James Pethokoukis

Politics and policy from inside Washington

Goldman Sachs 2011 forecast would be an absolute disaster for Dems

Dec 3, 2009 00:32 UTC

This would be New Normal with extreme prejudice. Bad for Democratic incumbents in the 2010 congressional midterms, but it should make the White House political team nervous as well for 2012. If Goldman Sachs is right, of course. Here is the firm’s 2011 forecast:

The key features of our 2011 outlook: (1) a strengthening in growth from 2.1% on average in 2010 to 2.4% in 2011, with real GDP rising at an above-potential 3½% pace in late 2011; (2) a peaking in unemployment in mid-2011 at about 10¾%; (3) extremely low inflation – close to zero on a core basis during 2011; and (4) a continuation of the Fed’s (near) zero interest rate policy (ZIRP) throughout 2011.

That said we see risks that could upset these markets.  On the one hand, we might be underestimating the vigor of the economic recovery, and therefore the pressures for Fed tightening.  In addition, surging asset prices and worries about a “bubble” could prompt Fed officials to tighten before such a move seems warranted on real-economy grounds.  On the other hand, the economy (and the markets) could struggle under the weight of credit restraint for small businesses, weakness in commercial real estate markets, or fiscal tightening, especially by state and local governments.

The implications? I hardly know where to begin: a) with unemployment rising all next year, a GOP blowout in 2010; b) certainly more job creation packages; c) no capandtrade; d) increased anti-Wall Street/Fed sentiment; e) third party prez candidate in 2012; an Obama challenger in 2012 (Dean?). But who really knows. This would be like a technological singularity where seeing beyond the event is pretty much impossible. Such a Long Recession (essentially) would be so contrary to American expecatations — such a slow-mo, psychological shock — that it would be a full-out system perturbation equivalent to 9-11 or the Iraq War.

COMMENT

If GS Said they were Lying I wouldn’t Believe Them!

Posted by tmajor | Report as abusive

6 healthcare taxes that violate Obama’s tax pledge

Nov 20, 2009 18:23 UTC

These seem pretty indisputable. From Keith Hennessey:

1. The clearest violation is the 5% excise tax on cosmetic surgery and similar procedures (including teeth whitening). I assume that cosmetic surgery and similar procedures are skewed toward the high end of the income distribution, but there certainly are many people getting these treatments with annual family income less than $250,000.

2. The bill would allow State insurance exchanges “to charge assessments or user fees to participating health insurers, or to otherwise generate funding, to support its operations.” [ §1311(d)(5)(A) ] Health insurers would pass these “assessments or user fees” through to consumers as higher premiums. This would affect anyone who buys health insurance, including those with family income less than $250,000.

3. The bill would impose a 40% excise tax on health coverage in excess of $8,500 (individuals) / $23,000 (families). While policies this generous are almost certainly skewed higher on the income distribution, there are definitely families with income less than $250,000 receiving these plans. Again, health insurers would pass these tax increases through to those families.

4. The bill would increase taxes on all health insurance plans, as well as on brand-name drugs and biologics, and on medical devices. These tax increases would affect anyone who buys these goods, even if their family income is less than $250,000.

5. According to CBO, “By 2019, … the number of nonelderly people who are uninsured would be reduced by about 31 million, leaving about 24 million nonelderly residents uninsured (about one-third of whom would be unauthorized immigrants.)” (p 8 ) These roughly 16 million people would pay “penalties” of $95 per adult in 2014, $350 per adult in 2015, and $750 per adult in 2016 and later. You’re charged half as much for each kid. Most of these 16 million people paying higher taxes will have family income less than $250,000 and will pay higher “penalties,” although not all will pay these full amounts.

6. The bill would create a new 0.5 percentage point increase in payroll taxes on individuals with incomes greater than $200,000 in 2013 and families with incomes greater than $250,000 in 2013. Since these amounts are for 2013 and not indexed, someone making $233K in 2009 would be affected by this in 2013, assuming 1% annual real wage growth and CBO’s assumptions about inflation. If you’re making $220K this year, you’ll probably be hit by the new tax in 2016. $210K this year, you first get bit in 2017, and so on.

