Understand that I have been a life long Registered Republican. But when Bush authorized torture and searches without warrants, I became an Independent because we are not the people who condones such behavior.
So when Barack Obama promised to change the way Washington works, I signed on 100%.
I was at an organizing meeting the day he announced, and attended a lot more meetings. I made telephone calls to voters in California, Texas and South Dakota. I wrote a check every month and on election day, I drove little old ladies to vote.
The point is that I really put some skin in the game because I thought it was important for the future of the country, and that is why I am now disappointed and depressed.
To be fair, Obama has done some really good things. Bob Gates is doing a really good job of reigning in an out of control defense department. Arne Duncan has stuck a finger in the eye of the teacher's union AND the NCAA. You gotta love that guy. General Shinsiki and his right hand person, Tammy, are really fixing the VA. You have to agree that Hilary, George and Richard have made amazing progress in how the world looks at us.
But on the big deals, Obama has been a total failure so let's walk through them.
1) Healthcare. An utter failure because it does absolutely nothing to slow down, let alone stop, the out of control health care costs. He turned to whole thing over to Nancy and Harry, the most incompetent members of Congress and they promptly sold it out to big Pharma and hospital lobbyists. It is so ugly that costs are already increasing and a RECORD number of Americans now have no coverage whatsoever.
2) The Economy. Fifteen million Americans are unemployed. Fifteen million more Americans are working short hours. Forty-four million Americans are now living in poverty. And this is all because he has surrounded himself with some of the dumbest human beings, i.e, Economists, and he doesn't seem to understand that all the programs they have produced are UTTER failures.
3)Financial Reform. This bill is a huge piece of garbage because it does not do the single most important job it should have done, e.g., it completely failed to take Too Big To Fail off the table. As a result, the next huge financial crisis is just a matter of time. Goldman Sachs, et al, are already at work finding ways around the restrictions in this stupid piece of legislation. Judging by their previous work, I have every confidence that Wall Street will screw all of us while making incredible riches for themselves. Obama just caved into the big money from Wall Street. Just check who are his big campaign contributors.
4)Afghanistan. This is a little bit more complicated and the jury is still out. Cheney, et all, bitched endlessly about the time Obama took to make a decision about AF/PAK as the region is now called. Compare that with Bush's overnight decision to invade Iraq. Obama has said that he did that to demand 100% commitments from the military that they would be able to win (whatever that means) if he gave them what they wanted. Fair enough and a good idea. But now David Petraeus (whom I have huge respect for)is already weaseling about the withdrawal date. Obama has screwed himself by being too clever by half. We are going to be in AF/PAK when your grandchildren are born.
But here is the thing that has finally broken my back/spirit/whatever. Today, Obama appointed Elizabeth Warren to be an "Assistant" to Timmy Geithner instead of nominating her to run the consumer protection agency she devised ten years ago. Don't believe any of the complete bullshit that the White House is offering for an explanation of this piece of complete cowardice. Here are the real facts. Timmy hates Elizabeth because she threatens the profits of his patrons on Wall Street. (And if you don't understand that fact, read earlier entries here.)
So here we are three years later. Instead of producing real change, Obama has sold out to his Wall Street contributors. He is already a millionaire. How much is enough? Apparently, there is "NO Enough"!
I don't remember being more depressed in my entire life, and it has been a long one. I guess, more than anything I feel betrayed, and that is a truly bad thing.
So what I am going to do is to take a long road trip and look at this incredibly beautiful county that is being stolen from us people we have sent to Washington to manage this country, and who have sold us out completely. Yes, I going to lick my wounds (and yours) in private.
I will be back with this rant in November when the elections are over and I have run out of road trip money.
Friday, September 17, 2010
Thursday, September 16, 2010
And Now, Some Really Bad News
As of today, 44,000,000 Americans are living in poverty and the number will go up steadily as unemployment benefits run out.
For a rich country, that is a shameful number.
And Obama's economic policy wonks have no idea what to do about it.
For a rich country, that is a shameful number.
And Obama's economic policy wonks have no idea what to do about it.
Tuesday, September 14, 2010
Some Good News....At Last
In all previous recessions and depressions, the crime rate has risen as more and more people became desperate for money. In The Great Recession Conspiracy, we pointed out the increase in violent crime.
Now the FBI has released data showing that the nation's crime rate declined 5% last year and that is in line with a twenty year trend. In 1991, there were 758.2 violent crimes per 100,000 population. Last year, it was 429.4. That's really good news.
And the decline is across all kinds of crimes. Here are the numbers, 2009/2008.
Robbery -8.0%
Murder -7.3%
Aggravate Assault -4.2%
Rape -2.6%
Burglary -1.3%
Larceny/Theft** -4.0%
Motor Vehicle Theft -17.1%
**Does not include Goldman Sachs.
Now the FBI has released data showing that the nation's crime rate declined 5% last year and that is in line with a twenty year trend. In 1991, there were 758.2 violent crimes per 100,000 population. Last year, it was 429.4. That's really good news.
And the decline is across all kinds of crimes. Here are the numbers, 2009/2008.
Robbery -8.0%
Murder -7.3%
Aggravate Assault -4.2%
Rape -2.6%
Burglary -1.3%
Larceny/Theft** -4.0%
Motor Vehicle Theft -17.1%
**Does not include Goldman Sachs.
Sunday, September 12, 2010
We Are On A Role!!
Now there is another economist arguing our side of an idea. Simon Johnson also endorses Elizabeth Warren. See his reasoning below.
.........................................................
The Baseline Scenario
What happened to the global economy and what we can do about it
Republican Nightmare: Putting Elizabeth Warren to Work Now
with 64 comments
By Simon Johnson
President Obama is finally looking for bold, creative, and clever ways to change the way the US economy operates – preferably with measures that will take effect by the November midterms and change the tone of the broader political debate. His tax proposals this week have some symbolic value, but in the broader sense all of these fiscal suggestions are tinkering at the margins.
What could he possibly do that would grab people’s attention, mobilize his political base, and put his opponents on the defensive? There is an easy answer: Appoint Elizabeth Warren to start running the Consumer Financial Protection Bureau (CFPB) immediately.
