James Pethokoukis

Politics and policy from inside Washington

Who stabilized the U.S. economy, Obama or Bernanke?

Nov 17, 2009 14:15 UTC

Ed Yardeni votes for The Chairman, but now he thinks the Federal Reserve need to change course:

I believe that the Fed did in fact avert a financial meltdown and an economic depression by flooding the financial system with liquidity, and by lowering the federal funds rate to zero. I believe that all the efforts to deal with the financial crisis by the White House and Congress–including TARP, PPIP, and ARRA-were counterproductive and offset some of the effectiveness of the Fed’s responses. On PBS NewsHour last Friday, Sheila Bair, the level-headed head of the FDIC, said that TARP was a huge mistake: “I think at the time it sounded like the right thing to do…but I just see all the problems it’s created.” She implied that had she been consulted by Hank Paulson and Ben Bernanke, she would have tried to dissuade them from pursuing this approach.

I think that the Fed should raise the federal funds rate to 1.0% to demonstrate some confidence in the economic recovery. A zero rate was justified by the effort to avert a financial meltdown and a depression. Now it may be doing more harm than good.

COMMENT

What are you smoking? Our Economy is tubed and Obama and his cronies are throwing it lead weights.. Everything Obama is doing despite what he says is to tank our economy to usher in George Soro’s plans for a new world economy…

Posted by Ballistic45 | Report as abusive

Sinking Dem polls force Stimulus 2.0

Nov 13, 2009 12:31 UTC

Get ready for Stimulus 2.0 — Extreme Jobs Edition. Yes, the U.S. labor market is slowly healing. The declining number of monthly job losses and weekly initial unemployment claims show that. Yet President Obama still felt the need to announce a ‘jobs summit’ at the White House next month.

That’s compelling evidence that the White House doesn’t believe the job market is mending nearly fast enough to keep unemployment from trending higher — or Democratic electoral prospects in 2010 from trending lower.

The summit is likely a table setter for Obama to announce Stimulus 2.0 (though he surely won’t use the word ‘stimulus’) at his State of the Union address in January. Indeed, Harry Reid is already cooking up a plan in the Senate.

How much money are we talking about? Alec Phillips of Goldman Sachs calls $250 billion over three years a “conservative” estimate. And what might be in the bill? Look for more highway spending, more aid to state and local governments and some sort of business hiring tax credit.

All this represents a sharp departure in message from the White House, which has previously counseled patience. Let the $787 billion American Recovery and Reinvestment Act work, Team Obama kept saying. Even as the unemployment rate blew past 8 percent — a level of joblessness that the stimulus was supposed to prevent — the White House stuck to its guns and dismissed the need for significant new job creation efforts.

On the political side, there were fears that a new package would be tantamount to admitting Stimulus 1.0 was a failure and that it would distract from healthcare reform. On the economic side, many advisers wanted Obama to pivot toward deficit reduction as soon as possible and not spend more on stimulus.

(Indeed, the summit news came as the idea was floated that the administration might use unspent TARP funds for deficit reduction. Obama may also use the January address to announce a commission to deal with the long-term fiscal deficit as well as near-term limits on discretionary spending. Not only is the White House trying to appease bond vigilantes, but also moderate Democrats.)

But economic anxiety and impatience proved lethal for Democrats in the New Jersey and Virginia gubernatorial races, and may cost the party again in the 2010 midterms. That and the surge to double-digit unemployment changed the White House calculus. And don’t think David Axelrod didn’t notice that Republicans have overtaken Democrats 48-44 in the generic congressional ballot.

The new emphasis on jobs might be too late. Indeed, “new” is the appropriate word since the first package was not geared toward creating jobs so much as increasing economic output, as Lawrence Summers recently clarified. Temporary income tax cuts and credits, for instance, have a poor record of generating jobs.  As it is, some economists are looking for unemployment to hit 11 percent in 2010. David Rosenberg of Gluskin Sheff doesn’t see 13 percent as out of the question.

But better for the White House, from its perspective, to take the initiative and adjust their 2010 agenda now — so long cap-and-trade –  than have Speaker John Boehner do it for them in 2011.

COMMENT

The economy will heal faster if they just leave it alone.This is not a standard, run-of-the-mill recession, caused by routine business cycle oversupply and under-demand. I wish they would stop treating as one.This recession is a restructuring, driven by excessive debt… personal, business, and government; both here and abroad. And since all of this “stimulus” is borrowed money, the positive effects of the spending cannot exceed the negative effects of the new debt.After all, if the problem is too much debt, how can more debt fix it?

