James Pethokoukis

Politics and policy from inside Washington

Eat our peas? When will government eat its peas?

Jul 11, 2011 18:24 UTC

The President of the United States, this morning:

It’s not going to get easier; it’s gonna to get harder. So we might as well do it now, pull off the Band-Aid, eat our peas

In Obama’s most recent 10-year budget plan, according to the CBO, federal spending would never drop below (a historically high) 23 percent of GDP. And long-term budget plans by liberal think tanks all have spending at such a level, or higher, for decades to come:

 

 

 

COMMENT

What’s wrong with peas? Even my 16-month-old daughter eats them. The president probably doesn’t know how to cook veggies properly. Turn the heat down when they’re bright green, folks.

Posted by Benzene265 | Report as abusive

The declining ‘stimulus’

Jul 11, 2011 17:53 UTC

During Obama’s news conference today (more on that later), the president said he thought lower stimulus spending was affecting economic growth. Now I doubt how much impact, if any, the $800 billion package had in the U.S. economy. But I thought this JPMorgan chart did illustrate the decline in spending:

 

[Chart] The unemployment rate they don’t want you to know about

Jul 11, 2011 17:14 UTC

The official U.S. unemployment rate is 9.2 percent. But what if that rate was adjusted just for all the discouraged folks who’ve dropped out of the labor force during the past few years? It would be over 11 percent. (And over 16 percent if you counted the underemployed.) This chart from JPMorgan makes the point:

 

Obama really might have made it worse

Jul 6, 2011 04:34 UTC

The Republican charge is a body shot aimed right at the belly of President Barack Obama’s re-election effort: He made it worse.

No, not that White House efforts at boosting the American economy and creating jobs and “winning the future” were merely inefficient or wasteful, which they certainly were. Even Obama finally seems to understand that. “Shovel-ready was not as shovel-ready as we expected,” he joked lamely at a meeting of his jobs council.

Rather, that the product of all the administration’s stimulating and regulating is an economy that’s in significantly worse competitive and productive shape than when Obama took the oath in January 2009. He was dealt a bad hand, to be sure – and then proceeded to play it badly. At least, that is what Republicans have been saying. “He didn’t cause the recession as we know,” presidential candidate Mitt Romney said in New Hampshire yesterday. “He didn’t make it better, he made things worse.”

Team Obama offers a different narrative, of course. As the president said in his State of the Union address earlier this year, “Two years after the worst recession most of us have ever known, the stock market has come roaring back. Corporate profits are up. The economy is growing again. … These steps we’ve taken over the last two years may have broken the back of this recession.” He somehow failed to insert his usual boilerplate about the economy losing 700,000 jobs a month when he took office.

But Obama is correct, to a degree. The economy is growing (slowly) now and adding jobs (modestly) whereas neither was happening back in early 2009. Of course, economies in recession will eventually recover even without government action. So the question is whether Obamanomics helped, hurt or was inconsequential.

The centerpiece of Obama’s plan to “push the car out of the ditch” was the trillion-dollar (including interest expense on the borrowed money) American Recovery and Reinvestment Act. A recent article in The Weekly Standard determined that it may have cost as much as $278,000 for each job created. But that’s generous. Respected Stanford economist John Taylor, perhaps the next chairman of the Federal Reserve, has analyzed the actual results of the ARRA. Not what the White House’s garbage-in, garbage-out models say happened, but what actually happened as gleaned from government statistics. Taylor, simply put, looked at whether consumers actually consumed and whether government actually spent in a way that produced real growth and jobs. His devastating conclusion:

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.

Indeed, the results are horrifying. The two-year-old recovery’s terrible tale of the tape: A 9.1 percent unemployment rate that’s probably closer to 16 percent counting the discouraged and underemployed, the worst income growth and weakest GDP growth of any upturn since World War II, a still-weakening housing market. Oh, and a trillion bucks down the tube. Oh, and two-and-a-half years … and counting … wasted during which time the skills of unemployed workers continue to erode and the careers of younger Americans suffer long-term income damage. Losing the future.

Next, add in healthcare reform that Medicare’s chief actuary says will not slow the overall growth of healthcare spending. (Even its Obama administration godfather, Peter Orszag, warns that “more drastic measures may ultimately be needed.”) And toss in a financial reform plan that the outspoken and independent president of the Kansas City Fed says he “can’t imagine” working. “I don’t have faith in it all.” Indeed, markets continue to treat the biggest banks as if they are still too big to fail.

But wait there’s more. Obama created a debt commission that produced a reasonable though imperfect plan to deal with America’s long-term fiscal woes. But he stiffed it and then failed to supply a plan of his own, sowing the seeds for an impending debt ceiling crisis and making an eventual fiscal fix that much harder. One more step along the path not taken, along with pro-growth tax and regulatory policies that would have reduced policy and economic uncertainty and unleashed the private sector to invest, expand and create.

