James Pethokoukis

Politics and policy from inside Washington

Kudlow: Enjoy the recovery while it lasts

Oct 15, 2009 17:41 UTC

The Great One opines thusly:

But storm clouds are gathering. And a big one is the sinking dollar. No one in the Obama administration or at the Fed seems to care about it. In fact, they are probably applauding the lower dollar as a sort of 1970s way of boosting exports and the manufacturing heartland in the Midwest. But the falling dollar is bad for consumers. And it ultimately will cause higher inflation, as signaled by the rising gold price. There also are future tax hikes and the explosion of spending and debt. All of this is why it’s hard for me to be a long-term bull.

The great market boom of 1982 to 2000 was basically characterized by low marginal tax rates and King Dollar. Unfortunately, the 21st century has seen a weak dollar and more recently rising tax rates that are coming due in 2011 (if not sooner). In other words, the prosperity-inducing Mundell-Laffer supply-side model is being reversed.

As Art Laffer put it to me, we are stealing demand and production from the future. So even as we get a V-shaped recovery now and into next year, 2011 may pay the piper for both low growth and higher inflation.

Me:  That is the whole plan here, steal growth from the future. It is the ultimate in wealth redistribution.

COMMENT

Jimmy keep harping on the fact that the govt and FED caused the crisis so how can they possibly be expected to solve anything…it all comes down to TOO BIG TO FAIL really, we need to break up the banks into smaller entities like the 1990s which both DEMs and REPUBs do not want because it it more work fundraising and less easy money for both party campaigns…K street and DC are sick and caused this together with the banks…

Posted by paul | Report as abusive

The Obama housing plan? Fail — at least so far

Oct 13, 2009 17:01 UTC

My Reuters colleagues give the tale of the tape:

Obama, grappling with the worst U.S. housing crisis since the Great Depression, pledged to help as many as 9 million families keep their homes by reworking their mortgages.

Eight months later, the plan is plagued by delays, red tape and, some critics say, a reluctance by banks to do their part. Just 17 percent of eligible borrowers have had their loans modified and monthly payments cut. Hardly any have been given a cut in the amount they owe on homes which are now worth less.

That means many successful applicants are left with loans that they still will not be able to afford in the long run. So instead of resolving the housing crisis that pushed the U.S. economy into recession, America may be prolonging it and, in the process, stunting the global recovery.

“Every single policy we’ve seen has merely kicked the problem down the road,” said Laurie Goodman, a veteran analyst at broker-dealer Amherst Securities Group LP, which specializes in residential mortgage-backed securities.

Me: Clearly at this point the best housing policy is an overall economic policy that boost growth and jobs — and let housing find its own level.

Noam Scheiber: Be happy with 8 percent unemployment in 2012, America

Oct 7, 2009 11:31 UTC

Over at his TNR blog, Noam Scheiber wonders what unemployment will be when Obama runs for reelection, noting that IHS Global Insight predicts it will be 8.1 percent:

8.1 percent unemployment in 2013 means a bit higher than that when Obama stands for re-election in 2012. In case you’re wondering, the last time the unemployment rate was nearly as high just before an election was 1992 (7.6 percent in September of that year–probably the last unemployment statistic to sink in before Election Day), which didn’t work out so well for the incumbent. Other high election-year unemployment rates in recent decades: 7.5 percent (September 1980) and 7.6 percent (September 1976), which also don’t appear to have helped the incumbent party’s cause.

On the other hand, it’s probably all somewhat relative. The 7.6 percent unemployment rate in September 1992 was pretty close to the peak of 7.8 percent from that business cycle, whereas 8.3 or 8.4 percent unemployment in September of 2012 would be substantially lower than the peak from this business cycle. By way of comparison, the unemployment rate stood at 7.3 percent in September 1984, but that apparently qualified as “morning in America” after a peak of 10.8 percent in 1982.

