James Pethokoukis

Politics and policy from inside Washington

Kudlow: Maybe a V for 2010

Sep 16, 2009 15:34 UTC

Larry Kudlow gives the bull case:

I wonder if Mr. Bernanke isn’t underestimating the very substantial monetary stimulus that he has injected into the economy, going back about nine months. This is the Milton Friedman monetarist experiment. The Fed’s balance sheet has grown by over $1 trillion; various money-supply measures are running about 10 percent on average; the Treasury yield curve is very steep and positively sloped; and of course the target rate is near zero. Add to that $1,000 gold and a weak dollar.

We’re talking easy money here. It started last fall, and with a roughly six-to-twelve-month lag, it’s now beginning to impact the economy in a significant way.

So Mr. Bernanke may be underestimating a V-shaped recovery that will extend through 2010. And don’t forget that marginal tax rates are going up in 2011. That’s likely to mean — in supply-side-incentive terms — that many folks will bring as much income and investment as they can into 2010 to beat the tax hike. And that could add to GDP in a significant way next year.

Me: The second point is a good one, and one that is not being factored in.

A case for long-term high unemployment in America

Sep 11, 2009 14:30 UTC

A fantastic article by Joshua Cooper Ramo looking at whether the US is doomed to years of high unemployment. Read the whole thing, but this a key bit:

Many of the ideas Summers developed were codified in a 1986 article titled “Hysteresis and the European Unemployment Problem.” Even today it’s a piece he’s proud of: “Ah, yeah, the hysteresis article,” he interjects when it’s mentioned. Hysteresis is a word that you (and the rest of us) should hope we don’t hear too much of in the coming months. It comes from the Greek husteros, which means late. It refers to what happens when something snaps in such a way that it can never be put back together. Bend a plastic ruler too far, drop that lightbulb — that cracking sound you hear is the marker of hysteresis. There’s no way to restore what has just been smashed.

The idea that hysteresis happens to economies is one that economists don’t like to think about. They prefer to consider economies as yo-yos tethered to the sturdy string of the business cycle, moving up and down from growth to slowdown and back. But from time to time, things do snap. And Summers’ argument in 1986 was that unemployment in Europe, the sort that might persist in the face of growth, was an expression of an economy that had snapped. Europe’s economy was hit not only by shocks like an oil-price spike, a productivity collapse and rocketing tax rates but also by stubborn unions that made hiring, firing and adjusting payrolls near impossible.

Hysteresis, Summers explained, could come from all sorts of shocks like this. And that may be what is playing out in the U.S. If you look at the three great job busts of the past 100 years — the 1930s, the early 1980s and today — you find an important difference. The Reagan recession ended with workers returning to jobs that were the same as or similar to the ones they had lost. But 1930s joblessness was structural. The jobs people lost — largely in agriculture — never came back. Workers had to move to the industrial sector, a transition helped by the demands of a war. It was massive national hysteresis. Sound familiar?

The speech that didn’t matter

Sep 10, 2009 17:44 UTC

President Barack Obama’s speech on Wednesday night went about as well as the White House could have reasonably hoped.

According to a snap poll afterward, two out of three Americans who watched the president now favor his healthcare reform agenda. That’s up 14 percentage points from pre-speech levels.

Now, the audience watching the speech was more Democratic that the general U.S. population, according to polls. Still, that was probably a plus considering that one of Obama’s main goals was to shore up support among both moderate Democrats (worried about the budget deficit) and liberal Democrats (concerned that a final healthcare plan would exclude a government-backed option).

But, as the president put it, “there remain some significant details to be ironed out.” And while that process continues, Obama is likely to grow weaker rather than stronger.

It is no coincidence that the lack of progress over the summer coincided with an erosion in the president’s popularity. It was notable that the president led off his remarks with a brief economic update, reminding Americans that while the unemployment rate continues to climb, at least America avoided another Depression thanks to his policies.

But the unemployment rate does continue to climb. And that will continue to erode Obama’s popularity and drain his political capital.

In the next two monthly job market reports from the Labor Department, there is a good chance that one will show an unemployment rate at 10 percent or above. And there is also a good chance that Obama’s approval ratings could dip below 50 percent.

From that vantage point, Obama is in a worse situation than President Clinton, who at least had a brisk economic recovery putting the wind to his back as he pushed healthcare reform.

What this means for Obama is that cooperation with him offers little for moderate, blue-dog Democrats or Republicans. So a final bill could be pretty much a Democrat-only affair, with maybe the exception of Senator Olympia Snow, the moderate Maine Republican.