COMMENT

In all honesty, until the politicians can put a dollar amount on a life (much less a dollar amount on quality of life), nothing but failure can come out of legislating budgets for life or quality of life.

Posted by RH | Report as abusive

Here comes Sarah Palin and the anti-Wall Street GOP

Nov 20, 2009 17:08 UTC

Don’t interpret passage of the watered-down Kanjorski amendment as the peak of the “break up the banks” movement. It may be about to get some new allies on the right, folks tired of Big Government, Big Money and crony capitalism.

For the moment, though, it was arguably the best that Representative Paul Kanjorski, a Pennsylvania Democrat, could have gotten through the House Financial Services Committee. All the committee Republicans and even some of the Democrats voted against it. And even in its much-diminished state, the Kanjorksi amendment would likely be weakened further in the Senate. At the same time, the Obama administration seems little interested in such pre-emptive powers.

Wall Street, however, is hardly getting any more popular with Main Street. The Goldman Sachs Apology Tour is evidence of that. And there are mid-term elections in less than a year. Republican candidates will probably do well as high unemployment continues to drive voter anger at incumbents. As Gallup diplomatically puts it, “Republicans seem well-positioned to win back some of their congressional losses in 2006 and 2008.”  More accurately, fear of losing the House is now running high among congressional Dems.

And all those new Republicans are likely to be infused with the ethos of the Tea Party movement: anti-TARP, anti-Fed (the House GOP is already there on this), anti-bailouts and anti-Wall Street. It could be a group of newcomers, as John McCain recently said, that is populist, protectionist when it comes to China and the yuan and pro-financial regulation.

Sarah Palin could be a harbinger. Although she diligently promotes the wonder-working power of Reaganomics in her autobiography, she also warns about “the return of corporatism – government collusion and co-option of big business.”

On the web, right-of-center bloggers wrote favorably of a recent proposal by Bernie Sanders, the socialist independent senator from Vermont, to break up the banks.

Even among conservative intellectuals, there is little love for an unrestrained Wall Street these days. University of Chicago economist Luigi Zingales argues that “the finance sector’s increasing concentration and growing political muscle have undermined the traditional American understanding of the difference between free markets and big business.” Like a 21st century Teddy Roosevelt, Zingales would use anti-trust law to disperse financial power.

And one veteran Republican politico says he would be surprised if the 2012 GOP nominee wasn’t far tougher on Wall Street than President Barack Obama.

So it isn’t hard to imagine that the next incarnation of Congress — filled with “free-market populist” Republicans — might take another look at the state of Wall Street and conclude, as has Alan Greenspan, that any firm too big too fail really is too big to exist.

COMMENT

If she isn’t the biggest jerk,even in the Republican party,who is ? This is a vile,stupid,moronic idiot. A crass about as rogue as any other neo-con. How can such a conformist be a rogue ?

Posted by Dominick | Report as abusive

How the economy is killing the Obama agenda

Nov 20, 2009 14:00 UTC

The less popular Obama gets, the less political capital he has to push forward his agenda. I think this chart from Nate Silver nicely encapsulates things:

112009poll

Is ObamaCare in trouble in the Senate?

Nov 12, 2009 21:47 UTC

A few thoughts on healthcare reform:

1) Just talked to a very insightful Capitol Hill Watcher who doesn’t think Harry Reid has the votes in the Senate to pass anything resembling comprehensive healthcare reform. You can count out Lieberman, Landrieu, Nelson and maybe even Bayh.

2) First, of course, comes the CBO’s analysis of various proposals. Any of them that boosts the deficit or healthcare premiums are DOA. Remember, healthcare reform was supposed to expand coverage, lower premiums and bend the curve on the long-term deficit.

3) Assuming Reid can get 60 votes to proceed to the floor sometime next week, we are talking December being taken up with debate on amendments concerning the public option, abortion, taxes. As it is, Reid is reworking the Senate bill on the fly. One day it is a new version of a PO trigger, the next a hike in payroll taxes. Reconciliation? “That ship has sailed.”

