James Pethokoukis

Politics and policy from inside Washington

Is this the economic key to Obama’s reelection?

Jan 5, 2011 16:02 UTC

As a follow up to my post on how the tax deal might affect Obama’s reelection chances, here is a bit of insight from superanalyst Dan Clifton of Strategas Research:

Income growth is the key to
presidential reelections and will be the motivating factor of White House initiatives over the next two
years. Obama is starting from a position near President Carter’s, but with new growth initiatives, we
would expect him to slowly climb up the predictive trend line below

Income growth is the key to presidential reelections and will be the motivating factor of White House initiatives over the next two years. Obama is starting from a position near President Carter’s, but with new growth initiatives, we would expect him to slowly climb up the predictive trend line below:


The debate has shifted …

Nov 23, 2010 15:55 UTC

James Capretta is dead on:

But what’s really important about the last month is not that any reform plan is about to pass. It’s that the terms of the budget, entitlement and health care debates have shifted dramatically, and very likely on a permanent basis. The fundamental elements of the Ryan Roadmap are sweeping tax reform; changes in health care which emphasize a marketplace and consumer choice; and modifications to retirement programs that reflect demographic reality. All of these elements can now be found in budget plans endorsed by prominent Democrats, including Democrats the president himself turned to find solutions to the nation’s budget problems. Consequently, it will be much harder in the future for Democrats to demonize these ideas as they have tried to do in the past.


Well, spending cuts are necessary… but it’s really the revenue side that’s hurting right now, and that’s a direct reflection of the housing situation (granted 8m fewer workers paying taxes – because they have been let go in the recession – makes a difference but not nearly as much). I think that a new revenue stream has to be discovered; cleaning up the tax code will help a lot, but honestly I think the rich owe it to America to be willing to do their part… not the marginally rich, but those earning more than $2m per year. Cuts, yes absolutely, but more revenues too… BOTH need to happen or we just need to cross our fingers that the housing market will go to the moon again.

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Beyond tax cuts

Nov 22, 2010 17:43 UTC

Nick Schulz says Republicans need a broader policy portfolio than lower taxes and less spending:

Too often discussions of growth are overly abstract or narrow.  They tend to focus on a few policy prescriptions such as tax cuts or trade or education. These are important. But the discussion about growth is strangely detached from the particular and unique characteristics of the United States. Any serious growth strategy should acknowledge and leverage America’s attributes and advantages.

Nick then goes on to praise Joel Kotkin and his “continental strategy” for growth, which — best I can tell — centers around more infrastructure spending. But what is the free market way of approaching this so it does not turn into a supersized version of Boston’s Big Dig — build and privatize?


Roll the tax rates back to what they were in 1999, end the wars in Iraq and Afghanistan and trim the defense budget and you have a balanced budget or even a surplus. Keep in mind that the economy created better than 20 million jobs when the tax rates were at these level.

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The ‘mirage’ economic recovery

Dec 15, 2009 19:26 UTC

Gallup’s chief economist, Dennis Jacobe:

We’ve just gone through the worst financial crisis since the Great Depression, and economies don’t recover from that kind of thing overnight.

What led to this artificiality was that governments and monetary institutions around the world, led by the U.S. Federal Reserve, took unprecedented actions to mitigate the effects of the financial crisis.  … In addition, the United States has undertaken an unprecedented amount of spending, ranging from TARP [the Troubled Asset Relief Program] and the auto industry bailout to the stimulus program and expansion of the social safety net. As a result, future federal budget deficits are also going to be unprecedented for years to come. Combined, these fiscal and monetary policies have led to sharp declines in the value of the dollar, a surge in commodity prices, and even serious questions about the role of the dollar in the global economy.

All of this seems to have worked in the short term, and the world economy is much better off in terms of its financial stability than it was a year ago.  … A lot of what we’re currently seeing is more of a mirage than reality — and people should be wary of the false signals that may have come from these emergency actions. In a sense, we’ve put the global economy on “steroids” — and we know there will be long-run consequences — but even more importantly, we know these “steroids” are creating distortions in our normal measures of global economic well-being.


The main page of the blog does not set off block quotes, which is kind of irritating. Doesn’t anyone at Reuters know how to design a weblog?

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Washington and the 2010 stock market

Dec 10, 2009 16:32 UTC

Here is how economic analyst  Ed Yardeni sees things:

Could the S&P 500 rise back to its record high next year? I was in Boston on Tuesday, and met with the first money manager on Planet Earth to ask me this question. That is definitely a contrarian’s scenario. I am currently predicting a 2010 high between 1300-1350, and more specifically 1332 by March 6, which would be up 100% on a y/y basis, from the Da Vinci Code bottom of 666. Then I see a nasty correction on growing concerns that the expiration of the Bush tax cuts might depress the economy in 2011. That selloff could last until the November Congressional elections. If Gridlock wins, with the Democrats losing their majority control of one or both houses of Congress, then stocks might resume the bull market.

Here is what’s wrong …

Jun 26, 2009 13:58 UTC

From IHS Global: “Reduced wealth, high debt, tight credit, and a weakening labor market are all weighing on consumers. Wages and salaries were down in May, and have fallen in four out of five months this year. And higher gasoline prices are biting into spending power.”