And the brilliant part of this idea – as explained by Shahien Nasiripour at the Huffington Post (see also David Dayen’s Thursday coverage)– is that the Dodd-Frank financial reform legislation allows the person charged with setting up this new agency to be an outright appointment, rather than a nomination subject to Senate confirmation.
Elizabeth Warren’s credentials are impeccable – she came up with the original idea for the CFPB, she pushed effectively for it to become legislation, and she has proved most effective in her oversight role as chair of the Congressional Oversight Panel (COP) for the Troubled Asset Relief Program. And her manifesto for the CFPB is sensible and actually pro-business – although she naturally opposes the specific ways in which big banks mistreat people.
No doubt Republicans in the Senate would try to derail her nomination to head the CFPB as they have done with numerous other nominations over the past year and a half. Their motivation would not be her views or expertise – she has earned serious Republican respect as a result of her COP role – just part of their electoral strategy to block the president’s agenda and to undermine an agency they have consistently opposed.
The Treasury Secretary is explicitly authorized by an Act of Congress to pick an interim head for the new agency – with a view to getting it up and running immediately (in fact, what has he been waiting for?) Presumably the Senate (and the House) passed this specific measure expressly to expedite the CFPB’s work.
Professor Warren has strong political support and would get the new agency off to a great start. She would represent the Obama administration’s serious attempt to rein in financial misbehavior – at the same time as keeping the economic recovery on track. Anyone who thinks she would be bad for American families has not been paying close attention. And best of all, she is very good at explaining what she is doing and why that makes sense.
The president needs clearer messages and stronger substance – and he needs them fast. He should move at once to appoint Elizabeth Warren.
.........................................................
The Baseline Scenario
What happened to the global economy and what we can do about it
Republican Nightmare: Putting Elizabeth Warren to Work Now
with 64 comments
By Simon Johnson
President Obama is finally looking for bold, creative, and clever ways to change the way the US economy operates – preferably with measures that will take effect by the November midterms and change the tone of the broader political debate. His tax proposals this week have some symbolic value, but in the broader sense all of these fiscal suggestions are tinkering at the margins.
What could he possibly do that would grab people’s attention, mobilize his political base, and put his opponents on the defensive? There is an easy answer: Appoint Elizabeth Warren to start running the Consumer Financial Protection Bureau (CFPB) immediately.
And the brilliant part of this idea – as explained by Shahien Nasiripour at the Huffington Post (see also David Dayen’s Thursday coverage)– is that the Dodd-Frank financial reform legislation allows the person charged with setting up this new agency to be an outright appointment, rather than a nomination subject to Senate confirmation.
Elizabeth Warren’s credentials are impeccable – she came up with the original idea for the CFPB, she pushed effectively for it to become legislation, and she has proved most effective in her oversight role as chair of the Congressional Oversight Panel (COP) for the Troubled Asset Relief Program. And her manifesto for the CFPB is sensible and actually pro-business – although she naturally opposes the specific ways in which big banks mistreat people.
No doubt Republicans in the Senate would try to derail her nomination to head the CFPB as they have done with numerous other nominations over the past year and a half. Their motivation would not be her views or expertise – she has earned serious Republican respect as a result of her COP role – just part of their electoral strategy to block the president’s agenda and to undermine an agency they have consistently opposed.
The Treasury Secretary is explicitly authorized by an Act of Congress to pick an interim head for the new agency – with a view to getting it up and running immediately (in fact, what has he been waiting for?) Presumably the Senate (and the House) passed this specific measure expressly to expedite the CFPB’s work.
Professor Warren has strong political support and would get the new agency off to a great start. She would represent the Obama administration’s serious attempt to rein in financial misbehavior – at the same time as keeping the economic recovery on track. Anyone who thinks she would be bad for American families has not been paying close attention. And best of all, she is very good at explaining what she is doing and why that makes sense.
The president needs clearer messages and stronger substance – and he needs them fast. He should move at once to appoint Elizabeth Warren.
Another Economist Agrees With Us.
In The Great Recession Conspiracy, we pointed out that the best stimulus was to put cash into the economy and end the Contraction would be to spend it on repairing our rapidly deteriorating infrastructure. A year ago, I sent Robert Frank a copy of the book. His column in today's New York Times is good evidence he read it.
......................................................
September 11, 2010
Building the Bridges to a Sustainable Recovery
By ROBERT H. FRANK
LAST year’s economic stimulus program helped stem a crisis that was poised to rival the Great Depression. That’s the conclusion of the nonpartisan Congressional Budget Office, which recently assessed the program’s impact.
Now, those stimulus payouts are waning, and are being offset by spending cuts by state and local governments. As a result, a fragile economic recovery is faltering.
Many policy economists from both major political parties agree that additional stimulus would help put the recovery back on track. But many analysts say that growing fears about budget deficits make that step politically unthinkable.
All the while, however, we’re facing vivid examples of failing infrastructure across the country. Clearly, the maintenance and rebuilding of bridges, roads, water systems and the like can’t be postponed forever. And the work will never be cheaper to accomplish than right now, when high unemployment and excess capacity have put the opportunity cost of the necessary labor and equipment near zero.
In short, circumstances cry out for an immediate rebuilding effort. President Obama’s proposal last week to create a $50 billion infrastructure renewal bank is thus a small but welcome first step.
Europe spends about 5 percent of its annual gross domestic product on infrastructure, while China spends about 9 percent, according to the “Report Card for America’s Infrastructure” by the American Society of Civil Engineers. In the United States, which spends less than 2.5 percent, chronically deferred maintenance has left the infrastructure in dangerously substandard condition.
More than 25 percent of the nation’s bridges, for example, were structurally deficient or obsolete in 2007, according to the Federal Highway Administration.
Many problems have grown worse. The Association of State Dam Safety Officials estimated that 4,404 dams were unsafe or deficient in 2008. That was up from 4,095 in 2007 and 3,500 in 2005.
According to data compiled by the civil engineers’ society, planned spending across 15 categories of infrastructure, including aviation, drinking water systems, energy programs, levees, roads, schools and wastewater treatment, will fall short of needed investment by a cumulative total of more than $1.8 trillion in the next five years.
And periodic disasters — like Hurricane Katrina and the Interstate 35 bridge collapse in Minneapolis — have continued to remind us that we should not be neglecting these investments.
