James Pethokoukis

Politics and policy from inside Washington

Obama’s $447 billion reelection plan

Sep 9, 2011 15:16 UTC

There’s been much speculation that President Barack Obama will spend $1 billion to get reelected. Turns out those guesses were off by $446 billion.

What Americans heard last night was a $447 billion political plan, not an economic one. It’s purpose was to a) fire up the demoralized Democratic base and b) show independents that Obama is trying to do something – anything – to reduce unemployment, not just slash needed “investment” like those heartless, pro-austerity Republicans.

Now all the usual suspects will claim the American Jobs Act will create more growth and more jobs through $250 billion in temporary payroll tax cuts and $200 billion in infrastructure spending, unemployment benefits and aid to state and local government.

Take Moody’s economist Mark Zandi, a favorite of the White House and congressional Democrats. Zandi’s research says the original $800 billion Obama stimulus created or saved some 2-3 million jobs. And he likes Stimulus 2.0 just as much. He claims it would “add two percentage points to GDP growth next year, add 1.9 million jobs, and cut the unemployment rate by a percentage point.”

Really? Seriously?

1) Of course, such analysis is based on garbage in, garbage out, Keynesian economic models. The results were already baked into the cake.  Better to see what actually happened as gleaned from government statistics. In a recent paper, Stanford University economist John Taylor simply looked at whether, as a result of the 2009 American Recovery and Reinvestment Act, consumers actually consumed and whether government actually spent in a way that produced real growth and jobs. Turns out, they didn’t:

Individuals and families largely saved the transfers and tax rebates. The federal government increased purchases, but by only an immaterial amount. State and local governments used the stimulus grants to reduce their net borrowing (largely by acquiring more financial assets) rather than to increase expenditures, and they shifted expenditures away from purchases toward transfers. Some argue that the economy would have been worse off without these stimulus packages, but the results do not support that view.

2) Economists from George Mason University also looked at the real-world results of  the ARRA by surveying employers. Their findings:

Hiring isn’t the same as net job creation. In our survey, just 42.1 percent of the workers hired at ARRA-receiving organizations after January 31, 2009, were unemployed at the time they were hired. More were hired directly from other organizations (47.3 percent of post-ARRA workers), while a handful came from school (6.5%) or from outside the labor force (4.1%). Thus, there was an almost even split between “job creating” and “job switching.” This suggests just how hard it is for Keynesian job creation to work in a modern, expertise-based economy: even in a weak economy, organizations hired the employed about as often as the unemployed.

3) And let’s not forget what Milton Friedman might have to say about this sort of deal, which gets to the heart of why Keynesian stimulus doesn’t work (via Wikipedia):

The permanent income hypothesis (PIH) is a theory of consumption that was developed by the American economist Milton Friedman. In its simplest form, the hypothesis states that the choices made by consumers regarding their consumption patterns are determined not by current income but by their longer-term income expectations. The key conclusion of this theory is that transitory, short-term changes in income have little effect on consumer spending behavior.

Team Obama thinks the whole package could boost growth by two percentage points. But the  infrastructure spending and unemployment benefits will be a tougher sell. Republicans may well substitute their own stimulus ideas for those items so that the package ends up composed entirely of tax cuts.

The most likely addition is a temporary reduction in the taxes on foreign earnings brought back to the U.S. by its multinational corporations. The U.S. Chamber of Commerce estimates such a tax holiday could boost growth by a full percentage point next year. White House economists criticize idea as providing too little bang for the buck, but it could be the price for getting a deal. But an agreement can get probably get done, which would enhance perception of Obama as a leader and boost his approval ratings. Just don’t expect it to do much for America’s sputtering economic recovery.

COMMENT

James, didn’t your mama teach you “if it sounds too good to be true it probably is”–like the previous post–had your removed your “liberal magical spectacles” to take a closer look at this fraud you would have seen him for what he is–a complete non starter. Come to the dark side James and see the light.

