James Pethokoukis

Politics and policy from inside Washington

What the Obama economy will look like in 2012

Jul 31, 2009 20:20 UTC

You know, i don’t agree with all it, but I do agree with a lot of this analysis from Joel Kotkin:

So no matter how much the conservatives complain, Obamanomics most likely will end up with results remarkably like those of Bushonomics: more consumption, less production, expanding public debt, asset inflation on Wall Street and a slowly declining middle-class standard of living. The only real difference will lie in who gets to rob the public — instead of pharmaceutical and oil companies, we get Gorite “renewable” energy traders and well-connected “green” venture capitalists.

Americans need to place a pox on both these flawed models. We need a totally new approach that focuses on key productivity-enhancing investments such as improved transportation infrastructure — new roads, bridges, ports and waterways to meet the demands of an expanded economy for a growing population. We should be looking at modern equivalents of the New Deal electrification program, the GI Bill, the Eisenhower highway and the space program.

Clearly, an infrastructure that is inadequate today will be utterly useless in 2050, when there are projected to be at least 100 million more Americans. Already, our energy-generating capacity in some parts sputters like that of a Third World country. Commodity exports, such as grains, unable to reach foreign markets because of a lack of rail cars and adequate waterways, are left to rot and feed rats.

This is not the way to prepare ourselves for ever greater competition from countries such as China, India and Brazil. Americans must demand a program that, while perhaps financially painful now, will make it possible for our progeny to enjoy a prosperous future rather than a declining one.

COMMENT

Dear James,
You have analysed Obamaeconomics in a detailed ways.
i have agreed your views by partial ways.
Entire world wants to know ,where America stands in Global economic map.
Now the time has come for America to discourage outsiders for small,unskilled jobs from third world countries.
simple logic holds good for any country,for anybody.
First, we should earn,save,spend for essential things to our family,our parents,our blood relatives and to our own country.
America!s infra structures like,new bridges,new roads,new school,college set up,small essential items to be produced locally with American citizens talents,construction of public health care sectors,encouragement to small media networks,cultivation of non-violence,away from day today,film personalities publicity gimmicks etc, will create a new awakening to Americans.
As a journalist with very wide knowledge on local and world economics ,will bring much positive outcome to economic slow down to recovery in future years.
I hope that,American planners will read your articles again and again for her country interests.
best work done by you.
Hope to get more economic lights from this network and from you,and from other editors.

The declining odds of a public plan

Jul 31, 2009 18:52 UTC

A handy way of summing up what a rough patch the Obamacrats have been going through, (via Intrade and Baseline Scenario):

073009intrade

Getting a recovery in the worst way possible

Jul 30, 2009 14:03 UTC

It is like opening a present and finding a bomb inside. Gluskin Sheff economist David Rosenberg on the “recovery”:

The government has its hands in 40% of the economy and when public sector officials can influence how banks can value their assets, how mortgage servicers should be doing their business, who shall fail in the financial industry and who shall not; and when we have a central bank that is not just the lender but the market of last resort, even for RVs, and a government willing to run up its deficit to levels that would have made FDR blush, then perhaps we can end up seeing a recovery occur sooner than we had thought.

One-way health reform from Washington

Jul 30, 2009 13:57 UTC

Arnold Kling rightly notes that only left-of-center ideas are being considered for healthcare reform. I find this particularly weird since I’ve read about company after company coming up with interesting healthcare innovations.  Here is Kling:

The basic problem that the Democrats have with health care reform is that when it comes to taking our system away from free markets, there is just not that much farther we can go. We already regulate the practice of medicine and allied health services with licensing cartels. We already regulate individual health insurance practically out of existence, particularly in states that require “community rating” and “must-carry,” which force insurance companies to charge the same price to all comers, which means that the only price they can safely charge is the price that assumes you are only asking for insurance because you just came down with a really expensive illness. We already have government insuring the poor and the elderly.