5) Time does not help.  Once the Congress goes homes, members could be inundated with complains and protests, just like in August. Also, the rising unemployment rate continues to sap public confidence in the Obama agenda and Washington, in general.

COMMENT

My grown kids think that socialism/communism would be okay. What did I do wrong in raising them? I wonder when they start paying more taxes if it will make any difference to them?They do not seem concerned about the U.S. deficit, they are too wrapped up in their own little worlds and watch the propoganda(?) machines every night.

Obama and independents

Nov 12, 2009 00:25 UTC

It is not just the gap, but the rapidity of the decline that it is so stunning.

111109gallup

COMMENT

Faster, faster!

Posted by ahem | Report as abusive

Unemployment and presidential disapproval ratings

Nov 6, 2009 20:12 UTC

Some interesting charts (via TNR) looking at the linkage between unemployment and disapproval ratings:

110609reagan

110609clinton2

110609obama1

COMMENT

refitting these graphs so the unemployment rate has a constant scale reveals that the correlation isn’t nearly as strong as it looks right now.

There’s also no reason for the variable scales, other than to mislead. The range for Reagan is almost identical to the range under Obama.

America’s jobless recovery

Nov 6, 2009 18:10 UTC

Here are a few opinions about the jump in the unemployment rate that caught my eye:

1) Dean Baker, Center for Economic and Policy Research

The October unemployment rate is still below the 10.8 percent peak reached in December of 1982, but the workforce is considerably older now and in age cohorts where workers are less likely to be unemployed. If the workforce had the same age distribution as in 1982 but current unemployment rates for each age cohort, then the unemployment rate would be more than a percentage point higher. The 10.7 percent unemployment rate for men is 0.6 percentage points higher than the 10.1 percent peak in 1982. This is consistent with the massive job loss in construction and manufacturing.

In all likelihood, the economy will continue to shed jobs, at least through the rest of the 2009 and probably into the first months of 2010. The unemployment rate will probably not peak until the spring of next year, at close to 11.0 percent.

2) Michael Feroli, JPMorgan

Even worse than this were the figures reported in the household survey of employment. The unemployment rate smashed through the psychologically significant 10% level to hit 10.2% in October. This came even as the labor force participation rate fell another 0.1% last month to fall to 65.1%. Normally, a falling participation rate would be expected to temper any increase in the unemployment rate, as discouraged workers who drop out of the labor force no longer count as officially unemployed. Moreover, the measure of employment in the household survey fell 589,000 in October and has been significantly weaker than the establishment survey measure over each of the prior three months.

Among the other details in the household survey, the unemployment rate for college-educated persons has actually been roughly stable since June at 4.7%, while less-educated groups have seen a big move up. The male unemployment rate hit a post-war high of 11.4% last month, breaking the previous record of 11.2% in December of 1982. . According to the CPS labor force flow data, only 15% of unemployed persons found a job last month, a new low.


3) Mike Englund, Action Economics
The 190k payroll drop, combined with the 91k in upward back-revisions, slightly outpaced assumptions. Yet, the workweek failed to rise from its 33.0 cycle-low, hence leaving a 0.2% drop in hours-worked that will weigh on Q4 GDP estimates, as will the hefty jobless rate surge to 10.2% that shattered the 10% psychological barrier. The household survey also revealed a sobering 589k drop in household employment, while hourly earnings failed to provide any low inflation solace, with a 0.3% gain.
COMMENT

My View : Fundamental Changes Can Ride Out Of This Great Recession Not That Easy

1. Unsustainable oil price & health care premium, disastrous swine flu pandemic, heartbreaking war waste and slow implementation of stimulus package ( roughly $155bn out of $787bn ).

2. Health care reform & sustainable energy act in conjunction with stimulus package are all about economic recovery and work creation.

Posted by hsr0601 | Report as abusive

A few more thoughts on the shocking 10.2 percent unemployment rate

Nov 6, 2009 14:35 UTC

Some quick hits:

1) Remember in the early 1980s 7 straight quarters of avg. GDP growth of roughly 7% (!) lowered jobless rate by only 2.5 percentage points. Hard to see economy booming like that between now and Election Day 2010.

