seeing this huge inflation of energy prices, including gasoline prices at the pump. What do you think of Ben Bernanke?

Romney: I think Ben Bernanke is a student of monetary policy. He’s doing as good a job as he thinks he can do in the Federal Reserve. But look, I’m not going to spend my time going after Ben Bernanke. I’m not going to take my effort and focus on the Federal Reserve. I gotta focus on my effort on the administration.

Romney’s comments kind of reflect what many mainstream Republican-leaning economists believe, that overall Bernanke has been an effective central banker, particularly during the nadir of the financial crisis. Romney’s comments may also reflect a belief in the value of maintaining Fed independence. And I highly doubt Romney wants to “end the Fed” as Ron Paul does.

On substance, Perry is correct. A strong argument can be made that the Fed’s bond buying caused inflation to flare, squeezing consumers and slowing the economy. (Interestingly, the president of the Dallas Fed is also against more QE3 bond buying.) But on style, Perry didn’t need to go there. I think that sort of loose talk sets a bad tone for the political debate. Also, if Perry should become the 45th president, he’ll need a Fed comfortable with eventually withdrawing stimulus without looking over its shoulder at the politicians. So if Perry’s savvy, maybe he’ll offer Bernanke an apology – and maybe send over a big mess of Texas barbecue while he’s at it. But I doubt it. Here is Perry spokesman Mark Miner:

The Governor was expressing his frustration with the current economic situation and the out of control spending that persists in Washington. Most Americans would agree that spending more money is not the answer to the economic issues facing the country.

Let me also add that I don’t think Bernanke will serve another term as Fed chairman beyond the current one. First, I hear he doesn’t want another term. Second, he probably couldn’t make it out of a GOP-controlled Senate or even one where Republicans have enough votes to filibuster. Certainly among Tea Party activists, there is a strong belief that the Fed should be shuttered.



I disagree with the policies of Bernanke of just printing money with out capital that what Bernanke is doing is trecerous agreeing with Gov Rick Perry from Texas.

Posted by randallk | Report as abusive