Friday's news that U.S. gross domestic product grew by only 2.5 percent came as a disappointment. After all, that performance not only fell short of the consensus expectation of three percent GDP growth, but was aided by a one-time bump for inventory expansion deferred from the last quarter of 2012. And while the strengthening housing market was a bright spot, those gains were offset by the contraction of government spending that on average has slashed half a point off GDP each quarter since early 2010. As it turns out, after years of austerity by state and local governments, Uncle Sam, too, is holding back U.S. economic growth.

As Floyd Norris explained in the New York Times, the U.S. hasn't seen this kind of contraction since the post-Korean War demobilization of the mid-1950's:

The G.D.P. report released Friday states the total government part of G.D.P. - federal, state and local - came to $3.0306 trillion in the first quarter of this year. That is 0.01 percent below the $3.0309 trillion recorded four years earlier.

Those are nominal figures, not adjusted for inflation...On a real basis, the decline was 6.5 percent.

And that kind of drag, Jared Bernstein warned, is offsetting the double-digit expansion the housing sector has enjoyed for three straight quarters:

Housing continues to be a bright spot as residential investment was up almost 13% on an annual basis. Housing has now been a positive contributor to growth for two-years running, adding 0.3% to the 2.5% growth rate for the first quarter.

But the government sector more than offset housing's contribution, shaving 0.8% off of the growth rate, with across the board declines in defense, non-defense, and state and local public spending. Since 2010q1, the public sector has, on average, taken half-a-percent from real GDP growth per quarter.

Continue reading »

In what world does Fareed Zakaria live? Clearly, membership in the Council on Foreign Relations and participating at Davos comes with privileges that does not include recognizing an economy that only works for a minutely small percentage of people. Instead, Fareed Zakaria celebrates the elitism and growing income inequality that Thatcherism has wrought as 'vindication':

I grew up admiring Margaret Thatcher. It was obvious to many of us in India in the 1970s that socialist economics didn’t work and that Thatcher’s radical reforms were the right course, one we wished someone would advocate in India. (It took 12 years and a massive crisis for that to happen.) Her plans to cut taxes, privatize industry and deregulate have been vindicated by history, but that doesn’t tell us much about what to do today.

In fairness to Zakaria, he does admit that her solutions would not solve today's problems. But he glosses over completely the fact that her solutions--the same ones employed here by her economic soul mate Ronald Reagan--caused the economic woes we have now. Juan Cole:

In 1980 14% of the UK was in poverty. Today some 33% suffer multiple forms of financial insecurity.

“Over 30 million people (almost half the population) are suffering some degree of financial insecurity;

Almost 18 million people cannot afford adequate housing conditions;

Roughly 14 million cannot afford one or more essential household goods;

Almost 12 million people are too poor to engage in common social activities considered necessary by the majority of the population;

About 5.5 million adults go without essential clothing;

Around 4 million children and adults are not properly fed by today’s standards…

Around 1.5 million children live in households that cannot afford to heat their home.”

But in Zakaria's world a lower top marginal tax rate for the wealthiest and corporations is vindicated despite this dire situation. And yes, this is a situation exacerbated by liberal and conservative majorities alike, but unlike the elite Mr. Zakaria, let us never forget that this broken society started with Thatcher.

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way--in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.”

Charles Dickens, A Tale of Two Cities

Public opinion matters a great deal in the American system of government, just as it does in any democracy. But it sure isn’t the only thing that matters, as the following true story demonstrates. It’s what I call A Tale Of Two Constituencies.

Before I get deeper into my tale, though, my reader should know that in the land this tale comes from, the President had been elected and re-elected on not only a progressive platform, but arguably with the most populist rhetoric in 40 years. He had run his campaigns on fighting for the middle class, protecting the vulnerable from harm, taxing the wealthy, and taking on the wealthy special interests who were harming our economy. His re-election campaign had bragged about taking on Wall Street, and harshly criticized the vulture capitalist business practices of his opponent. And because of running these kinds of campaign, this President won 2 decisive victories in a row, becoming the first President of his center-left party to win a clear majority of the votes more than once since the 1930s.