In contrast, there is a lot of room to move health care in the other direction–toward free markets. The only real health care reformers are those of us on the libertarian fringe. The two major parties are just posturing. That’s why I haven’t written much about the day-to-day debate on “reform.” It is not clear to me that defeating the Democrats’ legislation is something I should root for. We’re still nowhere near considering real reform.

7 Ways to (Finally) Fix Housing

Jul 30, 2009 13:13 UTC

Has there been some good news in housing lately? You betcha. New home sales jumped 11 percent in June, while the inventory of new unsold homes tumbled sharply. Better yet, May home prices were pretty much flat rather than plunging. “Recent housing reports have been promising,” opines Patrick Newport of IHS Global Insight.

But a housing bottom is not the same as a housing boom. The total number of new home sales was the lowest in a generation. And home prices are now off as much as 33 percent nationwide since their peak. What’s more, foreclosures remain a huge and growing problem, so much so that President Obama met with mortgage servicers to push them to modify more troubled mortgages under his administation’s plan announced last spring.
[Find out five smart ways to boost the economy and create jobs]

In short, it was housing that started America’s economic crisis in 2007, and it’s housing that continues to prevent a strong recovery in 2009. So given that the White House loves to appoint “czars,” maybe American needs a Housing Czar who could push one of these big proposals to help struggling homeowners, reduce foreclosures and strengthen the housing market:

Forgive and forget. A $75 billion plan devised by Ross DeVol and Michael Klowden of the Milken Institute would use government loans to refinance underwater mortgages. If your mortgage is worth $500,000 but your home just $400,000, Fannie Mae would provide a new loan for $400,000. Then the Treasury Department would provide a second loan of $100,000 — the difference between your mortgage value and home value. For each year that the homeowner keeps making payments, one-fifth of the Treasury loan would be forgiven. After five years, you might again have some positive equity.

Give lenders a piece of the action. When companies restructure, such as troubled automakers, creditors often exchange debt for an equity stake in the company. So what’s good for GM is good for homeowners, says Luigi Zingales of the University of Chicago. Under his plan, homeowners who are more than 20 percent underwater on their mortgages could reset the value of the loan to the house’s current value. But in exchange, they would have to give half of any future upside in price to the bank.
[See if Obama's big economic gamble is paying off for you]

Turn owners into renters rather than defaulters. Renting your own house — rather than getting booted out of it — might be the new American Dream. Economist Dean Baker of the Center for Economic and Policy Research says Congress should temporarily change the law so homeowners facing foreclosure would have the right to stay in their home as long as they could pay the market rent for an extended period of time. This wouldn’t cost any taxpayer money, while also reducing the number of vacant homes blighting many neighborhoods. Plus it would give lenders incentive to substantially modify more mortgages so they don’t have to become landlords.

Tell it to the judge. Rep. Barney Frank, the powerful chairman of the House Financial Services Committee, says he’s so angry that lenders haven’t modified more mortgages that he is threatening to bring back the once-failed mortgage “cram-down” bill. This would allow homeowners to declare bankruptcy and turn to a judge who could then modify terms of primary mortgages, including reducing the principal. The reason a previous effort to change bankruptcy laws failed was over fears that this would create more risk for lenders who would then charge higher interest rates to compensate.
[Find out how healthcare taxes would affect you]

Foreigners buy our bonds, let them buy our homes, too. Real estate developer Richard LeFrak and economist Gary Shilling think Uncle Sam should offer permanent residence status to foreigners if they buy a house here. Now they wouldn’t have to live in the house, but they couldn’t rent it out either. The goal, remember, is take the unit off the market and reduce supply. After five years, temporary status would turn permanent. LeFrak and Shilling think the mere announcement of the program would help beaten-down markets where foreigners love to go such as Miami, San Francisco and Las Vegas.