Posted by Three Chord Sloth | Report as abusive

Obama, crony capitalism and blue-collar jobs

Nov 11, 2009 15:43 UTC

Joel Kotkin has a great piece on how Obama can still save his presidency. The bit on jobs is particularly good:

The key rule of Chicago politics is delivering the spoils to supporters, and Obama’s stimulus program essentially fills this prescription. The stimulus’s biggest winners are such core backers as public employees, universities and rent-seeking businesses who leverage their access to government largesse, mostly by investing in nominally “green” industries. Roughly half the jobs saved form the ranks of teachers, a highly organized core constituency for the president and a mainstay of the political machine that supports the Democratic Party.

The other winners: big investment banks and private investment funds. People forget that Obama, even running against a sitting New York senator, emerged as an early favorite among the hedge fund grandees. As The New York Times’ Andrew Sorkin put it back in April, “Mr. Obama might be struggling with the blue-collar vote in Pennsylvania, but he has nailed the hedge fund vote.”

The Chicago approach works better in a closed political system controlled by a few powerbrokers than in a massive continental economy like the U.S. Health care and education, which depend on government largesse, are surviving.

But the critical production side of the economy that generates good blue-collar jobs – like agriculture, manufacturing and construction – is getting the least from the stimulus.

These industries need more large-scale infrastructure spending, as well as more focused skills training and initiatives to free capital for politically unconnected entrepreneurial businesses. Instead, productive industries face the prospect of more regulation while capital for small businesses continues to dry up.

Those in post-industrial bastions tied to speculative capital – think Manhattan and the Hamptons – are the ones most benefiting from Obamanomics. College towns like Cambridge, Mass., Madison, Wis., Berkeley, Calif., and Palo Alto, Calif., will also prosper, becoming even richer and more self-important. It seems, then, that Obama has done best for elite graduates of Harvard and Stanford and other members of the “creative class.”

The rest of America, however, is still waiting for a real sustained recovery. Industrial and office properties remain widely abandoned not only in Detroit but Silicon Valley. The future sustainability of our economy depends mostly on what happens to those who previously staffed these facilities – those who produced actual goods and services – not just on a relative handful of people working at Google or the national laboratories. In other words, we need jobs for machinists, welders and marketers as well as scientists with Ph.D’s.

COMMENT

How can Obama save his presidency? It is the platform of the modern Democratic Party to lift up the impoverished, salute the failure, reward the takers, applaud the indecisive and elevate the self-centered to assure us more of these in the future. In giving away the treasure of the nation, they increase the line for hand-outs beyond all ability to satisfy. The downward slope increases its steepness and slip each moment. The result is to assign a willing dictator the control and management of what remains. Is this the future of America, once the greatest nation in the world for individual freedom and prosperity? The 19th century Democrat was the libertarian following Jefferson, cited in THE CHANGING FACE OF DEMOCRATS on Amazon and claysamerica.com. The 20th century Democrat follows Rousseau and Marx and condemns individual freedom, the free market and American exceptionalism to the ash heap of history, all at the hands of Obama and his cadre of communists. Khrushchev was right, that we will impose communism on ourselves, and we are doing it right now.

Geithner, the dollar and the deficit

Nov 11, 2009 15:10 UTC

First, Geithner on the dollar and deficits:

“I believe deeply that it’s very important to the United States, to the economic health of the United States, that we maintain a strong dollar,” Geithner said in a meeting with Japanese reporters at the U.S. embassy.  “We bear a special responsibility for trying to make sure that we are implementing policies in the United States that will sustain confidence … in investors around the world that as growth recovers and growth strengthens that we’re going to bring our fiscal position back to a sustainable balance,” he said.

Now, Harry Reid on job creation:

Senate Democrats will take up a new job-creation bill in the wake of the 10.2 percent unemployment rate, Majority Leader Harry Reid told his colleagues Tuesday. … House Democrats have signaled openness to a tax credit for each new hire companies make, but lawmakers have yet to introduce a bill proposing it.

Me: Look, it is going to be jobs first, deficit second with the ObamaCrats. I would not be surprised if Obama’s State of the Union address paired a near-term jobs bill with some commission to deal with the longer-term deficit so as to not freak out the bond vigilantes. A jobs bill would also leapfrog past cap-and-trade, which is starting to look like a 2011 issue.