Me: One thing that Scheiber fails to grasp is that an 8 percent unemployment rate is roughly double what Americans have grown accustomed to in recent years. You could argue that 7 percent unemployment back in the early ’80s seemed more like a return to normalcy.

Americans then just came out nearly two decades of economic disruption. Americans today, a generation of prosperity. Expectations are different. Plus, unemployment has risen more than 5.4 percentage points from its cyclical low during this recession vs. 3.6 points during the early 1980s recession.

COMMENT

Well, Americans also grew ‘accustomed’ to seeing the value of their homes rising indefinitely and ‘accustomed’ to driving giant SUVs two blocks to the store to buy junk they didn’t need. If we should take the EXTREME excesses of last five years and have the gall to call it normal then America is sunk already.

Also, I find it interesting that you bring up the economic malaise of the 70s and early 80s often. You’re always quick to point the finger at Jimmy Carter and hail King Ronnie as a hero. Never once have I heard you mention that most of the problems if Carter were inherited direct effects of the massive spending in Viet-Nam and a severe recession in 72 that was never fully wrought out. Granted, his policies weren’t the greatest, but he was handed a deck stacked against him. And King Ronnie didn’t really see any effects of his radical changes (re:Reaganomics) for a full 3 years! In fact, things got much, MUCH worse the first 30 months under Reagan; the only good thing to come out of 80-83 was Michael Jackson’s Thriller album.

If Reagan gets 30 months grace and is lauded a hero for his destructive policies, maybe Obama should get more than nine months to see how his turn out.

Posted by the Shah | Report as abusive

A second stimulus?

Oct 5, 2009 14:37 UTC

A NY Times story by my pal John Harwood hints at a second stimulus package may be brewing:

Publicly, White House aides and Congressional leaders have responded with incessant attempts to highlight benefits from the $787 billion economic stimulus package they enacted earlier this year. Privately, Mr. Obama’s economic advisers are sifting options for a new package of tax cuts and other job creation measures to be unveiled in next year’s State of the Union address — or earlier if pressure for action becomes irresistible.

Me:  They certainly won’t call it “stimulus,” which is a toxic word these days. I could see more aid to state and local governments, an expanded housing credit, expanded unemployment benefits. They could surprise with a payroll tax cut. But any pricey packages could be met by a negative bond market reaction. They would really, really like to avoid doing this.

When the US labor market will begin to recover

Oct 5, 2009 14:13 UTC

Ed Yardeni has been crunching the numbers:

Based on the previous two cycles, employment might recover within the next 11-21 months after June, or between May 2010 and March 2011! It fell 289,000 during the 11 months following the recession trough of March 1991 and 1.08mn during the 21 months following the November 2001 trough. So far, it is down 768,000 from June through September. A similar analysis suggests that the unemployment rate should peak 15-19 months after June, or sometime between September 2010 and January 2011!

Is the US labor market broken?

Oct 2, 2009 19:00 UTC

US unemployment has been far worse than economists would have expected given the magnitude of GDP decline. Has something structurally changed with the American labor market? An interesting angle on this from Brian Wesbury and Bob Stein of First Trust Advisers:

The employment situation has remained much weaker much longer than the overall economy. In September, the jobless rate rose to the highest level since 1983, total hours worked fell at a 5.9% annual rate, and wage gains were a soft 0.1%. Payrolls came in worse than anticipated, falling 263,000, although payrolls fell a smaller 210,000 in the private sector. There are two reasons for the disconnect between the economic recovery and the labor market. First, productivity growth has been rapid of late, part of the ongoing process of technological change that rivals (and may surpass) the industrial revolution. Second, corporate leaders still think the recent spurt in growth will be short-lived and so are being overly cautious. In the short term, productivity growth lets companies raise production even as they continue to cut jobs. Over time, though, higher output with lower labor costs mean more profits, which will help stimulate rapid job growth once companies become more confident about the staying power of the recovery. When the labor market eventually turns positive, it will do so with a vengeance.