Make the “second stimulus” a homeowners stimulus. For $300 billion to $400 billion, the government could buy mortgages from banks and then issue more affordable new loans to struggling homeowners. Or rather than focusing on homeowners, the government could focus on buyer by nationalizing Fannie Mae and Freddie Mac and then offering 30-year, fixed-rate mortgages at four percent or so to buy a new or existing home.
[See how the healthcare reform will affect your health insurance]

Help homeowners keep their jobs. America’s housing problem has changed over the past two years. The big problem isn’t so much people who bought too much house for their income, it’s people who have lost their income because of job loss. So right now jobs policy is housing policy. Former White House economist Lawrence Lindsey says that cutting the payroll tax in half could put $1,500 in the pockets of workers and perhaps create as many as four million jobs in a year. If you want more of something, the theory goes, tax it less. This plan would lower the taxation of labor, so America would get more of it.

Of course, the Obama mortgage modification might still work, given more time for lenders to ramp up staff and expertise. And doing nothing helps first-time buyers who can get homes on the cheap. But then again, they don’t hire Housing Czars to do nothing.

COMMENT

Why are you trying to encourage “fixing” a market? The reason people aren’t buying is because the market is indeed fixed. Prices are being propped up so that buyers cannot come in. Thus, there is no organic support for home prices.

Those of us who rent might like to buy, but will not buy in a market with such price manipulation. So houses sit empty and mortgages go into default.

Posted by Dan | Report as abusive

Why ObamaCare is morphing into RomneyCare

Jul 30, 2009 02:20 UTC

Time for a political reality check. Government-run public health insurance that competes with private plans — a Democratic dream since President Truman suggested it in 1945 — may not be dead for now on Capitol Hill, but its vital signs are awfully faint.

[Find out how healthcare taxes would affect you]

Of course, many proponents are hoping to use the congressional August recess to rally the grassroots and the netroots for one final push come September. And maybe that will work.

But it’s more likely that Democratic leaders in Washington will use the break to tell the outside-the-Beltway crowd the cold truth: If they want something that can be legitimately called “healthcare reform” to pass in 2009, they need to quit wasting time, energy and money on the fading dream of a public plan and instead work to get other key elements passed.

[See why Obama's big economic gamble isn't paying off]

And what might those elements be?

Analyst Daniel Clifton of Strategas Research makes an educated guess. He thinks President Obama may get the chance to sign an $800 billion (over 10 years) bill that would contain features such an individual mandate to buy health insurance, subsidies up to 300 percent of the poverty limit to purchase a regulated plan through a health insurance “exchange”, and an expansion of Medicaid.

Obama might even get his commission that would try to determine what Medicare pays doctors and hospitals — now that the Congressional Budget Office has determined it would pretty much be powerless.

As one lobbyist put it: “I would see this as mostly a symbolic victory (for Republicans), as the Dems can get most of what they want without calling it a public option. Frankly. it’s pretty close to the Massachusetts model.”

[See five ways to boost the economy and create jobs]

Ah yes, the Massachusetts model. The state passed sweeping reform in 2006 under Governor Mitt Romney. What would a similar approach mean for America?

Well, there would be a lot fewer uninsured people. Massachusetts has halved the number of people without health insurance, with just 2.6 percent not currently covered.

But the reform has been far less successful bringing down costs. For starters, original cost estimates for Commonwealth Care projected the program would cost $400 million in 2008 and $725 million in 2009. The actual numbers were $628 million in 2008 and $869 billion for this year (with some costs estimates of $1 billion or more).

Moreover, health insurance premium costs continue to rise at a rapid clip of 9.4 percent a year, compared with 7.7 percent for the United States on average. As the Urban Institute found: “Health spending in Massachusetts is higher than the United States on average and is growing at a faster rate. Furthermore, health insurance premiums are growing even faster than health care costs in the state.”

So America might find itself in 2012 with lots more people covered, but in an ever more expensive system. And President Obama might find himself doing what Romney’s Democratic successor, Governor Deval Patrick, is doing: cutting back the subsidies that allow poorer residents to buy insurance.

The state is also considering moving away from fee-for-service medicine, where doctors are incentives to perform lots of pricey procedures rather than focusing on results.

But Obama and Democrats might also make this argument: We expanded coverage and now it’s time to finish the job by getting costs under control. And the only way of doing that is … a public insurance option!