Deferring maintenance does nothing to alleviate our national indebtedness; in fact, it makes the problem far worse. According to the Nevada Department of Transportation, for instance, rehabilitation of a 10-mile section of I-80 that would cost $6 million this year would cost $30 million in two years, after the road deteriorated further.
If such a project is at all representative, spending an extra $100 billion nationwide on interstate highway maintenance now would reduce the national debt two years from now by several hundred billion dollars, relative to its level if no action were taken.
Some people object that infrastructure spending takes too long to roll out. But many projects could be started immediately. And remarkably low long-term interest rates imply that markets expect several more years of sluggish economic activity, so even projects that take a little longer would still be timely.
But won’t this extra spending make the deficit problem worse? A better question is this: Why is anyone worried about short-run deficits in the first place?
Deficits are a long-run problem. Every cent the government borrows must eventually be repaid with interest (or, equivalently, be carried at interest indefinitely), so it’s important to pay our bills. Although spending cuts will help, the retirement of millions of baby boomers will also make it necessary to increase revenue.
But not now. With consumer and investment spending remaining far below normal, the short-run imperative is to increase total spending by enough to put everyone back to work as quickly as possible.
Even if we ignore the savings from worthy investments in roads and bridges, additional government spending has a much smaller effect on deficits than is commonly assumed. Conventional economic models estimate that each dollar of deficit-financed stimulus spending will increase the deficit by 40 to 50 cents. But getting the economy back on track more quickly also has many offsetting long-run benefits that those models ignore.
For example, by reducing the number of children who spend part of their formative years in poverty, timely government spending will increase their lifetime earnings trajectories and, as a result, their lifetime tax payments. By improving their health and the health of their parents, such government spending will also reduce demand for costly public services.
SPEEDING the economic recovery also has positive effects on revenue through its effect on capital markets. By increasing investment, it permanently increases the nation’s capital stock, causing an upward shift in wages, with corresponding increases in tax revenue. In addition, it increases spending on research and development, causing similar increases in income and revenue. It also increases the ultimate revenue yields from the dividend, capital gains and estate taxes.
Economists have made no systematic attempt to estimate the present value of these effects. But it is clear that many of them are large and long-lived. And because they help avert more costly problems, timely investments in infrastructure may be the most powerful debt-reduction strategy of all.
With the midterm elections looming and deficit hysteria at a fever pitch, it is far from certain that even the president’s modest proposal can gain Congressional approval. If it can’t, our infrastructure clearly isn’t the only thing that needs fixing.
Robert H. Frank is an economics professor at the Johnson Graduate School of Management at Cornell University.
......................................................
September 11, 2010
Building the Bridges to a Sustainable Recovery
By ROBERT H. FRANK
LAST year’s economic stimulus program helped stem a crisis that was poised to rival the Great Depression. That’s the conclusion of the nonpartisan Congressional Budget Office, which recently assessed the program’s impact.
Now, those stimulus payouts are waning, and are being offset by spending cuts by state and local governments. As a result, a fragile economic recovery is faltering.
Many policy economists from both major political parties agree that additional stimulus would help put the recovery back on track. But many analysts say that growing fears about budget deficits make that step politically unthinkable.
All the while, however, we’re facing vivid examples of failing infrastructure across the country. Clearly, the maintenance and rebuilding of bridges, roads, water systems and the like can’t be postponed forever. And the work will never be cheaper to accomplish than right now, when high unemployment and excess capacity have put the opportunity cost of the necessary labor and equipment near zero.
In short, circumstances cry out for an immediate rebuilding effort. President Obama’s proposal last week to create a $50 billion infrastructure renewal bank is thus a small but welcome first step.
Europe spends about 5 percent of its annual gross domestic product on infrastructure, while China spends about 9 percent, according to the “Report Card for America’s Infrastructure” by the American Society of Civil Engineers. In the United States, which spends less than 2.5 percent, chronically deferred maintenance has left the infrastructure in dangerously substandard condition.
More than 25 percent of the nation’s bridges, for example, were structurally deficient or obsolete in 2007, according to the Federal Highway Administration.
Many problems have grown worse. The Association of State Dam Safety Officials estimated that 4,404 dams were unsafe or deficient in 2008. That was up from 4,095 in 2007 and 3,500 in 2005.
According to data compiled by the civil engineers’ society, planned spending across 15 categories of infrastructure, including aviation, drinking water systems, energy programs, levees, roads, schools and wastewater treatment, will fall short of needed investment by a cumulative total of more than $1.8 trillion in the next five years.
And periodic disasters — like Hurricane Katrina and the Interstate 35 bridge collapse in Minneapolis — have continued to remind us that we should not be neglecting these investments.
Deferring maintenance does nothing to alleviate our national indebtedness; in fact, it makes the problem far worse. According to the Nevada Department of Transportation, for instance, rehabilitation of a 10-mile section of I-80 that would cost $6 million this year would cost $30 million in two years, after the road deteriorated further.
If such a project is at all representative, spending an extra $100 billion nationwide on interstate highway maintenance now would reduce the national debt two years from now by several hundred billion dollars, relative to its level if no action were taken.
Some people object that infrastructure spending takes too long to roll out. But many projects could be started immediately. And remarkably low long-term interest rates imply that markets expect several more years of sluggish economic activity, so even projects that take a little longer would still be timely.
But won’t this extra spending make the deficit problem worse? A better question is this: Why is anyone worried about short-run deficits in the first place?
Deficits are a long-run problem. Every cent the government borrows must eventually be repaid with interest (or, equivalently, be carried at interest indefinitely), so it’s important to pay our bills. Although spending cuts will help, the retirement of millions of baby boomers will also make it necessary to increase revenue.
But not now. With consumer and investment spending remaining far below normal, the short-run imperative is to increase total spending by enough to put everyone back to work as quickly as possible.
Even if we ignore the savings from worthy investments in roads and bridges, additional government spending has a much smaller effect on deficits than is commonly assumed. Conventional economic models estimate that each dollar of deficit-financed stimulus spending will increase the deficit by 40 to 50 cents. But getting the economy back on track more quickly also has many offsetting long-run benefits that those models ignore.
For example, by reducing the number of children who spend part of their formative years in poverty, timely government spending will increase their lifetime earnings trajectories and, as a result, their lifetime tax payments. By improving their health and the health of their parents, such government spending will also reduce demand for costly public services.