So that gives you a sense of the kind of land this was, and the kind of President they had. Now for my tale. You see there two constituencies I wanted to compare and contrast in this democratic land governed by this center-left populist…

The first was extremely small in number, depending on how you count it only a few thousand people at the most. They represented the least popular institution in American society, even less popular in many polls than the Congress, which was saying something in a land where the Congressional leadership had been rated as less popular than head lice and root canal surgery. The group in question was widely blamed for an economic collapse more severe than any in 80 years, and was widely believed by journalists covering them, lawyers for many different clients who had dealt with them, and ex-prosecutors following their practices to have engaged in massive and wide-scale fraud on top of an estimated million counts of perjury in just one scam that they pulled off (something referred to by the media as robo-signing). They were reviled by every major bloc of American voters, including those of the conservative party as well as by all the key blocs of swing voters. And to top it all off, with their money and their rhetoric, they overwhelmingly supported the losing candidate in the Presidential election.

Continue reading »

The Obama administration on Friday lifted the covers on its compromise budget proposal for fiscal year 2014. While Obama's blueprint would slash the national debt by a projected $1.8 trillion over the next decade (bringing the total reductions since 2011 to $4.3 trillion) through painful changes to Social Security and Medicare, Republicans are predictably balking at Obama's call for $580 billion in new tax revenue. Despite the administration's up-front concessions on spending, GOP leaders including John Boehner, Mitch McConnell and Eric Cantor continue to repeat their talking points that "the President got his tax hikes in January" and "the discussion about revenue is over."

But as a quick glance at U.S. budgets past and future shows, the discussion over tax revenue should be far from over. For starters, thanks to two wars, the new unfunded Medicare prescription drug program and the government responses to the 2008 financial meltdown, federal spending surged over the previous decade even as tax revenue as a percentage of the U.S. economy hit 60 year lows. And looking ahead, the U.S. Treasury will need to raise revenues higher than the historical average not just to fill the massive hole left by the Naughts, but to fund $2 trillion more in war-related spending, to address the aging of the U.S. population and to meet the public's demands for more, not less, spending across almost every area of government.

Here are 10 reasons why Uncle Sam needs more tax revenue. (Click a link to jump to the details for each.)

Continue reading »

Is there any economic issue that Jim Cramer actually understands well?

Clearly, his stock tips prove that his understanding of investments leaves a lot to be desired. Jon Stewart simply eviscerated him on The Daily Show, leaving him a quivering mess. Now one would think that would cause Cramer to look much more seriously at his body of work, to show that he actually merits having his own financial show on a financial channel.

But that presumes far too much when it comes to Jim Cramer. Jim Cramer's idea for President Obama to 'fix' the economy? The Keystone XL Pipeline!

You want to put 60 thousand people to work in this country in four weeks because these jobs are there? Keystone Pipeline. But this is a fossil fuel vs greens debate. Why do I say the pipeline does work? Because these pipelines have been the creators, the largest creators of jobs in the last four years. You may hate fossil fuel. You may think it’s ridiculous to be able to have it so that oil and gas are in charge of hiring in this country. But we’ve got tons of oil and gas in the wrong places. You put people to work on pipelines, $60,000 is the minimum that you pay a pipeline worker. You put people to work all over this country. That’s what needs to happen.

Is anyone surprised to hear that just like his stock predictions, Cramer's assessment of the KXL pipeline is similarly pulled from his posterior?

First, TransCanada, the Canadian company seeking permission to build the KXL, estimates only 15,000 temporary jobs, which is only a statistical drop in the bucket when looking at the unemployment rolls, according to a Cornell University study on the impact. Moreover, the same Cornell study claims that long-term, the pipeline could prove to be a job-killer through higher fuel costs (remember, this pipeline is intended for Canadian tar sands oil to get to the Gulf of Mexico to sell to the highest bidder on the WORLD MARKET--none of this benefits directly US oil costs) and potential environmental disasters. One only needs to look at Arkansas to see how no matter how much Washington DC and TransCanada pooh-poohs the risk, the potential is devastating.

And guess what, Cramer? Top job creators in this country? Not oil companies.

But seriously, does anyone expect him to understand anything well any more?

You know it's true, but let me be the one to commit to publishing it: No one in Washington DC wants to solve our economic problems.