Elections have results. So do bad policies. Obama’s choices on taxing and spending and regulating, sorry to say, seem to have made things worse.

 

 

COMMENT

Edited by the media again.

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Obamanomics, leaving on a jet plane

Jun 30, 2011 03:41 UTC

Buckle your seat belts low and tight, America, there’s going to be turbulence all the way to Election Day, 2012. It’s only the summer of 2011 and already we have kids vs. corporate jets, courtesy of the White House political machine.

The most newsworthy bit of President Obama’s press conference certainly had nothing to do with economics or America’s precarious fiscal position. Recall: The president’s most recent budget plan would add $9.5 trillion in cumulative new debt over the next decade. Eliminating a tax break for the purchase of corporate jets – it’s called “accelerated depreciation” and Obama has endorsed the deduction twice before to boost growth and create jobs – would save $3 billion, or 0.03 percent of that total.

Yet this is the place where the president has chosen to stand his ground, to say “Here and no further!” Obama astride the bridge Khazad Dûm. He challenged the GOP to “go talk to your constituents, the Republican constituents, and ask them, are they willing to compromise their kids’ safety so that some corporate-jet owner continues to get a tax break.”

Really? Would the food safety system – or National Weather Service or National Institutes of Health – would suffer if government extracts a few hundred million less a year from taxpayers? Is Uncle Sam really running such a lean-and-mean operation? Of course not. McKinsey consultants have found that if the U.S. public sector could just halve the productivity gap with the private sector, its productivity would be as much as 15 percent higher and would generate annual savings of up to $300 billion a year. If the president wants to get rid of corporate tax breaks, he should offset them by lowering the sky-high U.S. corporate tax rate while also cutting spending.

But the clumsy attempt at class warfare probably wasn’t even Obama’s most disheartening moment during the presser. Several others were at least equally as bad:

1) The president unnecessarily raised the specter of default if the debt ceiling is not raised by early August:

By August 2nd, we run out of tools to make sure that all our bills are paid.  So that is a hard deadline.  And I want everybody to understand that this is a jobs issue.  This is not an abstraction.  If the United States government, for the first time, cannot pay its bills, if it defaults, then the consequences for the U.S. economy will be significant and unpredictable.  And that is not a good thing.

Yet as the Bipartisan Policy Center noted in a new report, the federal government will take in some $170 billion in August while debt payments only equal $29 billion. Actually, that’s enough revenue to cover debt payments, entitlement (Social Security, Medicare, Medicaid) payments, unemployment benefits and payments to active-duty military with billions left over. It might be messy and chaotic, but that is not the same as default.

2) The president perpetuated this myth: “You can’t reduce the deficit to the levels that it needs to be reduced without having some revenue in the mix. “ Yet Rep. Paul Ryan’ s Path to Prosperity does just that, even while assuming — to satisfy the Congressional Budget Office — the economy grows at a snail-like 2 percent pace year after year for decades. If we need more money, grow the economy faster.

3) Maybe the biggest economic issue of the year, other than the anemic recovery, is the National Labor Relations Board attack on Boeing and its decision to open an aircraft assembly line in right-to-work South Carolina. This de facto attempt to impose wage controls on one of America’s largest exporters by limiting where it can do business is a dagger aimed at the heart of the American free enterprise system. But here, sadly, is the president again leading from behind:

Essentially, the NLRB made a finding that Boeing had not followed the law in making a decision to move a plant.  And it’s an independent agency.  It’s going before a judge.  So I don’t want to get into the details of the case.  I don’t know all the facts.  That’s going to be up to a judge to decide.

Who knows, maybe the president just has something against jet airplanes,  akin to his apparent dislike of those job-killing ATMs. But this seems certain: Obamanomics took flight in 2009 as a purist Keynesian experiment in economic management from high above. The ultimate Dreamliner for Democrats. Now, two-and-a-half-year later, it’s begun its sputtering descent.

CBO: Obama’s new budget plan no plan at all

Jun 23, 2011 17:39 UTC

At a House Budget Committee hearing today, Chairman Paul Ryan and Congressional Budget Office Director Doug Elmendorf had this exchange:

Ryan: “We got your re-analysis of the President’s budget. I won’t go back into that. But the President gave a speech on April 13th where he outlined a new budget framework that claims $4 trillion in deficit reduction over 12 years. Have you estimated the budget impact of this framework?”

Elmendorf: “No, Mr. Chairman. We don’t estimate speeches. We need much more specificity than was provided in that speech for us to do our analysis.”