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

The massacre of small business

Nov 6, 2009 14:26 UTC

Good point from David Goldman:

The big issue in the US economy is the massacre of small business. That’s why the household survey shows that 558,000 Americans “became unemployed” during October, while the establishment survey of payrolls shows a decline of only 190,000 jobs. The establishment data, which are collected from larger businesses, are more reliable; the household survey is based on telephone interviews with randomly-selected households. But the numbers are so large as to make clear that small businesses are shutting down.

With commercial and industrial lending by American banks down 13% since September 2008, and most banks continuing to “tighten lending standards” in the Fed’s official poll, this is not surprising. Wal-Mart will make it through a recession; not the tea-cozy shop down the mall corridor, much less the real-estate agency in the half-abandoned exurb. The global speculative grade default rate, as Moody’s reported this week, has risen to a post-Great Depression high of 12%. Credit lines for small businesses (including home equity, credit cards, and all the other devices entrepreneurs use to fund themselves) will continue to shrink.

Me: By the way, one-third of the revenue from the surtax in the House healthcare bill would come from small business.

COMMENT

You got it right James, and DC doesn’t, still.

Posted by yr | 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

Obama’s lost year

Nov 5, 2009 17:10 UTC

Rahm Emanuel famously said that you “never want a serious crisis to go to waste.”  And certainly the sense of crisis earlier in the year helped the White House pass the $787 billion stimulus package. But where stands the rest of the Obama legislative agenda?

Healthcare. The House will likely pass a bill this weekend, but big difference remain with the Senate, including paying for the plan and what to do about a public option.

Cap-and-trade. Kerry-Boxer is going nowhere which is why Kerry and Graham are working on a a dual-track approach.

Financial regulatory reform. The House and the Senate have completely different notions about what to do about system risk regulation. Plus there may be new efforts to try and “shrink” the banks and limit the scope of future activities.

See you in 2010, Obama Agenda!

COMMENT

Everyone talks about how smart this president is. He is as dumb as a post. Bush didn’t pretend to be the smartest guy on the block. However, this guy Obama does pretend, but only fools people dumber than him like most of the people who elected him and the the DemoRat congress. He is just a hack that parrots things he has learned from his leftist mentors. This man does not have any principles or any original thoughts.

As a black man in America, I hoped that this guy would moderate and succeed. It seems that he is on the way to being a presidential failure because his welfare-state mentality and his weakness on foreign and military policy. He is someone that this black person will not ever respect unless he changes his leftist ways. (Which ain’t going to happen!)

Posted by Jack Smith | Report as abusive

Obamanomics, Big Government, inflation and the price of gold

Nov 5, 2009 14:43 UTC

Ed Yardeni says the rising price of gold is sending a message about the political economy:

Yesterday, I observed that gold tends to be a hedge against reckless governments as measured by their widening deficits and mounting debts. It is also a hedge against governments that either cause or enable inflation to rise. It is interesting to note that:
(1) The price of gold soared from a cyclical low of $104 on August 31, 1976 to a high of $737.5 on January 22, 1980. President Gerald Ford left office in January 1977, near the low for gold. Jimmy Carter was President from 1977 to 1981, when gold soared.
(2) By the time Ronald Reagan left the White House in January 1989, the price of gold was down to $408.3. It fell to $330.9 when George H. W. Bush left Washington.
(3) It continued to drop during Bill Clinton’s two terms, and actually bottomed almost the day George W. Bush moved into the White House.
(4) From then on it was mostly straight up with a brief drop late last year.

Draw your own conclusions, or else, let gold be your guide. Confidence in currencies in general, and the dollar, in particular, was lowest during the Carter and Bush Jr. years, and the first 10 months of the Obama Administration. Confidence was highest during the Reagan, Bush Sr., and Clinton years, when the federal deficit was shrinking and turned into a surplus. During those years, the US government was mostly pro-business, and the public was mostly pleased with the government’s economic policies.

COMMENT

Gold is only one signal among many that informs economic policymakers. When the economy is performing significantly below capacity, when unemployment levels are uncomfortably high and expected to remain so, when the spectre of deflation remains a possibility however slight, why do some OBSESS over the price of gold? The nascent recovery in the economy looks quite fragile thus far, so why take any chance at all of further impeding that recovery by defending the dollar now or reducing deficits now on the altar of blind homage to gold? Yes, gold may well be signaling problems in the future. But we have to survive the present before we even get to that future. So screw gold, let’s get back on the path to sustainable economic growth. Then we’ll be strong enough to respond to what gold may be telling us.

Posted by Bill, Fairfax, VA | Report as abusive
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