2) Healthcare has added nearly 600k jobs during recession. Good thing Congress is leaving that sector alone. Oh, wait …

3) Obama’s lost year: 2009 may end with no HC, capandtrade, financial reform — just a $787b stimulus that didnt prevent 10.2% unemployment. That is going to be the economic assumption of the average voter, I would think.

4) Dem conundrum: the worse economy gets, more people distrust government. Bad economy was supposed to increase desire for “economic security” …this was reflected in Virginia vote, certainly

5) Will WH actually try and focus on fact that the economy lost 29k fewer jobs in Sept. vs. Oct.? Lead balloon.

6) It’s not that the recession is worse than WH thought, it’s that their model of how the economy works is dysfunctional.

7) End of the Affair? You can be sure liberals (like Krugman) are hugely second guessing Obama decision to not press for LARGER stimulus

COMMENT

“Remember in the early 1980s 7 straight quarters of avg. GDP growth of roughly 7%”

Ah yes, the Reagan years. Remember getting that growth by tripling the national debt?

Posted by gordo | Report as abusive

US unemployment rate surges to 10.2 percent; 190,000 jobs lost in October

Nov 6, 2009 14:03 UTC

This is an extraordinarily bad number, and makes this week a 1-2 punch for Democrats. A 10.2 percent jobless rate is the highest since April 1983, even though the labor force participation rate actually dipped a bit. The broader U6 measured surged to 17.5 percent. Recall that 7 quarters of average GDP growth of roughly 7 percent in the 1980s only brought down the unemployment rate by 2 1/2 percentage points. As the Labor Department sums things up:

The unemployment rate rose from 9.8 to 10.2 percent in October, and nonfarm payroll employment continued to decline (-190,000), the U.S. Bureau of Labor Statistics reported today. The largest job losses over the month were in construction, manufacturing, and retail trade.

In October, the number of unemployed persons increased by 558,000 to 15.7 million. The unemployment rate rose by 0.4 percentage point to 10.2 percent, the highest rate since April 1983. Since the start of the recession in December 2007, the number of unemployed persons has risen by 8.2 million, and the unemployment rate has grown by 5.3 percentage points.

The number of long-term unemployed (those jobless for 27 weeks and over) was little changed over the month at 5.6 million. In October, 35.6 percent of unemployed persons were jobless for 27 weeks or more.

Total nonfarm payroll employment declined by 190,000 in October. In the most recent 3 months, job losses have averaged 188,000 per month, compared with losses averaging 357,000 during the prior 3 months. In contrast, losses averaged 645,000 per month from November 2008 to April 2009. Since December 2007, payroll employment has fallen by 7.3 million.

Construction employment decreased by 62,000 in October. Manufacturing continued to shed jobs (-61,000) in October, with losses in both durable and nondurable goods production. Retail trade lost 40,000 jobs in October.

Health care employment continued to increase in October (29,000). Since the start of the recession, health care has added 597,000 jobs.

Temporary help services has added 44,000 jobs since July, including 34,000 in October.

The average workweek for production and nonsupervisory workers on private nonfarm payrolls was unchanged at 33.0 hours in October.

In October, average hourly earnings of production and nonsupervisory workers on private nonfarm payrolls rose by 5 cents, or 0.3 percent, to $18.72. Over the past12 months, average hourly earnings have risen by 2.4 percent, while average weekly earnings have risen by only 0.9 percent due to declines in the average workweek.

The change in total nonfarm payroll employment for August was revised from -201,000 to -154,000, and the change for September was revised from -263,000 to -219,000.

COMMENT

The job market is definitely a scary place right now. Many job seekers are trying to differentiate themselves from the stiff competition and doing so in creative ways, including printing their resumes on t-shirts and offering vacations to people who can help find them a job. Are outside-the-box ideas like these the wave of the future or a gamble in an already-difficult job market?

http://bit.ly/3tyupy

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