SPEEDING the economic recovery also has positive effects on revenue through its effect on capital markets. By increasing investment, it permanently increases the nation’s capital stock, causing an upward shift in wages, with corresponding increases in tax revenue. In addition, it increases spending on research and development, causing similar increases in income and revenue. It also increases the ultimate revenue yields from the dividend, capital gains and estate taxes.
Economists have made no systematic attempt to estimate the present value of these effects. But it is clear that many of them are large and long-lived. And because they help avert more costly problems, timely investments in infrastructure may be the most powerful debt-reduction strategy of all.
With the midterm elections looming and deficit hysteria at a fever pitch, it is far from certain that even the president’s modest proposal can gain Congressional approval. If it can’t, our infrastructure clearly isn’t the only thing that needs fixing.
Robert H. Frank is an economics professor at the Johnson Graduate School of Management at Cornell University.
Saturday, September 11, 2010
The New York Times Understands How The Economy Works.
In our book, The Great Recession Conspiracy, we point out that during the Contraction Phase of the Business Cycle it is of utmost importance to put money into the economy so that small businesses (the source of 70% of all new jobs)have full and growing order books. They will then have to hire new people to handle the expanding business. It is as simple as that. However, nobody in Congress or the Administration seems to understand that simple fact.
We are not alone in this view. Pay attention to the last paragraph and then join us in screaming.
****************************************************************
Tax Cuts May Prove Better for Politicians Than for Economy
By DAVID KOCIENIEWSKI
With Congressional midterm elections looming, the financial debate in Washington this fall will probably be consumed by one incendiary and expensive issue: whether, and how, to extend the multitrillion-dollar Bush tax cuts.
President Obama is advocating a mixed bag of tax proposals. He wants to extend the cuts for all but the wealthiest 2 percent of Americans and offer businesses hundreds of billions in breaks and write-offs intended to encourage investment and hiring.
Republicans, and a few Democrats, assert that the Bush tax cuts should be extended for everyone, warning that a tax increase right now, even if limited to the highest income bracket, would hurt small businesses and choke off an economic recovery that is already gasping.
Given the economy’s persistent weakness and an unemployment rate hovering above 9.5 percent, those arguments have gained traction. And because another round of government stimulus spending is considered politically unviable even if it were warranted, the debate over the tax cuts will be laced with promises to spur economic activity and reduce unemployment. The concept of lower taxes is so appealing to voters that many embrace them as an economic cure-all.
But economic research suggests that tax cuts, though difficult for politicians to resist in election season, have limited ability to bolster the flagging economy because they are essentially a supply-side remedy for a problem caused by lack of demand.
The nonpartisan Congressional Budget Office this year analyzed the short-term effects of 11 policy options and found that extending the tax cuts would be the least effective way to spur the economy and reduce unemployment. The report added that tax cuts for high earners would have the smallest “bang for the buck,” because wealthy Americans were more likely to save their money than spend it.
The office gave higher marks to the proposal, now embraced by President Obama, to allow small businesses to write off 100 percent of their investment costs.
Neither of those options, though, would do as much to stimulate the economy as offering direct payments to the unemployed and Social Security recipients or reducing the payroll taxes of workers, the study found. But those proposals — as well as aid to states and municipalities — are considered politically untenable with many elected officials reluctant to even utter the word “stimulus” after the $787 billion stimulus.
So while the decision on whether to extend the tax cuts will have a lasting impact on the deficit and on how the nation’s tax burden is distributed, economists and tax experts say it is unlikely to offer much immediate relief for high unemployment and sluggish growth.
“It may have some small impact along the margins, but firms don’t hire based on tax breaks; they hire based on demand,” said Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center. “So a lot of the tax breaks are likely to be rewarding people and companies for that they were going to do anyway.”
When they were signed into law in 2001 and 2003, the huge package of income and capital gains tax reductions that became known as the Bush tax cuts were hailed as a way distribute the government surplus and promote long-term economic growth. Mr. Bush was so confident in their power to generate business growth and revenue that he predicted they would enable the government to pay down $1 trillion in debt in just four years.
Those surpluses have now become crushing deficits because of a combination of factors, including the recession, the cost of the wars in Iraq and Afghanistan, the Medicare prescription drug benefit, and the $1.7 trillion in forgone revenue from the tax cuts themselves.
The specter of a ballooning national debt has led even some of the early supporters of the cuts, including the former Federal Reserve chairman Alan Greenspan, to advocate letting them expire.
Republicans, however, argue that it is essential that they be extended, because taking money out of an economy this frail would derail any hope of a robust recovery.
“We don’t think taxes ought to be increased in the middle of a recession for anyone,” Senator Mitch McConnell, the minority leader from Kentucky, said this summer.
The Obama administration dismisses that argument, saying that nearly a third of the cost of the cuts — more than $700 billion during the next decade — would go to the wealthiest 2 percent of Americans.
“They are essentially arguing that we add $700 billion to the deficit in return for $35 billion in what has been found to be the least effective means of stimulus,” said Jason Furman, a deputy assistant to the president overseeing economic policy.
Mr. Obama’s proposal would preserve the tax cuts for families that earn less than $250,000 a year (or individuals who make less than $200,000) at a cost of $2.8 trillion over the next decade.
Rather than continuing the breaks for the wealthy, however, Mr. Obama proposes an assortment of tax cuts to encourage business investment and hiring. While he has carefully avoided calling his plan a stimulus, Mr. Obama is calling for a permanent extension of the research and development tax credit for businesses and a change that would allow companies to write off 100 percent of any investments made through 2011.
The president has also called for the creation of a $50 billion infrastructure bank to improve roads, airports and railways, which would stoke business and hiring in the moribund construction industry.
Those plans have received mixed reviews from business groups and economists.
R. Glenn Hubbard, an economist who helped write the Bush tax cuts, said Mr. Obama’s proposals borrow heavily from Republican ideas but would have little impact on business activity.
“Nothing in the administration’s program is good stimulus,” said Mr. Hubbard, now dean of the Columbia Business School. “Investment incentives coupled with a tax increase are not going to get the economy moving.”