But that was also the situation before the speech.

And even before Obama spoke, some important liberals — including House Speaker Nancy Pelosi — appeared to be backing down from a demand that a strong public option be ready to go on day one of any new healthcare era.  (But don’t discount the possibility that liberals are still willing to sink healthcare reform if the public option isn’t robust enough.)

So in the end, it’s hard to make the case that Obama’s speech has really changed much of anything. If reform passes, it will be a far more limited bill than what Democrats had hoped for back in January.

COMMENT

I don’t think anyone should die simply because they cannot afford healthcare. Its more of a moral issue and we all have that responsibility. Its patriotic, its compassion, its Christian, it goes with all of these country’s values.

http://tinyurl.com/loftjb

Posted by Ben | Report as abusive

Obama needs a new healthcare plan, not a new speech

Sep 9, 2009 18:03 UTC

Crazy — at least according to a snarky definition — is doing the same thing over and over and expecting a different result.

By that measure, President Barack Obama looks as if he’s going to indulge his crazy side tonight when he once again reiterates his core principles for healthcare reform, in his 122nd speech on the subject.

Now there may be a bit more detail (a public option trigger? tort reform?), a bit of different language and perhaps a more strident tone, but no one should expect a bold departure. And maybe not a different result, either.

Obama has to reassure:

- more independents that ObamaCare isn’t a budget buster

- more seniors that Medicare won’t get slashed

- more liberals that reform without an immediate public option is still worthy of being called reform, and

- more members of the middle class that the risk of inaction outweighs the risk of change to a health insurance system with which they’re kind of satisfied.

(The president’s support among indies and old folks, in particular, has been in free fall.)

That’s a lot of reassuring still to do for speech No. 122.

Maybe what’s going on here isn’t mild political insanity but rather quirky irrationality identified by behavioral economists as “anchoring.” Once people anchor to an idea or a belief, that becomes the metric by which they analyze competing ideas or beliefs.

Indeed, the president and many congressional Democrats seems to be anchoring to existing outlines for reform and ignoring competing ideas that could actually gain broader political support and work more efficiently.

Take the 166-page Healthy Americans Act sponsored by two senators, Oregon Democrat Ron Wyden and Utah Republican Robert Bennett. It reads as if it were designed by a bunch of centrist economists rather than by lobbyists representing unions, activist groups and healthcare companies.

It would do a lot of the stuff many Republicans and Democrats agree on, such as mandating everyone buy insurance and requiring insurance companies cover everyone.

But it would also scrap America’s weird employer-based healthcare system by giving individuals a big tax deduction so they could buy their own insurance from private companies.

Of course, many conservatives would hate the increase in regulations and government involvement, while liberals would loathe the absence of a public option that could one day lead to a single-payer system.

But it seems like a plan that Americans could understand intellectually and accept ideologically. It seems like the kind of plan that Americans would expect from the centrist president they thought they voted for.

Time for that guy to let go of the anchor and try a new plan. If speech No. 122 goes as well as the previous 121 in capturing moderate Democrats and independent voters, Obama may have no other choice.

COMMENT

EVERYTIME OBAMA USES THE 47 MILLION UNINSURED AMERICANS NUMBER HE LIES. THE NUMBER INCLUDES ILLEGAL IMMIGRANTS.

45.7 Million Uninsured Breakdown
——————————————–
Illegal Immigrants = 9.3 million
Medicad Undercount = 6.4 million
Medicaid/SCHIP Eligible = 4.3 million
Childless Adults = 5.0 million
Over 300% of Poverty = 10.1 million
Remaining Uninsured = 10.6 million

Medicad Undercount – People who are on one of two government health insurance programs, Medicaid or S-CHIP, but mistakenly (intentionally or not) tell the Census taker that they are uninsured.

Medicaid/SCHIP Eligible – Eligible for free or heavily subsidized government health insurance (again, either Medcaid or SCHIP), but have not signed up.

Childless Adults – Adults between ages 18 and 34 and without kids.

Over 300% of Poverty – Do not fit into any of the above categories, and they have incomes more than 3X the poverty level.

Remaining Uninsured – U.S. citizens, with income below 300% of poverty, not on or eligible for a taxpayer-subsidized health insurance program, and not a childless adult between age 18 and 34.

*NOTE: THIS INFORMATION IS FREELY AVAILABLE ON THE CENSUS WEBSITE.

Posted by xinunus | Report as abusive

First financial reform, then healthcare

Sep 9, 2009 17:05 UTC

I think this is a pretty smart piece of political analysis from my friend Barry Ritholtz:

I believe the brain trust behind the Obama White House has made a huge tactical error.