Bingo. As I wrote back in April, when President Obama made his big budget speech, it wasn’t at all clear from where his numbers were coming — nor in what direction they were heading. A “fact sheet” on his “Framework for Shared Prosperity and Shared Fiscal Responsibility” gave a few more specifics, but little or no context to make real sense of them. Even for seasoned budget experts, it was a puzzlement. At the time, I predicted it would never get submitted to the CBO, and so far I have been proven correct. The whole mess now seems like nothing more than a political ploy to make Obama seem like a debt hawk. We also know now that Treasury Secretary Tim Geithner had to push the White House to do even that.

And if the White House ever did submit his plan/speech, Team Obama probably would not like what the CBO had to say about it. The bipartisan Committee for a Responsible Federal Budget did their best to shed some light on the plan/speech:

The President’s Framework falls short of both the Fiscal Commission recommendations and those from the House Budget Committee, both of which would reduce the deficit by over $4 trillion and reduce the debt to below 69 percent of GDP by the end of the 10-year period. … Measured against CBO assumptions, it does not appear that the $2.5 trillion of deficit reduction in the President’s Framework would be sufficient to reduce the deficit to 2.5 percent of GDP in 2015 or 2 percent in 2020, as claimed. Using reasonable phase-in assumptions, we estimate that unless the debt failsafe is employed (as it would be in this circumstance), deficits would remain at or above 3 percent of GDP throughout the decade. As a result, debt would continue to slowly increase as a share of the economy, reaching 77 percent of GDP by 2021.

You know who does have a comprehensive budget plan out there, one that is actually scored by the CBO and even uses the CBO’s gloomy economic numbers? Paul Ryan. The one actual plan Obama does have does nothing to “bend the curve” of rising federal debt as this chart shows:

 

 

Did Obama save U.S. from a depression? Not so much

Jun 21, 2011 13:10 UTC

My old boss John Merline of Investor’s Business Daily eviscerates  President Obama’s recent claim that back in 2009 “we had to hit the ground running and do everything we could to prevent a second Great Depression.”

White House economists forecast in January 2009 that, even without a stimulus, unemployment would top out at just 8.8% — well below the 10.8% peak during the 1981-82 recession, and nowhere near Depression-era unemployment levels.

The same month, the Congressional Budget Office predicted that, absent any stimulus, the recession would end in “the second half of 2009.” The recession officially ended in June 2009, suggesting that the stimulus did not have anything to do with it.

The data weren’t showing it, either.

The argument is often made that the recession turned out to be far worse than anyone knew at the time. But various indicators show that the economy had pretty much hit bottom at the end of 2008 — a month before President Obama took office.

Monthly GDP, for example, stopped free-falling in December 2008, long before the stimulus kicked in, according to the National Bureau of Economic Research. (See nearby chart.) Monthly job losses bottomed out in early 2009 while the Index of Leading Economic Indicators started to rise in April.

The stimulus timing is off.

When the recession officially ended in June 2009, just 15% of the stimulus money had gone out the door. And that figure’s likely inflated, since almost a third of the money was in the form of grants to states, which some studies suggest they didn’t spend, but used to pay down debt.

It’s an interesting strategy. Since the White House can’t sell whatever this is as any sort of recovery, they are trying to buy time with voters by inflating the risks the U.S. economy faced when Obama took office.  Of course, there is a rival meme: He made it worse.

COMMENT

The so-called stimulus served the interests of the District of Columbia and state capitals across the country, delaying necessary budget cuts. Texas recently had to close a $27 billion gap, which it would have done earlier had not Gov. Perry accepted billions in stimulus money. Basically all those government workers got an extension of their cushy benefits while the private sector tightened its belt and shed real jobs. Obama has said twice there were no shovel-ready jobs.

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Union attack on Boeing turns into unfunny joke

Jun 18, 2011 01:25 UTC

Obamaland’s assault on Boeing went from economic tragedy to political farce during a House Oversight Committee field hearing in South Carolina on Friday. Lafe Solomon, acting counsel of the National Labor Relations Board, dropped this gem:

These are difficult economic times, and I truly regret the anxiety this case has caused them and their families. The issuance of the complaint was not intended to harm the workers of South Carolina but rather to protect the rights of workers.

Who cares about intent? If the NLRB gets its way, 1,000 workers at the already completed plant will lose their jobs. Ironically, the NLRB can’t point to anyone who has lost their job as a result of Boeing building a second assembly line for its 787 Dreamliner in South Carolina rather than in the state of Washington. That reality produced this bizarre sequence (via Bloomberg) at the hearing:

“Can you name me a single, solitary worker in Washington state” who lost jobs or benefits? asked Representative Trey Gowdy of South Carolina. “Where is the retaliation?”

Solomon repeatedly responded that he couldn’t “at this time” provide evidence of such an effect. “We believe evidence will show Boeing was motivated by retaliation,” he said.

Verdict first, evidence later. But when you are waging ideological war to accomplish via regulation what you cannot via legislation … well, whatever gets you through the night, right?