But Kevin A. Hassett, an economist at the conservative American Enterprise Institute, predicts the business tax breaks might be enough to reignite the economy and increase investment by 5 to 10 percent. Because some investors and business owners have viewed Mr. Obama’s policies as antibusiness, he said, the very fact that the president is offering the tax incentives could also help to encourage investment.
“I think at some point Americans are going to finally accept that the worst is behind us and that we’re ready to boom again,” Mr. Hassett said. “And this is the kind of proposal that could change the psychology and create the positive momentum we need to really get out of this malaise.”
One curious omission in the Obama plan is the tax cut proposal that many, including the Congressional Budget Office, believe would do the most to spur hiring: a payroll tax holiday. According to various news reports, Obama economic advisers passed on the idea because they feared it would be too expensive or would deprive Social Security and Medicare of crucial revenue. Administration officials declined to discuss their decision.
Whatever Congress and the administration ultimately decide about extending the Bush cuts, however, the narrow confines of the debate show how successful antitax groups have been in defining the terms used to discuss tax policy. Since the tax protests of the 1980s, elected officials have increasingly used tax breaks to finance social programs and business subsidies, and today the cost of those “tax expenditures” is $1.2 trillion — about 25 percent of all spending.
Edward D. Kleinbard, former chief of staff of the bipartisan Joint Committee on Taxation, said the reliance on tax expenditures had distorted the budget process because it induced the public to overlook the fact that — unless they are accompanied by spending reductions — tax cuts have the same effect on the deficit as additional spending. It also allows politicians to make unsubstantiated claims about the power of tax-cutting to accomplish other economic goals, he said.
“The thought that tax cuts pay for themselves or that tax cuts alone can turn around this economy is magical thinking,” said Mr. Kleinbard, now a law professor at the University of Southern California. “The debate has become so unrealistic it makes you want to scream.”
We are not alone in this view. Pay attention to the last paragraph and then join us in screaming.
****************************************************************
Tax Cuts May Prove Better for Politicians Than for Economy
By DAVID KOCIENIEWSKI
With Congressional midterm elections looming, the financial debate in Washington this fall will probably be consumed by one incendiary and expensive issue: whether, and how, to extend the multitrillion-dollar Bush tax cuts.
President Obama is advocating a mixed bag of tax proposals. He wants to extend the cuts for all but the wealthiest 2 percent of Americans and offer businesses hundreds of billions in breaks and write-offs intended to encourage investment and hiring.
Republicans, and a few Democrats, assert that the Bush tax cuts should be extended for everyone, warning that a tax increase right now, even if limited to the highest income bracket, would hurt small businesses and choke off an economic recovery that is already gasping.
Given the economy’s persistent weakness and an unemployment rate hovering above 9.5 percent, those arguments have gained traction. And because another round of government stimulus spending is considered politically unviable even if it were warranted, the debate over the tax cuts will be laced with promises to spur economic activity and reduce unemployment. The concept of lower taxes is so appealing to voters that many embrace them as an economic cure-all.
But economic research suggests that tax cuts, though difficult for politicians to resist in election season, have limited ability to bolster the flagging economy because they are essentially a supply-side remedy for a problem caused by lack of demand.
The nonpartisan Congressional Budget Office this year analyzed the short-term effects of 11 policy options and found that extending the tax cuts would be the least effective way to spur the economy and reduce unemployment. The report added that tax cuts for high earners would have the smallest “bang for the buck,” because wealthy Americans were more likely to save their money than spend it.
The office gave higher marks to the proposal, now embraced by President Obama, to allow small businesses to write off 100 percent of their investment costs.
Neither of those options, though, would do as much to stimulate the economy as offering direct payments to the unemployed and Social Security recipients or reducing the payroll taxes of workers, the study found. But those proposals — as well as aid to states and municipalities — are considered politically untenable with many elected officials reluctant to even utter the word “stimulus” after the $787 billion stimulus.
So while the decision on whether to extend the tax cuts will have a lasting impact on the deficit and on how the nation’s tax burden is distributed, economists and tax experts say it is unlikely to offer much immediate relief for high unemployment and sluggish growth.
“It may have some small impact along the margins, but firms don’t hire based on tax breaks; they hire based on demand,” said Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center. “So a lot of the tax breaks are likely to be rewarding people and companies for that they were going to do anyway.”
When they were signed into law in 2001 and 2003, the huge package of income and capital gains tax reductions that became known as the Bush tax cuts were hailed as a way distribute the government surplus and promote long-term economic growth. Mr. Bush was so confident in their power to generate business growth and revenue that he predicted they would enable the government to pay down $1 trillion in debt in just four years.
Those surpluses have now become crushing deficits because of a combination of factors, including the recession, the cost of the wars in Iraq and Afghanistan, the Medicare prescription drug benefit, and the $1.7 trillion in forgone revenue from the tax cuts themselves.
The specter of a ballooning national debt has led even some of the early supporters of the cuts, including the former Federal Reserve chairman Alan Greenspan, to advocate letting them expire.
Republicans, however, argue that it is essential that they be extended, because taking money out of an economy this frail would derail any hope of a robust recovery.
“We don’t think taxes ought to be increased in the middle of a recession for anyone,” Senator Mitch McConnell, the minority leader from Kentucky, said this summer.
The Obama administration dismisses that argument, saying that nearly a third of the cost of the cuts — more than $700 billion during the next decade — would go to the wealthiest 2 percent of Americans.
“They are essentially arguing that we add $700 billion to the deficit in return for $35 billion in what has been found to be the least effective means of stimulus,” said Jason Furman, a deputy assistant to the president overseeing economic policy.
Mr. Obama’s proposal would preserve the tax cuts for families that earn less than $250,000 a year (or individuals who make less than $200,000) at a cost of $2.8 trillion over the next decade.
Rather than continuing the breaks for the wealthy, however, Mr. Obama proposes an assortment of tax cuts to encourage business investment and hiring. While he has carefully avoided calling his plan a stimulus, Mr. Obama is calling for a permanent extension of the research and development tax credit for businesses and a change that would allow companies to write off 100 percent of any investments made through 2011.
The president has also called for the creation of a $50 billion infrastructure bank to improve roads, airports and railways, which would stoke business and hiring in the moribund construction industry.
Those plans have received mixed reviews from business groups and economists.