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Romney’s “green” economic advisers

Sep 6, 2011 16:10 UTC

Later today Mitt Romney will unveil his 59-point economic plan. From what I read in Romney’s preview op-ed in USA Today, it looks a lot like his 2008 plan. For instance, it has an investment tax cut for the middle class just like the one offered three years ago. And Romney wants to cut corporate taxes. Last time he wanted to lower the rate to 20 percent. We’ll see this time around. One area where he could really separate himself is housing. Economic adviser Glenn Hubbard has a housing plan that would allow underwater homeowners to refinance at today’s superlow interest rates.  (In a recent chat, I talked to Hubbard about his views on economic policy: TARP, taxes, trade.)

And earlier today, Romney announced both Hubbard and Greg Mankiw of Harvard as his economic advisers. Interesting to see if his GOP opponents point out that Hubbard has supported cap-and-trade in the past, while Mankiw favors a carbon tax to limit greenhouse gases. As for their boss, here is what I recently wrote about his climate change position:

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.”

 

My chat with Jon Huntsman about his economic plan

Sep 1, 2011 01:45 UTC

I spoke with Republican presidential candidate Jon Huntsman on Tuesday evening, just as he was putting the finishing touches on his economic plan, which he announced Wednesday. (Here are all the details.) Some excerpts from our conversation:

On what’s wrong with the U.S. economy …

We have a jobs crisis on our hands in this country, and first and foremost we need to rebuild our core. And the core that I’m talking about is our economy. This world always needs an engine of growth to pull the global economy along, and China has been an engine of growth. And the next two or three years could prove problematic in terms of China maintaining its status as an engine of growth.

So all the more we’ve got to get back on our feet and get our act together. What we’re doing is based on common sense; it’s based on experience; it’s based on real-world solutions. There is no lack of solutions, just a lack of serious leadership. I draw my inspiration from basically three things. One of them is the Ryan plan. The second  is the Simpson-Bowles deficit commission report. And the third is energy independence from the Pickens Plan.

On Rep. Paul Ryan’s debt reduction plan …

I embrace the Ryan plan. The content there is basically going to drive me forward in terms of debt and spending and how we get this country to 19 percent of GDP in spending as opposed to 23 percent. That is the model I would work from. It might not be the final position, but it is the going-in position for me. I like what it advocates for Medicaid. I like what it talks about in terms of Medicare.

On tax reform …

In order to infuse predictability and certainty into the marketplace – which it doesn’t have today and therefore it has no confidence and therefore you don’t have business employing and you don’t have business releasing capital expenditures into the marketplace — you have to get certainty in terms of tax reform. We’re going to lower rates [23 percent, 14 percent, 8 percent and a zero capital gains rate] with three brackets and an income tax return that would resemble a post card. This is reminiscent of what I did as governor where I actually created something close to a flat tax where we worked to eliminate all the deductions and loopholes.

So I am premising both individual and corporate tax reform [with a top rate lowered to 24 percent] on clearing the cobwebs out. You pay for it by eliminating corporate welfare, by phasing out subsidies and loopholes and deductions. My goal would be to phase out everything on the corporate side and the individual side. I know that is controversial. I know there is a political risk there. But that is the only way you can raise the revenue to buy down the rates. There ‘s no other way to pay for it. When I was governor it took us two years, we brought both parties together and we got it done. So I am coming at this exercise as probably the only person in the race who’s actually been through this effort before.

On regulatory reform  …

We are going to call for rolling back existing regulations, specifically Obamacare and Dodd-Frank. We are going to call for dramatically reigning in the EPA. We are going to curb the excesses of independent agencies like the [National Labor Relations Board], which is standing in the way of legitimate job creation in South Carolina with the Boeing plant.

On housing:

If you want an example of a housing market that is on the move, why is it that Vancouver the hottest housing market in the world today? Because they have a clear and defined and user-friendly legal immigration policy. They’ve got people coming in and investing in their marketplace, bringing up values. We need to fix our H-1B visa program, as well.