As Rahm Emmanuel likes to say, one should “never waste a crisis” — and the White House has done just that.

There was a narrow window to effect a full regulatory reform of Wall Street, the Banking Industry and other causes of the collapse. Instead, the White House tacked in a different direction, pursuing health care reform.

There was widespread popular support for a full reform of finance. What the White House should have pursued was: 1) Reinstatement of Glass Steagall; 2) Repeal the Commodity Futures Modernization Act; 3) Overturning SEC Bear Stearn exemption allowing 5 biggest firms to leverage up far beyond 12 to one; 4) Regulating the non bank sub-prime lenders; 5) Continuing high risk trades to be compensated regardless of profitibility; 6)  Mandating (and enforcing) lending standards, etc.

All of this could have been accomplished in the first 6 months of the Obama administration. The consumer protection stuff could have been tossed in as well, though it was not the cause of the collapse.

What we got instead, was the usual lobbying efforts by the finance industry. They own Congress, lock stock and barrel, and they throttled Financial Reform. It did not help that the Obama economic team is filled with defenders of the Status Quo — primarily Summers, but it appears Geithner also — the dynamic duo that fiddled while the economy burned.

Such dithering can be fatal to an administration.

This was a colossal blunder.  Passing reform legislation successfully would have fulfilled the campaign promise of “Change;” it would have created legislative momentum. It could have provided a healthy outlet for the Tea Party anger and the raucous Town Hall meetings. It might have even led to a “throw the Bums out” attitude in the mid-term elections, forcing the most radical de-regulators from office.

COMMENT

You forgot:

7) Repeal the Riegle–Neal Interstate Banking and Branching Efficiency Act of 1994 (signed by CLINTON), until then at least enforce the 10% deposits rule in it.

8) Repeal Depository Institution Deregulation and Monetary Control Act of 1980. (signed by CARTER)

9) Never vote Democratic or Republican

And this is only the start…

Posted by Ditto Plus | Report as abusive

The trigger that won’t get pulled

Sep 9, 2009 16:53 UTC

My pal Dan Clifton over at the Strategas Group gives his superinformed two cents:

First, healthcare has served a liability to the Democratic Party and we believe the Administration is making a political argument that doing nothing will hurt the party but doing something may or may not help the party and their reelection prospects. The only potential upside from here is to do something.

We also believe the moderate Democratic Senators can be pushing this trigger idea for the public plan knowing it will never go into effect as is the case with the pharmaceutical prescription drug program.

This last point is key because the rules set up for the trigger will determine the impact this legislation will have on managed care. We don’t believe the moderate Democratic Senators will sign off on a bill that will allow the cannibalization from private to government healthcare plans.

Why the Dems may implode in 2010: 4 scenarios

Sep 9, 2009 10:10 UTC

A Democratic meltdown next year? Washington is abuzz with speculation by prominent political handicappers such as Charlie Cook and Stuart Rothenberg. Republican hopes for a huge congressional comeback in the 2010 midterm elections rest on three pillars:

1) History. Since the start of World War Two, the president’s party has lost an average of 28 House and 4 Senate seats in the midterms. Computer-aided gerrymandering, though, has made incumbents tougher to knock off in the House.

2) Policy. Concerns about ObamaCare — too much government spending scares independents, too little spooks seniors — may help turn 2010 into a 1994 replay. What’s more, cap-and-trade makes Congress appear more interested in imposing new economic costs than creating jobs. Current congressional approval ratings hover around the high 20s, while a new Rasmussen poll shows Republicans hold a 44-37 lead on a generic midterm ballot.

3) The economy. This is the most important of the three. As long as the recession continues, the biggest Obamacrat achievement — the stimulus –- risks looking impotent and a waste of $800 billion. At the same time, healthcare, energy and financial reform almost look like distractions. What’s more, high unemployment – now at 9.7 percent vs. 7.6 percent in January — is driving down President Obama’s approval rating. It’s fallen from 61 percent to 53 percent during the past three months, according to RealClearPolitics. And a president’s approval rating may be the single most important indicator of how his party fares in a midterm election.

But lately some GOPers have been wondering whether the economy might start working against their political fortunes. Economists to whom those on the right pay close attention — Brian Wesbury of First Trust Advisors, Michael Darda of MKM Partners and Lawrence Kudlow of CNBC — have been forecasting a recovery.