Sure, it makes great fodder for the Sunday shows. They can have on Paul Ryan and legitimize him as a Very. Serious. Economic. Wonk.™ to discuss how we have to effectively kill Social Security (which is deficit neutral as anyone who understands the program well knows) to "save" it for future generations. They can wring their hands over the unemployment rate as a way to blame President Obama, even though the private sector job growth has been positive for 24 straight months. They can invite on those same politicians that authorized the invasion and occupation of Iraq and Afghanistan as well as the Bush tax cuts and let them play concern troll over the deficit, as if history only started on January 2009. They can frame the issue as one of sacrifice and 'skin in the game', ignoring that the wealthiest nation in the world has seen the wealth gap widen enormously, offering its riches only for a very few and that 98 percent of us are doing worse than they were before the collapse.

There is an economic crisis that exists in this country and there are some serious solutions designed to resolve them. But you won't hear about them, because they're coming from the marginalized Congressional Progressive Caucus:

The “Back to Work” Budget contains a $544 billion increase over current spending on public investments and job creation in the first year, including $75 billion for an infrastructure program, $155 billion for a public works program and aid to distressed communities, $80 billion for hiring teachers and $92 billion for reinstating the Making Work Pay tax credit. It also expands unemployment insurance, sends more money to the states and undoes the sequester cuts.

The CPC estimates this will create $7 million jobs in the first year—and over the next ten years, the budget would spend over $4 trillion more on job creation and public investments.

But this massive spending is offset by a number of crucial revenue measures: The “Back to Work” budget increases taxes on millionaires and billionaires, taxes investments at the same level as wages, closes corporate tax loopholes, enacts both a financial transactions tax and a carbon tax, and introduces both a public option and government negotiating for drug prices to Medicare. In addition, the budget finds savings by cutting Pentagon spending back to 2006 levels.

In short, they sketch out the opposite vision of Paul Ryan: reduced military spending, robust public investment and a strong safety net.

But this plan involves making sacrifices at the top and increasing revenue, so the Beltway has deemed this a less serious plan than Ryan's, even though it has the same odds of passing as Ryan's does. Steve Benen:

Earlier, I suggested that the Senate Democrats' plan offers a bookend to the House GOP plan, but upon further reflection, that's not quite right. Ryan aims for radicalism; Senate Dems aim for modesty. Ryan throws caution to the wind and laughs at calls for compromise; Senate Dems deliberately identify a moderate middle ground.

The actual bookend for Paul Ryan's vision is the Congressional Progressive Caucus' plan -- it's bold and unapologetic, presenting an agenda without real regard for whether folks on the other side of the aisle will find it worthwhile.

We'll never know for sure whether the public would be amenable to a vision like this. In fact, I have a strong hunch more than 99% of the population will never hear a single word about the "Back To Work Budget." But let's be clear about one thing: on Capitol Hill, when it comes to creating millions of jobs in a hurry, this is the only game in town.

And therein lies the problem: the solutions are there. Common sense solutions that will get us out of our economic rut and bring back prosperity to far more Americans than Ryan's budget will. But we'll only hear Ryan's plan. CPC members will not get invited on multiple Sunday shows to tout their vision. We'll only hear them ask for a grand bargain between the radicalism of Ryan and the center-middle milquetoast of the Murray Plan.

Because no one in Washington actually wants to find a solution.

That video was three short weeks ago, and in the interim, they've done it again, with the full compliance of the Republican party.

Three short weeks ago, we were talking about minimum wage hikes, infrastructure, economic growth, and pre-K for all! Now we're back to the same old nonsense about budgets and spending and austerity and "entitlements."

Why does it happen? I don't have the resources to actually count the number of reports done across cable and mainstream news, but the word "sequester" was used far too often. More reports have been done more consistently about budget cuts than just about anything else. Pundits are invited on the air to discuss them, people who have a vested interest in making sure austerity and 'cuts' are in the forefront of the collective American mind.

Those most bent over these automatic cuts are large public corporations, particularly large defense contractors. This is not to say that these cuts are good. They're not. They do have a 'trickle down' effect, and in this case it's likely to affect people I know and love. It might even have an effect on me directly, but indirectly it certainly will, as the economy slows and the next downturn kicks in.

Krugman is right: We're having the wrong conversation. The only way it's going to turn around is if we make that happen. The Occupy movement did it splendidly in 2011, despite many efforts to discredit and disrupt them. They put the focus back on working people, instead of the corporate masters who so desperately want to distract us.