On China and free trade:

We’ve got to use the tools that we’ve got under the [World Trade Organization] and use them aggressively. But more importantly, we’ve got to get our house in order here. We have less leverage at the negotiating table today with China and less clout because our own economy is broken. If you want to get the attention of the Chinese – and I can tell you having done this for 30 years both in business and in government – you’ve got to have some leverage and some economic strength behind you. We have to restore our economic core and that would do more for our leverage than any WTO case.

We’ve also got, and I did this as ambassador, to engage the emerging private sector in China to begin to push issues like intellectual property protection because it is in their interest as innovators and entrepreneurs and creators to make sure China steps up and and does more. I lived in Taiwan in the 1980s.  Taiwan was an egregious violator on the enforcement side of intellectual property rights, as bad as China has been in recent years. But the minute their entrepreneurial class started to develop their own intellectual property, they turned on a dime and lobbied their own government. That same creative class is emerging very, very quickly in China.

On dealing with climate change …

China and India are not willing to play on the same playing field. And we should not be unilaterally disarming, in a sense, especially at at a time when we need to get this economy back on its feet. The last thing we should be doing is anything that would hinder job growth and economic expansion. I am not going to have any discussion about it until such time as we get China and India tuned into the issue. They’re not now, and I don’t thing they will be for some time.

COMMENT

Coyottte,

The country is hardly operating from laissez-faire economics. Federal interfence in the housing market, creatijng Fannie, Freddie, and the Community reinvestment Act, along with exceessively loose monetary policy and decades of defitict spending, brought us to our currnet sorry state. The last thing in the world this country needs right now is more regulation.

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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.

COMMENT

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.

COMMENT

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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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.

 

COMMENT

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.

COMMENT

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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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.

 

COMMENT

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

GOP presidential debate fell short on ‘the vision thing’

Aug 12, 2011 20:59 UTC

During the close of the 2008 presidential election campaign, John McCain was unable to finally and persuasively and understandably give Americans a vision of where he wanted to lead them should he become the 44th president of the United States. Here is McCain flailing at the beginning of the first presidential debate against Barack Obama:

This isn’t the beginning of the end of this crisis. This is the end of the beginning, if we come out with a package that will keep these institutions stable. And we’ve got a lot of work to do. And we’ve got to create jobs. And one of the areas, of course, is to eliminate our dependence on foreign oil.

Well, he was dead solid about one thing: it really was just the end of the beginning of the crisis. Now, three years later, the U.S. economy is no longer paralyzed. But that’s about it, really. It can sit up in bed but remains unable to get out of bed.

A new report from consulting firm IHS Global Insight, hardly atypical of the sort of analysis I see lately, sees GDP growth of just 1.6 percent this year, 1.9 percent next year and 2.2 percent in 2013 with the unemployment rate stuck around 9 percent the entire period. No wonder consumer confidence is at its lowest levels since 1980, the nadir of the national electoral misadventure known as the Jimmy Carter Experiment.

And if the European sovereign debt situation really breaks down, there’s a chance that whoever takes the oath of office in January 2013 could face as bleak an economic landscape as Obama did in January 2009.

Which leads us to last night’s Republican presidential debate in Ames, Iowa. Who won? I suppose from a purely political perspective, frontrunner Mitt Romney remained unscathed and Michele Bachmann bested caucus rival Tim Pawlenty. But no one on stage came close to providing a holistic approach to America’s ills or even hinted that they had one. Romney did the best on that score:

What needs to be done — there are really seven things that come to mind. One is to make sure our corporate tax rates are competitive with other nations. Number two is to make sure that our regulations and bureaucracy works not just for the bureaucrats in Washington, but for the businesses that are trying to grow. Number three is to have trade policies that work for us, not just for our opponents. Number four is to have an energy policy that gets us energy secure. Number five is to have the rule of law. Six, great institutions that build human capital, because capitalism is also about people, not just capital and physical goods. And number seven is to have a government that doesn’t spend more money than it takes in. And I’ll do it.