R. Glenn Hubbard, an economist who helped write the Bush tax cuts, said Mr. Obama’s proposals borrow heavily from Republican ideas but would have little impact on business activity.
“Nothing in the administration’s program is good stimulus,” said Mr. Hubbard, now dean of the Columbia Business School. “Investment incentives coupled with a tax increase are not going to get the economy moving.”
But Kevin A. Hassett, an economist at the conservative American Enterprise Institute, predicts the business tax breaks might be enough to reignite the economy and increase investment by 5 to 10 percent. Because some investors and business owners have viewed Mr. Obama’s policies as antibusiness, he said, the very fact that the president is offering the tax incentives could also help to encourage investment.
“I think at some point Americans are going to finally accept that the worst is behind us and that we’re ready to boom again,” Mr. Hassett said. “And this is the kind of proposal that could change the psychology and create the positive momentum we need to really get out of this malaise.”
One curious omission in the Obama plan is the tax cut proposal that many, including the Congressional Budget Office, believe would do the most to spur hiring: a payroll tax holiday. According to various news reports, Obama economic advisers passed on the idea because they feared it would be too expensive or would deprive Social Security and Medicare of crucial revenue. Administration officials declined to discuss their decision.
Whatever Congress and the administration ultimately decide about extending the Bush cuts, however, the narrow confines of the debate show how successful antitax groups have been in defining the terms used to discuss tax policy. Since the tax protests of the 1980s, elected officials have increasingly used tax breaks to finance social programs and business subsidies, and today the cost of those “tax expenditures” is $1.2 trillion — about 25 percent of all spending.
Edward D. Kleinbard, former chief of staff of the bipartisan Joint Committee on Taxation, said the reliance on tax expenditures had distorted the budget process because it induced the public to overlook the fact that — unless they are accompanied by spending reductions — tax cuts have the same effect on the deficit as additional spending. It also allows politicians to make unsubstantiated claims about the power of tax-cutting to accomplish other economic goals, he said.
“The thought that tax cuts pay for themselves or that tax cuts alone can turn around this economy is magical thinking,” said Mr. Kleinbard, now a law professor at the University of Southern California. “The debate has become so unrealistic it makes you want to scream.”
Friday, September 10, 2010
Two Numbers To Contemplate
1% of all the U.S. households receive 24% of the U.S. Gross Domestic Product, e.g., the pie we all have to share.
Thursday, September 9, 2010
This post says it all!
Our internal foreign aid program
By William Easterly | Published August 26, 2010
The US Recovery Act (aka “stimulus package”) has put out this great map of where the money is being spent by Congressional District.
As I looked at where the money is being spent in the part of the country pictured (the part I know best), there did not seem to be a lot of rhyme or reason between Congressional Districts as far as population or need. Is it random? Could it be (shock!!!) that where the money is spent depends on the party, power, and skill of the Congressperson from that district?
The other interesting thing about the graph is the summation of total spending $218.737 billion and the creation of 749,142 jobs. Did it occur to them that somebody might divide the first number by the second and come up with the number per job (slightly less than $300K). Did anything think of just paying workers $300K directly, and letting them stay home and read poetry?
Of course, I am outside my area of expertise here. Perhaps the main point that I can make is that it is really GREAT that the US government was so transparent as to put these maps up (and many more – go to the web site!), so that citizens (hopefully including more intelligent commentators than me) can give feedback. When will foreign aid spending have maps like this? I hear rumors the day may be coming…
By William Easterly | Published August 26, 2010
The US Recovery Act (aka “stimulus package”) has put out this great map of where the money is being spent by Congressional District.
As I looked at where the money is being spent in the part of the country pictured (the part I know best), there did not seem to be a lot of rhyme or reason between Congressional Districts as far as population or need. Is it random? Could it be (shock!!!) that where the money is spent depends on the party, power, and skill of the Congressperson from that district?
The other interesting thing about the graph is the summation of total spending $218.737 billion and the creation of 749,142 jobs. Did it occur to them that somebody might divide the first number by the second and come up with the number per job (slightly less than $300K). Did anything think of just paying workers $300K directly, and letting them stay home and read poetry?
Of course, I am outside my area of expertise here. Perhaps the main point that I can make is that it is really GREAT that the US government was so transparent as to put these maps up (and many more – go to the web site!), so that citizens (hopefully including more intelligent commentators than me) can give feedback. When will foreign aid spending have maps like this? I hear rumors the day may be coming…
It is Deja Vu all over again (with thanks to Yogi)
See The Great Recession Conspiracy for an easy to understand description of The Savings Paradox because that is what this Washington Post article is discussing.
The Administration, apparently, still does not understand that the Business Cycle is driven by psychology, not finance. That is the sub text of the balance of the article.
*****************************************************************************
Federal Reserve 'beige book' signals widespread slowdown of economic growth
By Neil Irwin
Washington Post Staff Writer
Thursday, September 9, 2010; 2:34 AM
The U.S. economy continued growing this summer but "with widespread signs of deceleration," according to a new report on business conditions around the country.
The Federal Reserve's "beige book," an eight-times-a-year compilation of anecdotal information from companies in the 12 Fed districts, offers a portrait of an uncertain economic moment in which growth has slowed in much of the United States.
"Economic growth at a modest pace was the most common characterization of overall conditions," said the report, released Wednesday afternoon and based on interviews with businesspeople from mid-July through the end of August. However, five of the regional Fed banks east of the Mississippi River "highlighted mixed conditions or deceleration in overall economic activity."
Also Wednesday, new evidence pointed to American consumers continuing to reduce their indebtedness, though at a slower pace than forecast. Consumer credit declined by $3.6 billion in July, the Fed said, compared with the $4.7 billion decline analysts had forecast.
The drop was steepest in revolving debt, suggesting that people were paying down their credit card bills. The decline in debt is helping Americans adjust their finances to a more sustainable position, but using money to reduce debts also is a drain on economic activity in the near term.
The Labor Department on Wednesday released detailed information on the job market in July. The number of open positions rose by 178,000 that month, reflecting a slow improvement in conditions for people looking for work.
But the Job Openings and Labor Turnover survey also revised down its estimate of the number of job openings in June.