To recall: Boeing opened its $750 million facility in union-resistant  South Carolina on June 10, employing some 1,000 workers. It’s a second location for the production of the company’s 787 Dreamliner. Boeing might have built the production line back in Washington, but the local union wouldn’t agree to a lengthy no-strike contract. And the company hasn’t forgotten that a 2008 strike helped put the 787 program over budget and behind schedule.

After the new plant was built, the NLRB said the move was retaliatory and the line should be moved to Washington. That smacks of overreach. The pertinent law would seem to bar punitive actions by company bosses against union activists. That’s not the situation here. Boeing decided to open a new plant in a state where it was given financial incentives, labor is cheaper and work stoppages are less likely. Again, there’s no evidence any worker in Seattle lost a job. A previous 787 assembly line remains there, and the company claims to have added some 2,000 workers to that facility.

That suggests the move was a rational business decision that didn’t shortchange anyone already working at Boeing. So it’s hard to see how the union’s objection can really hold water. But the legal fight will probably be lengthy and may end up in the U.S. Supreme Court. And if Boeing were to lose, remedying the situation could get expensive.

But there are much broader implications. The NLRB’s fight comes amid a political debate about unions and the threat from anti-union or so-called “right to work” states. If it turns out a union can block a business decision even when there’s no harm to its members, that could easily deter needed manufacturing investment in America, whether by homegrown or foreign-owned companies.

Team Obama thinks little of the idea that “uncertainty” created by its tax, spending and regulatory policies has created an anemic recovery. But if an American business cannot even rely on the law to protect its fundamental economic right to open a plant in its state of choice, then it really cannot be certain of much.

 

COMMENT

Boeing breaks the law, Dixie complains about being caught. Punish both the South and Boeing, and pursue/capture them if they go offshore.

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Obama’s fantasy growth forecast

Jun 17, 2011 14:38 UTC

Another downgrade for the US economy:

(Reuters) – The International Monetary Fund cut its forecast for U.S. economic growth on Friday and warned Washington and debt-ridden European countries that they are “playing with fire” unless they take immediate steps to reduce their budget deficits.

The IMF, in its regular assessment of global economic prospects, said that bigger threats to growth had emerged since its previous report in April, citing the euro zone debt crisis and signs of overheating in emerging market economies.

The global lender forecast that U.S. gross domestic product would grow an anemic 2.5 percent this year and 2.7 percent in 2012. In its forecast just two months ago, it had expected 2.8 percent and 2.9 percent growth, respectively.

Let’s recall the White House forecast from February:

Looking ahead, the Administration projects moderate GDP growth of 3.1 percent in 2011, with growth then rising to an average rate of 4.1 percent during the next four years.

Speaks for itself, I think

 

 

 

COMMENT

Blaming Bush and the Republicans, or indeed, blaming any single political persuasion for the current situation is an oversimplification. (NobleKin, bobw111 never said he was a Republican, so your accusation lacks merit. Many of your other points were on the mark though.)

Both parties have spent like drunken sailors in recent history. And indeed, it is wrong to spend money without having the means to pay for it. When a family runs into that situation, a responsible family will lower their spending to match their income. An irresponsible family will put their spending on the credit cards.

One might claim that the U.S. can “increase its income” by simply raising taxes, but that’s, to put it bluntly, a fairy-tale. The “income” of a country doesn’t come from taxes; rather, it comes from the productivity of its citizens relative to the citizens of other countries. The U.S. has been hit hard by the results of globalization; many jobs that used to provide productivity and income for U.S. citizens are now providing it instead for the citizens of China, India, Brazil, and others. THAT is what has caused the “decrease in income” for the U.S. — raising taxes is just shuffling the decreased overall income between parts of the U.S.; it is not truly an income increase.

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Obamanomics replaced by Reaganomics?

Dec 20, 2010 19:02 UTC

This Larry Kudlow commentary is a nice companion piece to my previous post:

In one fell swoop, Obamanomics is out the window. Reaganomics 2.0 is now in the driver’s seat. …  In the new session of Congress — which will feature a true Tea Party GOP conservative majority — new spending-limit policies can fill in the blanks left by the tax deal. But if President Obama has the acumen to see that a pro-growth economic policy is tied to low tax rates, the GOP should take great care not to cede that message and lose the economic-growth high ground. … A great battle will be joined over the spending, taxing, and regulatory mandates of Obamacare, which is probably the biggest job-killer of all. Conservative reformers in the new Congress will force this fight, along with tax, spending, entitlement, and monetary reform. Behind all this, however, the new Tea Party GOP must maintain a message of economic growth and prosperity.

COMMENT

The next big battle must be over regulations. The public prefers lower taxes thanks to several years of debate. But regulations are less visible to the public, politicians use corporations as agents to impose them, and the public thinks corporations are responsible for them. This is Reaganomics 2.0.

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