As long as Republicans keep the focus on austerity, they're winning. The President is right to keep hammering on them for their refusal to deal. We all know they're not going to deal even if he hands them everything on a silver platter. Even 100 percent capitulation on Democrats' part would not bring a deal. Politically, the budget and spending are the only areas they have any traction at all.

Continue reading »

(Video removed at request of owner.)

Austerity is perhaps the single worst idea to come from the political elite over the past half decade, and that's saying a lot. It hurts people, "punishes" them as George Logothetis points out above. As he also says, it breeds extremism (the Tea Party here, Golden Dawn in Greece).

We need more smart, savvy businessmen like Logothetis out there among our elite. Ones who realize we need "capitalism with a conscience," that "the more one has, the higher the duty one has to give back," and perhaps most importantly, that "you're only as rich as the person next to you is poor."

Watch the video, it is well worth it.

Remember these words from Paul Krugman last week?

The threat to the recovery is Washington.

In anticipation of President Obama's State of the Union address this coming Tuesday, Chris Hayes asked what economist Paul Krugman (who has been right about economic issues all along, mind you) what he would like to hear in the address. While acknowledging with resignation that he probably won't get his wish, Krugman responds that he'd rather not hear the legitimization of deficit pearl clutching and advocation of austerity measures.

Like the rest of us liberals clamoring to be heard through the self-protecting insulation of the Beltway Bubble, Krugman makes the point that none of what he's advocated is more sophisticated than Econ 101, a class one would assume that every college graduate (which would be most members of Congress ) has taken. Yet these very basic economic concepts are alien to the Beltway.

It’s a very insular culture in Washington. It’s one of people who hang out together, who talk to each other, who don’t listen…what’s odd about my position on this stuff is I am, for the most part, not doing any kind of odd, unorthodox economics. I’m doing Macroeconomics 101, but that is not what people in DC hear. It’s not that they just don’t accept it. For the most part, they haven’t even heard about it. The notion that oh, the budget deficit is not a problem when the economy is depressed is barely in the Washington discourse. And because I’m still in touch with Macroeconomics 101, I’m really sort of out of it.

I've said it before and I'll say it again: we already know the solutions to our economic woes. We've gotten out of them before and we know what works. It has never been cutting spending and lowering taxes, no matter how many Republicans get booked on the Sunday shows to flood the discourse.

But in a sad addition to the "both sides do it" meme, the fact remains that even though these basic economic concepts and solutions remain patently obvious to those of us outside the Beltway Bubble, even those who should understand and embrace Keynesian economics miss the point, continually, as Dan Pfeiffer proves with this White House blog:

With less than three weeks before devastating, across the board cuts - the so-called "sequester" - are slated to hit, affecting our national security, job creation and economic growth, we must make sure we are having a debate over how to deal with these looming deadlines that is based on facts- not myths being spread by some Congressional Republicans who would rather see these cuts hit than ask the wealthiest and big corporations to pay a little bit more.

First, the notion that President Obama hasn't put forward a solution to deal with these looming cuts is false. In the fall of 2011, the President put forward a proposal to the Supercommittee for the specific purpose of laying out his vision to resolve the sequester and reduce our deficit by over $4 trillion dollars in a balanced way- by cutting spending, finding savings in entitlement programs and asking the wealthiest to pay their fair share. That proposal would have completely turned off the sequester while further reducing our deficit and ensuring we could still invest in the things we need to grow our economy and create jobs. That same approach was presented to Congress in the President's budget last year. And the President's last offer to Speaker Boehner in December remains on the table- an offer that meets the Republicans halfway on spending and on revenues, and would permanently turn off the sequester and put us on a fiscally sustainable path.

We should have a debate over how to best reduce the deficit. But with only three weeks until these indiscriminate cuts hit, Congress should find a short term package to give themselves a little more time to find a solution to permanently turn off the sequester. That package should have balance and include spending cuts and revenues.

Why on earth do we accept the framing of these ill-informed, petulant children on how the economy works instead of demanding that we adopt the measures that brought this country back into unprecedented levels of prosperity for most of its citizens after the Great Depression? When do the adults with the real solutions get their place at the table?