COMMENT

@ Frank:

Although I’m not a fan of unions, when it comes to any comparison between corporate management and unions the greater levels of douche baggery exist on the management side of the equation.

The rest of the unemployment problem rests with our government which enabled the abandonment of the American worker. America is no longer the greatest force to be reckoned with thanks to political infatuation with cash and power among the very few. Is America better than it used to be? Not from where I’m standing! Thanks a lot you guys!

Posted by Unemployed | Report as abusive

September jobs report: -263,000, unemployment at 9.8 percent

Oct 2, 2009 15:22 UTC

The silver linings here are tough to find, at least according to this summary from IHS Global:

The September employment report signaled a painfully slow path to stabilization in the private employment market, and sharper declines in government jobs. It also suggested that the unemployment rate is likely to hit 10% by the turn of the year.

The leading indicators in the report were not promising. The workweek fell, and is now back at its June low. And temporary help jobs – while declining only fractionally – still haven’t moved into positive territory.

There was nothing to support the view that the economy will be adding jobs before the end of the year. And nothing to support the view that the consumer can sustain the spending increases that we saw in August – employment and hours worked were down, and hourly earnings only inched higher, implying that wage and salary incomes fell.

State and local governments have now shed 160,000 jobs over the past four months as budget cuts bite. This month, 29,000 of those losses came in education as the school year began. The education sector as a whole lost 46,000 jobs this month.

The economy has now lost 7.2 million jobs since the recession began – but the story is even worse than that. The BLS now tells us that it expects to revise down March 2009 employment by 824,000, based on a full employment count from unemployment insurance statistics. That implies that the total loss is now 8.0 million.

COMMENT

I think the “early adoption” of 21st energy and health care reform is capable of putting the job market on a solid ground. As a major driver, IT industry stalled and stranded in a game industry for the lack of 21st energy policy over the stretch of two wars needs to evolve into the all but indefinite energy, medical, and academic industry where the investors are eagerly waiting for policy-makers to act now, which I guess is why the far-reaching and long overdue health care and 21st energy bill have come into focus.

Posted by hsr0601 | Report as abusive

How’s the private sector doing?

Oct 1, 2009 17:32 UTC

Not so good. As this GDP chart from my pal Donald Marron shows:

marronchart

COMMENT

Unemployment is rising.

Posted by Camron Barth | Report as abusive

The ‘Great Recession’ vs. the early 1980s recession

Sep 26, 2009 12:20 UTC

A great chart put together by Mark Perry of Carpe Diem blog:

perrychart

COMMENT

% of news headlines with sensationalist blurbs
1981 – 26.4
2009 – 53.4

10 reasons why the US economy will stay weak

Sep 25, 2009 18:28 UTC

From David Goldman’s Inner Workings blog (the actual post of chock full of charts, expanded explanation):

10. Exports are down by a quarter from their June 2008 peak.

9. Credit growth remains negative.

8. Weakness in existing home sales show that despite record low mortgage rates, screaming bargains in lower-priced homes, and tax breaks, the housing market continues to weaken.

7. The Fed’s Household Wealth Survey for the second quarter sounds impossibly optimistic.

6. Total consumer credit outstanding is still falling, and at the fastest rate since World War II.

5. Business are still reducing inventories, and at the fastest rate on record.

4. The Fed is caught between a rock and a hard place. Monetary stimulus remains out of control.

3. Dollar devaluation has helped about as much as it’s going to.

2. The effect of fiscal stimulus will come to an end: no more cash for clunkers, bailouts of bankrupt municipalities (by taking over their spending requirements), tax subsidies for mortgages, and so forth.

1. Barack Obama. By toying with a trade war with China in order to appease his organized-labor constituency, Obama has taken a giant step away from a prospective solution.

COMMENT

Capable, intelligent, pragmatic, and sincere? Are you kidding me? Those terms usually are not consistent with socialism. You might want to study up a little.

Posted by Frank | Report as abusive
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