Hopefully, there are comprehensive plans behind each of these PowerPoint bullets. But I remain unsure what all those points add up to. What does Romney’s America look like? Or Bachmann’s. Or Rick Perry’s. Again, let me refer to a recent op-ed written by Jeb Bush and Kevin Warsh:

Stronger economic growth is not just about economics. Growth unleashes human potential. It turns personal aspirations into positive achievements. And it lays the predicate for a better, stronger, more prosperous and opportunity-filled America. Our weak economic recovery has dashed the hopes and dimmed the prospects of too many of our citizens. And it has put America’s place in the world at risk.

We should resist the temptation to wrangle with the green eyeshade folks who question our prospects. Instead, we must take actions that demonstrate our resolve and resiliency. We must restore our faith in growth economics and reform our policies accordingly. This will bring strength to our markets and reaffirm our place in the world.

Now that’s winning the future.

 

 

 

 

 

 

Can Obama’s 2012 hopes survive 9%+ unemployment?

Aug 5, 2011 17:15 UTC

After looking at today’s anemic unemployment report, Goldman Sachs drops this H-bomb on the Obama campaign:

We have lowered our forecast for US real GDP growth further and now expect real GDP to grow just 2%-2½% through the end of 2012.  Our forecast for annual average GDP growth has fallen to 1.7% in 2011 (from 1.8%) and to 2.1% in 2012 (from 3.0%).  Since this pace is slightly below the US economy’s potential, we now expect the unemployment rate to be at 9¼% by the end of 2012, slightly above the current level.

2. Even our new forecast is subject to meaningful downside risk.  We now see a one-in-three risk of renewed recession, mostly concentrated in the next 6-9 months.  There are three specific issues that concern us.  First, a worsening of the European financial crisis, and a failure of European policymakers to respond adequately, could lead to a further tightening of financial conditions and credit availability, which would worsen the economic outlook globally.  Second, our forecast assumes that the payroll tax cut—currently scheduled to expire at the end of 2011—is extended for another year, but if that failed to happen the fiscal drag in early 2012 would increase significantly.  Third, increases in the US unemployment rate have historically had a tendency to feed on themselves, and this could happen again.

The consensus used to be that President Obama might be OK if the jobless rate fell below 8 percent by Election Day.  That seems increasingly unlikely. The economy is, at best, in slow-growth mode, just churning and churning, creating few jobs.  Comparisons to President Reagan’s 1984 “Morning in America” campaign are looking ever-more ridiculous.  Under Reagan’s tax-cut driven recovery, unemployment fell from 10.8 percent in December 1982 to 7.2 percent by Election Day as the economy grew 4.5 percent in 1983 and 7.2 percent in 1984. In fact,  Jimmy Carter’s 1980 campaign might be the better comparison. The unemployment rate jumped from 6.0 percent in December 1979 to 7.5 percent on Election Day 1980 as the economy shrank 0.3 percent.

COMMENT

We are, by all measures, in the midst of a failing economic recovery. Under these circumstances, Americans expect that policymakers in Washington are committed to improving economic conditions further.

It’s against this backdrop that conservatives are committed to taking capital out of the economy, creating more public-sector unemployment, eliminating effective jobs programs, urging the Federal Reserve to stop focusing on lowering unemployment, and fighting tooth and nail to protect a tax policy that’s been tried for 30 years without success.

By their own admission, GOP officials have said economic growth is not their priority; Hoover-like deficit reduction is. While advocating this agenda, Senate Minority Leader Mitch McConnell has said, more than once, that his “top priority” isn’t job creation, but rather, “denying President Obama a second term in office.”

It’s time to face the fact that there are people who are prioritizing the destruction of a presidency over the needs of the nation. They are willing to crash the American economy, even the global economy, to accomplish this.

Oh, and senatorseven? Standard and Poor’s says it’s Republican obstructionism and intransigence on economic policies that caused them to downgrade America’s credit. But conservatives are rejoicing over this downgrade and attempting to blame Obama for fiscal irresponsibility. Every time I think conservative logic couldn’t possibly get more blisteringly ridiculous, you lower the bar yet again.

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