Indeed, the Urban Institute makes the same argument that Team Obama surely would: that the presence of a national plan would force insurers to compete with a plan with strong bargaining power and, as an arm of government, a powerful financial interest in containing costs.

What’s happening in Washington isn’t the end of healthcare reform, it’s merely the end of the beginning.

COMMENT

It’s absolutely fascinating how quickly big pharma and Fox News can whip up a frenzy-fest of people who fight against their own best interests:

How providing cost reducing OPTIONS can be twisted into —> “a government take-over of health care”.

How providing free LIVING WILL CONSULTATIONS, can be twisted into —> “Obama’s death panels”.

How providing PREVENTATIVE CARE INCENTIVE for doctors, can be twisted into “government coming in between you and your health care provider”.

HOW FINALLY PROVIDING ADEQUATE CARE FOR AMERICANS WHO CAN LEAST AFFORD IT, IS TWISTED INTO —> “SOCIALIZED MEDICINE”

I have one simple request for anyone reading this:
Think for one moment what will occur if the insurance lobby wins and real reform is NOT passed:

Carefully think about this and ask yourself if you are happy with your health insurance cost going up by 200% the rate of inflation year, after year, after year.

Ask yourself if you are happy with millions of jobs being shipped overseas due to high health costs in the U.S.

Ask yourself if you will be happy as the U.S. health system continues to spend a higher portion of its gross domestic product than any other country, but also continues to rank WORST in preventable deaths among industrialized nations. WORST!!!

If this really is a Christian nation, as most would claim, I am seeing fewer and fewer signs of it every day. What ever happened to, ‘Amen, I say to you, whatever you did for one of these least brothers of mine, you did for me.’?

I can’t help but to wonder why those angry mobs at the town hall meetings are not fighting FOR the PUBLIC OPTION rather than against it? Why they are not picketing the insurance industry that is financially incentivized to DENY your coverage (based on pre-existing conditions, etc. etc. etc.). Why medical payments are STOPPED, after a fixed period of time EVEN THOUGH YOU HAVE MADE INSURANCE PAYMENTS LIKE CLOCKWORK YOUR ENTIRE ADULT LIFE.

You want to see a REAL death panel at work? Just look into the current practices of even the most popular health insurance providers.

Get the facts, and then get real folks. If you assist in blowing THIS CHANCE for high quality health care that EVERYONE can afford, then there may never be another opportunity to once-and-for-all get this one right.

References:
http://www.nchc.org/facts/cost.shtml
http://www.americashealthrankings.org/20 08/index.html
http://www.who.int/whr/2000/media_centre  /press_release/en/index.html
http://www.reuters.com/article/healthNew s/idUSN0765165020080108
Matthew 25:40

Posted by Iam-ru Awake | Report as abusive

Why the White House may be forced to get tough on China

Jul 29, 2009 14:00 UTC

Might America and China be headed toward a falling out over currency issues as U.S. unemployment worsens? The always superinsightful Andy Busch of BMO Capital Markets makes a helluva point here (bold is mine):

Under the Bush administration, the US Treasury had a clear policy of pressuring the Chinese to change their currency regime that kept the currency stable and generated massive US dollar reserve accumulation. This structure created the massive imbalances between the countries and created worries that situation was inherently unstable and dangerous.

Under the Obama administration, the US Treasury is not pressuring the Chinese and this was apparent during the meetings this week. President Barack Obama opened Monday’s discussions by declaring that the United States sought a new era of “cooperation, not confrontation” with China and that management of the U.S.-China relationship would be a major factor in defining the history of the 21st century according to AP.

This set the tone of the meetings to not upset the delicate fiscal and monetary paradigms that are in place. Treasury Secretary Tim Geithner made no mention of the Chinese currency regime nor of the detrimental effect it continues to have on global imbalances.

The irony is that the Chinese are the ones publicly stating that there are major concerns with the United States and the way the Obama administration and Congress are running their finances. After the Monday talks had ended, Assistant Finance Minister Zhu Guangyao said, “We sincerely hope the U.S. fiscal deficit will be reduced, year after year….The Chinese government is a responsible government and first and foremost our responsibility is the Chinese people, so of course we are concerned about the security of the Chinese assets.”