DOWNLOADS: (151)

PLAYS: (1537)

Embed

The threat to the recovery is Washington.

There is more truth in those seven words than in the entire 11.5 hours of Sunday news programming we monitor put together.

We were at the precipice of a global economic catastrophe, thanks directly to Republican policies, at the time that Barack Obama was inaugurated. While it's difficult to gauge success from the absence of devastation, there is no argument that the preemptory measures taken in the early days of the first Obama term did slowly turn the economy around. There's far to go still, especially when it come to jobs, but we're at least moving away from the cliff.

But...

If Republicans still take their marching orders from deep thinkers like Rush that could change. And Carly Fiorina shows the same fundamental understanding of the drivers of the economy that enabled her as a CEO to drive two major American corporations into the ground. For her, we have to keep cutting federal spending because...bureaucrats!

FIORINA: I think it's important to remember when we talk about the economy that a private-sector job and a public-sector job are not the same things. They're not equivalent. I'm not saying public-sector jobs aren't important, but a private sector job pays for itself. A private-sector job creates other jobs. A public-sector job is paid for by taxpayers.

The government does not spend and invest money as efficiently as the private sector. There's all kinds of data to support that. So it isn't simply a matter of saying, well, whatever job is created out there, if it's a bureaucrat in Washington, D.C., or a small-business owner hiring another employer, those are not equivalent thing.

(CROSSTALK)

KRUGMAN: ... when you say public-sector jobs, it is not a bureaucrat in Washington, D.C.

FIORINA: Oh, it is, actually.

KRUGMAN: When we talk about public-sector jobs, we look at the public-sector jobs that have been lost in large numbers in this, it's basically school teachers. Don't think about bureaucrats. It's school teachers. What we've laid off is hundreds of thousands of school teachers.

And we talk about the cuts in public spending that have happened, they are not, you know, some god-awful who-knows-what. It's actually public investment. It's largely fixing potholes and repairing bridges. So, you know, you have this image of these wasteful bureaucrats doing god knows what. What we've actually seen is an incredible drought of basic infrastructure...

FIORINA: And it is a fact...

KRUGMAN: ... and -- and laying off hundreds of thousands of school teachers.

FIORINA: It is a fact that virtually every department in every organization in Washington, D.C., has seen its budget increase for the last 40 years. That money is being paid to hire people. The number of people who are -- of course there are some teachers...

KRUGMAN: Almost -- almost no...

FIORINA: Of course there are some police officers. I'm not saying that.

KRUGMAN: ... the vast bulk of -- the vast bulk of public-sector employees are at the state and local level. They are largely school teachers, plus police officers, plus firefighters.

(CROSSTALK)

KRUGMAN: And your notion that it's all these bureaucrats, that's a myth that is used to...

(CROSSTALK)

FIORINA: It's a fact. It's not a myth. It's a fact.

Words have meanings. Fiorina needs to understand that the word "fact" has a specific definition which is not "partisan talking point" or "my opinion". There is little question that there is bloat in the bureacracies of federal offices. But that isn't where the cutting is happening.

A notable aspect of the July employment report is the decline in public-sector employment. In fact, public-sector employment (i.e. federal, state, and local government jobs) declined in 10 of the past 12 months, in sharp contrast to 29 consecutive months of private-sector job growth. Indeed, falling public employment has been among the largest contributors to unemployment in the United States since the end of the Great Recession.

In this month’s employment analysis, The Hamilton Project examines public-sector employment trends over the last three decades and finds that government employment contracted, both in absolute numbers and as a share of the population, during the Great Recession and throughout the current recovery.

Additionally, we report on the results of a new analysis that finds that the cuts in public school teachers are projected to reduce the future earnings of today’s students by more than five times as much as the current budget savings.[..]

Total government (i.e., the sum of state, local, and federal) employment has decreased by over 580,000 jobs since the end of the recession, the largest decrease in any sector since the recovery began in July 2009. State and local governments, faced with tough choices imposed by the confluence of balanced-budget requirements, falling tax revenues, and greater demand for public services, have been forced to lay off teachers, police officers, and other workers.

[..]In raw numbers, the largest cuts were to teachers, but of these occupations, the largest percentage decline was among emergency responders.

Transcripts below the fold:

Continue reading »