The anecdotal information contained in the beige book is consistent with a slew of economic reports showing that the burst of growth in late 2009 and early 2010 has not persisted through the summer, as the impact of businesses rebuilding their inventories and fiscal stimulus fades.
Overall economic activity, as measured by gross domestic product, rose at a 1.6 percent annual rate in the April-through-June quarter, too slow to push down the unemployment rate. Forecasts for the third quarter, which ends this month, are not much better.
According to the beige book, consumer spending seems to be rising slowly.
Most Fed districts reported that retail sales excluding automobiles rose, but the Atlanta Fed "reported a decline in the level of sales, and Richmond noted that sales 'sputtered' in August, while New York and Dallas reported that growth in retail sales slowed."
Spending on big-ticket items such as consumer electronics was weak, according to Fed banks in Philadelphia, Richmond and Dallas, and most districts reported that auto sales were "largely stable or up."
Manufacturing activity, meanwhile, "expanded further on balance, although the pace of growth appeared to be slower than earlier in the year."
Federal Reserve officials use the report to help decide the course of monetary policy, and it is released in advance of their policymaking meetings.
The Federal Open Market Committee is scheduled to meet Sept. 21. Officials are expected to leave their interest rate target near zero and will probably weigh whether to undertake any new unconventional efforts to prop up growth.
The Administration, apparently, still does not understand that the Business Cycle is driven by psychology, not finance. That is the sub text of the balance of the article.
*****************************************************************************
Federal Reserve 'beige book' signals widespread slowdown of economic growth
By Neil Irwin
Washington Post Staff Writer
Thursday, September 9, 2010; 2:34 AM
The U.S. economy continued growing this summer but "with widespread signs of deceleration," according to a new report on business conditions around the country.
The Federal Reserve's "beige book," an eight-times-a-year compilation of anecdotal information from companies in the 12 Fed districts, offers a portrait of an uncertain economic moment in which growth has slowed in much of the United States.
"Economic growth at a modest pace was the most common characterization of overall conditions," said the report, released Wednesday afternoon and based on interviews with businesspeople from mid-July through the end of August. However, five of the regional Fed banks east of the Mississippi River "highlighted mixed conditions or deceleration in overall economic activity."
Also Wednesday, new evidence pointed to American consumers continuing to reduce their indebtedness, though at a slower pace than forecast. Consumer credit declined by $3.6 billion in July, the Fed said, compared with the $4.7 billion decline analysts had forecast.
The drop was steepest in revolving debt, suggesting that people were paying down their credit card bills. The decline in debt is helping Americans adjust their finances to a more sustainable position, but using money to reduce debts also is a drain on economic activity in the near term.
The Labor Department on Wednesday released detailed information on the job market in July. The number of open positions rose by 178,000 that month, reflecting a slow improvement in conditions for people looking for work.
But the Job Openings and Labor Turnover survey also revised down its estimate of the number of job openings in June.
The anecdotal information contained in the beige book is consistent with a slew of economic reports showing that the burst of growth in late 2009 and early 2010 has not persisted through the summer, as the impact of businesses rebuilding their inventories and fiscal stimulus fades.
Overall economic activity, as measured by gross domestic product, rose at a 1.6 percent annual rate in the April-through-June quarter, too slow to push down the unemployment rate. Forecasts for the third quarter, which ends this month, are not much better.
According to the beige book, consumer spending seems to be rising slowly.
Most Fed districts reported that retail sales excluding automobiles rose, but the Atlanta Fed "reported a decline in the level of sales, and Richmond noted that sales 'sputtered' in August, while New York and Dallas reported that growth in retail sales slowed."
Spending on big-ticket items such as consumer electronics was weak, according to Fed banks in Philadelphia, Richmond and Dallas, and most districts reported that auto sales were "largely stable or up."
Manufacturing activity, meanwhile, "expanded further on balance, although the pace of growth appeared to be slower than earlier in the year."
Federal Reserve officials use the report to help decide the course of monetary policy, and it is released in advance of their policymaking meetings.
The Federal Open Market Committee is scheduled to meet Sept. 21. Officials are expected to leave their interest rate target near zero and will probably weigh whether to undertake any new unconventional efforts to prop up growth.
Wednesday, September 8, 2010
Two More Important Numbers To Understand
The blog, Economic Collapse, has a long list of amazing facts, but here are two that I think are closely connected. What do you think?
1)The richest fifty members of the Senate have a combined new worth of $1.4 Billion. To see what a billion $100 bills actually looks like, go to Section One of The Great Recession Conspiracy.
2) Derivatives have absolutely no value backing them up. They are side bets on somebody else's actions. They are the most profitable "work" of investment banks.
The derivative business is conducted in private and nobody keeps a total count, but the best estimates are that the total value of derivatives in place right now is somewhere between $600 Billion and $1.5 Quadrillion.
To put that into perspective:
The total U.S. GDP this year is $14 Trillion.
All it took to bring down AIG was $18 Billion in derivatives.
The next time the world economy starts to unravel, there will not be enough money in all the world to save us.
But that is O.K. since all the Wall Street bankers have told us to trust them because they would never let such a thing happen.
How does that work for you??
1)The richest fifty members of the Senate have a combined new worth of $1.4 Billion. To see what a billion $100 bills actually looks like, go to Section One of The Great Recession Conspiracy.
2) Derivatives have absolutely no value backing them up. They are side bets on somebody else's actions. They are the most profitable "work" of investment banks.
The derivative business is conducted in private and nobody keeps a total count, but the best estimates are that the total value of derivatives in place right now is somewhere between $600 Billion and $1.5 Quadrillion.
To put that into perspective:
The total U.S. GDP this year is $14 Trillion.
All it took to bring down AIG was $18 Billion in derivatives.
The next time the world economy starts to unravel, there will not be enough money in all the world to save us.
But that is O.K. since all the Wall Street bankers have told us to trust them because they would never let such a thing happen.
How does that work for you??
Tuesday, September 7, 2010
Here is the answer!
The question you have been asking is, "How come Congress doesn't understand what is important to me?"
The answer is that fully two thirds (2/3) of the members of Congress are MILLIONAIRES!!
Many of them are multi-millionaires.
So the answer to your question is that Congress does understand what is important to you. They just don't give a damn.
End of story.
The answer is that fully two thirds (2/3) of the members of Congress are MILLIONAIRES!!