$4/gallon gas crushed disposable income starting summer ’08. That was the match which touched this firestorm. In addtion to the expansion of CRA courtesy of Barney Frank in the early 90s; OPEC deserve much of the credit these past 15 months.

I’m sure you’d agree unless you’re also convinced of the Geo Soros conspiracy to demolish the US economy to drive Bush out of office.

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A phony recovery?

Jun 16, 2009 15:50 UTC

From former Morgan Stanley economist Andy Xie:

Contrary to all the market noise, there are no signs of a significant economic recovery. So-called green shoots in the global economy are mostly due to inventory cycles. Stimuli might juice up growth a bit in the second half 2009. Nothing, however, suggests a lasting recovery. Markets are trading on imagination. … The noise would be to emphasize the “temporary” nature of the stimulus. The market will probably be fooled again. It will fully wake up only in 2010. The United States has no way out but to print money. As a rational country, it will do what it has to, regardless of its rhetoric. This is why I expect a second dip for the global economy in 2010. … The world is setting up for a big crash, again. Since the last bubble burst, governments around the world have not been focusing on reforms. They are trying to pump a new bubble to solve existing problems. Before inflation appears, this strategy works. As inflation expectation rises, its effectiveness is threatened. When inflation appears in 2010, another crash will come.

A salad of green shoots and mustard seeds

Jun 8, 2009 17:52 UTC
Brian Wesbury and Bob Stein of FIrst Trust Advisers offer some sunshine on the U.S. economy:
1) Since bottoming in February, consumer confidence has had the fastest three-month increase on record.
2) The ISM manufacturing index, which fell to historic lows over the winter, has climbed from its hole to signal that the overall economy is now expanding.
3) The Richmond Federal Reserve index, a measure of manufacturing in mid-Atlantic states, is showing growth.
4)  Container shipments both into and out of the ports of Los Angeles and Long Beach – key measures of international trade – have traced a V-shaped recovery.
5) In the financial markets, the yield on the 10-year Treasury note is back up to 3.86%, almost exactly where it was in August 2008, just before the crisis hit.
6) The VIX Index – a measure of stock market volatility and risk – has also traded back to levels not seen since August 2008.
7)  Meanwhile, key commodity prices, such as oil, copper, lumber, and gold are well off crisis-period lows.
Their bottom line:
In the last full calendar quarter before September (the second quarter of 2008), real GDP grew at almost a 3% annual rate. This is exactly what we expect for the third quarter of 2009 – 3% real GDP growth – with even faster economic growth in Q4 and then in 2010.

The end of the U.S. consumer. Maybe not

Jun 5, 2009 23:05 UTC

Interesting note from Bruce Kasman of JPMorgan on the supposed retrenchment of the US consumer as Americans save, save, save (bold is mine):

Personal saving rate is poised to fall In the past year, US households have raised their saving rate an astonishing 5.5%-pt to 5.7%. During the first half of this adjustment, spending contracted sharply against the backdrop of falling income. This year, saving has moved higher as automatic stabilizers and government income supports have helped boost disposable income. Despite a soaring unemployment rate and falling labor income, households have managed to maintain a relatively constant level of real consumer spending. … If the saving rate continued to rise, or even remained stable, consumer spending would sharply contract, and prospects for an end to the recession would likely be dashed. … This scenario is unlikely however, as there are a number of forces promoting stable spending and a lower saving rate in the coming months. In the past, sharp swings in nonwage income and energy prices have had limited effects on spending and this pattern is likely to be repeated in 2009. In addition, consumer expectations of economic and financial conditions have improved markedly in recent months and is likely to be a force behind firmer spending. Finally, credit sensitive demand has been depressed, and the recent modest relaxing of financing constraints will tend to support spending. While the growth rate of real consumer spending in the second half is expected to be close to the growth rate in the first half, the pattern should shift to somewhat stronger spending growth for autos and other durables (from extremely low levels), likely offset by even weaker
spending growth on services.

Does the jobs report mean a V-shaped recovery?

Jun 5, 2009 20:28 UTC

I will give the last word (for today) on the jobs number to Wesbury & Stein:

The jobs report strongly supports our call that the economy bottomed in May and is now in the early stages of a V-shaped recovery. Businesses are shedding jobs at a much slower pace than earlier this year and we would not be surprised to see payrolls start to increase by the end of the summer. The speed of the turnaround cannot be ignored. …  After the collapse of Lehman Brothers last September, monetary velocity plummeted, with both businesses and consumers pulling back from any activity they deemed unnecessary. Now, restaurants and bars are adding payrolls again, a sign that consumer behavior is returning to normal. While some analysts may focus on the rise in the unemployment rate to 9.4%, much of the increase was due to an increase in the labor force, which has risen by more than 1 million workers in the past two months. Without this increase the jobless rate would be a much lower 8.7%.


Wait a Minute!

If the Work Force has gained One Million, where did they come from? Recent High School, College & University graduates? They swim across from Cuba?

From what I remember, you don’t go straight to the unemployement office to apply for help once you graduate, which is where they get the Unemployment Calculations, so, why is this guy subtracting from the announced figures, in order to show a lower level?

Not a logical premise, and does not compute!!!

I am very suspect, as he is probably an Obama Supporter.

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