And that recovery might look pretty strong initially. During the first quarter of the last 10 economic recoveries, real GDP has risen close to 6 percent on average. And both Wesbury and Darda see the economy growing at least four percent next year. The worry for Republicans is that the Obamacrats will plausibly be able to take credit for both avoiding a depression and igniting the subsequent turnaround. (Ben Bernanke and the Fed kind of get lost in the White House narrative.)

But abstract GDP figures aren’t as important as the unemployment rate. As long as that number is at the highest levels in a generation, Americans are likely to feel anxious about the broad economy and their place in it. Here are four economic scenarios and their political impact:

1) The Double Dip. The worst of all worlds for Dems. The economy slips back into recession next year, pushing the unemployment rate to at least a post-WWII high of 10.8 percent. Economist Nouriel Roubini says that weak labor markets, weak banks, weak consumers, weak profits and weak trade create a strong risk of just such a “W-shaped” scenario. If so, not only does John Boehner maybe take back the gavel from Nancy Pelosi, but Hillary Clinton and Russ Feingold start looking for reasons to visit Iowa and New Hampshire. Probability: 10 percent

2) The Big Muddle. The economy keeps growing, but only in the 2 to 3 percent range. And that wouldn’t generate many new jobs. IHS Global Insight, for instance, predicts GDP growth of 1.8 percent with unemployment averaging 10 percent next year (and 9.4 percent in 2011). This is also where the Federal Reserve lands. The Fed forecasts growth of between 2.5 and 3 percent with unemployment declining “only gradually.” In this case, expect greater-than-average Dem losses. Harry Reid might get voted out by his fellow Nevadans while Pelosi might get the boot from fellow Dems. Probability: 50 percent.

3) The Big Bounce. A combination of Fed stimulus, government spending and inventory restocking by companies produces growth of 4 percent or more. But even so, unemployment remains twice as high as what Americans have become accustomed to during the past generation. Economists at JPMorgan calculate that 4 percent growth would translate into an average of 200,000 new jobs a month next year. And if the unemployment rate ends this year at close to 10 percent, that level of job creation would only bring it down to 9.5 percent or so. Democratic losses are limited to the historical average give or take. Probability: 35 percent

4) The Obama Boom. It’s 1983-84 all over again. The economy soars as fast as it fell. Unemployment drops below 8 percent by Election Day as formerly terrified employers realize they cut too many workers during the recession. Dems have limited losses. Talk of a third party increases. Probability: 5 percent.

Bottom line: Unlike the Reagan boom, neither taxes nor interest rates look to be going lower anytime soon. And economies after financial crises tend to be slow growers. So it’s hard to envision a likely economic scenario without a jobless recovery in 2010. And as economic analyst Ed Yardeni points out, “The industries that have cut back the most (durable goods manufacturing, construction, and retail) are inherently labor intensive, and they are likely to remain in intensive care for quite a while.”

Passing a popular healthcare bill would certainly boost Democratic fortunes. But history and the economy would suggest that 2010 will be a big Republican year.

COMMENT

Very thoughtfull post on achievements. It should be very much helpfull

Thanks,
Karim – Positive thinking

Posted by Karim | Report as abusive

More on the weak U.S. labor market

Sep 8, 2009 14:14 UTC

This analysis from Ed Yardeni:

Based on the previous two cycles, the unemployment rate should peak in 15-19 months, or sometime between September 2010 and January 2011! When might employment recover? The previous two experiences suggest this might occur within the next 11-21 months after June, or between May 2010 and March 2011.

Is that too pessimistic? The optimists argue that companies may have fired too many workers, and will have to scramble to rehire once the economy improves. So far, during the first 20 months of this recession, payroll employment is down a whopping 6.93mn vs. total losses in employment of 2.71mn and 1.57mn during the downturns at the beginning of this decade and the previous one. Debbie and I expect that this recovery will be much more “jobless” than the previous two. The industries that have cut back the most (durable goods manufacturing, construction, and retail) are inherently labor intensive, and they are likely to remain in intensive care for quite a while.

COMMENT

I think that the fate of the economy still comes down to jobs and the consumer, and since there is no catalyst for employment growth in the US, and so many people will be using up their unemployment benefits soon, the Fed is going to choose to print more money to try to avoid deflation. And one of the few ways for the average person to maintain his or her wealth, in my opinion, is to invest in the area that should benefit most from the money printing, which is gold. There are some articles at http://www.goldalert.com that further discuss the employment picture, the Fed’s policies and its potential effects on the gold price.