So while the Chinese are sticking up for their workers, the US appears to be abandoning theirs. I wonder how long US manufacturers and US labor will continue to cooperate and not confront the Obama administration on this issue when unemployment breaches 10%?

COMMENT

…visualize this scene…

(grocery store, spoiled toddler Geithner wailing, writheing noodle legs, exasperated Chinese guardian)

“But I want you to float the Yuan! I won’t monetize the debt….I promise! You have to float the Yuan, you just have to!”

Posted by Hank Reardon | Report as abusive

Obama and the Investor Class: more on the Great Coincidence

Jul 29, 2009 13:50 UTC

Obama agenda falters, stock market rallies. I like to call this the Great Coincidence since, of course, the Investor Class would have no problem during a recession with higher income, investment, corporate, healthcare and energy taxes plus more regulation and intervention into the private sector. But wait! This article from The Hill makes the case that there might be something real to the GC after all (bold is mine):

The Democratic agenda in Washington has gone off the rails just as markets are enjoying their best run of the Obama presidency, and there’s a school of thought on Wall Street that it’s no coincidence. … “In general, I do think it’s positive it’s slowing down in Washington,” Merk said. Brian Gardner, an analyst with Keefe, Bruyette & Woods, explains that when markets cratered in March, investors worried the Obama administration would nationalize the country’s banks, impose punitive rules on credit card issuers and allow judges to lower the principal and interest payments on mortgages … Since then, the bankruptcy bill has fizzled and nationalization talk has died out. President Barack Obama did sign a credit card bill into law, but its provisions were much weaker than the industry feared. … “It’s very much a factor in what’s driving the market over the last couple weeks,” Gardner said of the slowed agenda in Washington. … The rally also creates some opportunities for Obama, as millions of voters start to feel more optimistic about their 401(k)s. Gardner said this should provide some grounds for Obama’s administration to argue it saved the economy from utter collapse.

Me: A rising net worth is something tangible Team Obama can point to even as the jobless rate remains high.

COMMENT

A prime near socialist example of disintegration inside out would be Norway. Flush with oil profits and a huge sovereign account – their unemployed and disabled on the public tab is skyrocketing as their overall GDP plummets.

Stupidity [or acting stupidly] rushes like water to the lowest level.

If the youngest amongst us aren’t willing to contribute, what trajectory do we have?

Posted by Hank Reardon | Report as abusive

More on where healthcare reform is heading …

Jul 28, 2009 15:23 UTC

From superanalyst Dan Clifton of Strategas Research:

Should the Senate Finance Committee reach an agreement, the plan will likely take the form of an $800bn package inclusive of: a) an individual mandate; b) an employer mandate and a state based cooperative; c) insurance reforms such as guaranteed issue and community rating; d) a health insurance exchange subsidized up to 300 pct. of the poverty limit; and, e) an expansion of Medicaid in the range of 125 to 133 pct. of the poverty line. Notes – The health insurance exchange (part d) and the expansion of Medicaid (part e) are key to getting coverage, but also carry the highest cost – rendering them vulnerable to potential delays in program and eligibility implementation.

Are profits forecasting a V-shaped recovery?

Jul 28, 2009 15:05 UTC

David Rosenberg of Gluskin Sheff doesn’t think so:

Much is being made of the fact that over 70% of U.S. companies are beating their low-balled earnings estimates, but the majority are still missing their revenue targets (as per Verizon and Honeywell in yesterday’s reports — top-lines down 6.7% and 22% respectively). Even so, a momentum-driven market will always be driven by just that — momentum; and there’s no doubt that investor risk appetite is being whetted. But after paying for the end of the recession in May, the market is now pricing in 40-50% earnings growth for next year, and while costs have aggressively been taken out of the system, this sort of unprecedented profits revival can only occur in the context of a V-shaped recovery, which we give 1-in-50 odds of occurring.

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