Posted by jturner | Report as abusive

How high unemployment undercuts Obama’s agenda

Sep 4, 2009 17:43 UTC

At the end of the 2000 film “The Perfect Storm”, a Gloucester swordfish boat captain (played by George Clooney) finally accepts that his crew won’t escape a monster hurricane in the North Atlantic. “She’s not gonna let us out,” he says as the trapped vessel moves from the eye of the storm and back into the raging winds.

The White House economic team can probably relate. The nation’s unemployment rate jumped to 9.7 percent in August, said the Labor Department, after dipping to 9.4 percent in July. “That drop in July had been too good to be true,” sighed Nigel Gault, the chief U.S. economist at IHS Global Insight. Merely the eye of the storm, perhaps.

To be sure, the pace of monthly job losses is abating, falling to 216,000 compared with a high of 741,000 in January. It now also seems unlikely that the unemployment rate will hit a post-World War II high of 10.8 percent. Good news all. But the employment declines do continue nonetheless, with more than 7 million jobs lost since the recession began in December 2007

Also continuing to decline is President Obama’s approval rating, which has plunged to 53 percent from 61 percent during the past three months, according to an average of polls calculated by RealClearPolitics. Almost nothing poisons a president’s popularity like high unemployment.

And why think that the job market or the president’s approval rating will improve dramatically during the next year or so? Let’s assume a snappy recovery in 2010 with GDP growth of 3.5 to 4 percent. That’s the JPMorgan forecast. But despite a mild V-shaped recovery, the firm’s economists still see an average unemployment rate of 9.4 percent in the fourth quarter of that year.

Even the superbulls at First Trust Advisors, looking for 4.5 percent GDP growth in 2010, don’t see unemployment breaking much below 8.5 percent. Keep in mind that those rates are almost double what Americans have come to expect the past two decades. It’s going to seem like a jobless recovery to many voters.

The labor market isn’t going to let Team Obama out. Its troubles will continue to drain the president’s popularity and perhaps result in large losses for congressional Democrats in the 2010 midterms. If Obama still wants to pass big change from a position of moderate bargaining strength — and while he still has maximum muscle on Capitol Hill — it needs to be now. This would mean centrist proposals like healthcare reform that would expand coverage while also making it easier for individuals to purchase their own private insurance, or a climate change bill where revenue from carbon emission allowance auctions would offset payroll taxes rather than given away to companies or spent by government.

Rahm Emanuel, White House chief staff, famously said that you “never want a serious crisis to go to waste.” With the moment of acute economic crisis past and a long “muddling through” begun, the president’s time of opportunity is nearing an end.

COMMENT

But is’nt it so that, would the democrats have opposed the spending of the main part of the pre-crisis deficit (i.e. on the war in Iraq), they would have been marked as being unpatriotic or may-be even traitors?And, as far as te bail out for the banks is concerned, that was the only possibillity for the economy to sort of survive, if that had’nt come through the problems would still be there to a far bigger extend and then we would not have been given time to rebuild at all.So I think it was the best option for the Democrats to voted with the previous president in that case.Remains the big problem of export of work, did you see today’s info on this agency about the current deficit on the trade balance? (what are the main causes behind this deficit….?)The opposition is very good in turning facts around, see the lies about healthcare and the like (obama’s birth certificate) and then of course the lies that were part of the selling process for the Iraq war…and the political mess (trustworthiness) that followed.That money spent on supporting the economy should also be spent on products made locally, not on the other side of the globe at slave’s wages to increase profits for shareholders.If they would earn a decent wage out there and if their governments would look for improvement for the life of the poorest we would not have this problem. Everybody would be better ofBut of course in a free market economy we have to live with that or……should we do something about it?best regards,JB

Posted by Jens Bos | Report as abusive

What does 9.7 percent unemployment mean for Democrats?

Sep 4, 2009 17:09 UTC

Marc Ambinder looks at this question and concludes a) that anything under 10 percent is better than expected, b) 0.3 percent makes a big difference politically, and c) Team Obama will be able to more or less successfully blame Bush. His bottom line:

The economy is expected to play a big role in the 2010 elections, with Democrats bearing the brunt of a worsening situation. That’ll depend a lot on the duration of the decline, just how bad things get, and what direction they’re heading as November 2010 approaches. Right now, 9.7 percent doesn’t tell us a whole lot about how that will play out.

Me: How about this instead: Unemployment is killing the White House, and it doesn’t need to get a 0.1 percent worse to continue to suck the life out of this administration. Obama’s approval ratings are down 8 points in three months. People have become accustomed to very low rates of unemployment and short recessions. Those expectations are politically devastating to Democrats.

  •