Many of them are multi-millionaires.
So the answer to your question is that Congress does understand what is important to you. They just don't give a damn.
End of story.
Monday, September 6, 2010
More Bad Numbers
The editorial in today's Los Angeles Times collects a lot of number about jobs and unemployment. Here are the highlights.
14.9 Million Americans are without jobs.
8.9 Million Americans are working part-time or shorter hours.
58% of the unemployed are men.
74% are workers 25 or older.
+50% of the unemployed are high school graduates or failed to graduate.
The unemployment rates by race are;
16% black
12% latino
9% white
42% of the unemployed have been without jobs for more than six months.
? the number of Americans who have simply stopped looking for work.
And Laura Tyson (earlier entry) described the levels of unemployment by education.
Why does this administration refuse to recognize the importance of an educated work force? My best guess is that Larry Summers holds everyone in contempt who does not have a PhD from Harvard.
14.9 Million Americans are without jobs.
8.9 Million Americans are working part-time or shorter hours.
58% of the unemployed are men.
74% are workers 25 or older.
+50% of the unemployed are high school graduates or failed to graduate.
The unemployment rates by race are;
16% black
12% latino
9% white
42% of the unemployed have been without jobs for more than six months.
? the number of Americans who have simply stopped looking for work.
And Laura Tyson (earlier entry) described the levels of unemployment by education.
Why does this administration refuse to recognize the importance of an educated work force? My best guess is that Larry Summers holds everyone in contempt who does not have a PhD from Harvard.
Sunday, September 5, 2010
Another Point of View
I have just discovered that the most references to this ongoing commentary come from http://theeconomiccollapseblog.com. While I don't agree with some of minor points, on the whole he has the same concerns that I have. There is a sample that follows so you can see for yourself.
30 Statistics That Prove The Elite Are Getting Richer, The Poor Are Getting Poorer And The Middle Class Is Being Destroyed
Not everyone has been doing badly during the economic turmoil of the last few years. In fact, there are some Americans that are doing really, really well. While the vast majority of us struggle, there is one small segment of society that is seemingly doing better than ever. This was reflected in a recent article on CNBC in which it was noted that companies that cater to average Americans are doing rather poorly right now while companies that market luxury goods and services are generally performing exceptionally well. So why aren't all American consumers jumping on the spending bandwagon? Well, it seems that there are a large number of Americans who either can't spend a lot of money right now or who are very hesitant to. A stunningly high number of Americans are still unemployed, and for many other Americans, there is a very real fear that hard economic times will return soon. On the other hand, there is a significant percentage of Americans who are blowing money on luxury goods and services as if the economy has fully turned around and it is time to let the good times roll. So exactly what in the world is going on here?
Well, in 2010 life is very, very different depending on whether you are a "have" or a "have not". The recent article on CNBC referenced above described it this way....
Consumer spending in the U.S. has turned into a tale of two cities in 2010, with an entire segment of consumers splurging confidently on the finer things in life, while another segment, concerned about unemployment and with little or no discretionary income, spends only on bare necessities.
So why is this happening?
It is happening because the rich are getting richer and they have plenty of money to buy stuff and the poor are getting poorer and have less money to spend than ever.
In case you haven't been paying attention over the past couple of decades, what we have in America today is a system that is designed to funnel as much wealth into the hands of the elite as possible.
This isn't capitalism that we have in America in 2010. Instead, what we have created is a system where the laws are set up so that the power elite and their big, dominant corporations always win.
Why do you think so many of America's largest corporations pay so little in taxes?
Why do you think so many of them are showered with government subsidies, tax breaks and bailouts?
It's not about competition anymore.
It's about rigging the game in your favor.
The power elite and the giant corporations they control spend millions and millions on lobbying and campaign contributions and they expect a big return on that investment.
Let's take a look at one example. Many people think that Barack Obama and the Democrats are supposed to be anti-business, right?
Well then why are some of Barack Obama's biggest donors the very same corporations that are receiving giant bailouts, making record profits and paying their employees billions in bonuses?
Goldman Sachs was Barack Obama's second biggest donor. Microsoft was number four. Citigroup was number six. JPMorgan Chase was number seven. Time Warner was number eight.
Are you starting to get the picture?
Every single year, the U.S. Congress passes law after law after law that makes it easier for big corporations to dominate and makes it easier for the rich to get even richer.
America's economy is not about competition anymore.
It is about eliminating competition.
And unfortunately for middle class Americans, the giant predator corporations that now dominate our economy are realizing that they don't really need nearly as many American workers anymore.
Instead, they are slowly but surely shipping our jobs off to the other side of the world where workers are willing to work for about a tenth as much.
And yet we still run out to the "big box" stores and fill up our carts with a bunch of plastic crap made on the other side of the world by these giant corporations.
Meanwhile, those giant corporations are taking the profits they make out of our communities and they are taking our jobs and are shipping them overseas.
So in the final analysis, is it any wonder why the income inequality gap is growing?
Without small businesses having a legitimate chance to compete and without good jobs for American workers, the middle class in America is going to continue to get chewed up and spit out.
The following are 30 statistics that prove that the elite are getting richer, the poor are getting poorer and the middle class is being destroyed in 2010....
The Rich Are Getting Richer
1 - As of 2007, the top 1 percent of all Americans was taking home 24 percent of the national income. This was a level that had not been seen since the days of the Great Depression.
2 - Incomes have been growing in the United States, but those at the very top of the pyramid have been gobbling up almost all of the income growth. According to Harvard Magazine, 66% of the income growth between 2001 and 2007 went to the top 1% of all Americans.
3 - Even official government figures bear out the fact that the rich are getting richer. An analysis of income-tax data by the Congressional Budget Office a few years ago found that the top 1% of all American households own nearly twice as much of the corporate wealth as they did just 15 years ago.
4- Most Americans have suffered during the last few years, but not the boys and girls down on Wall Street. New York state Comptroller Thomas DiNapoli says that Wall Street bonuses for 2009 were up 17 percent when compared with 2008.
5 - Even as the number of Americans living in poverty skyrockets, the number of millionaires just keeps growing. In fact, the number of millionaires in the United States rose a whopping 16 percent to 7.8 million during 2009.
6 - The amount of money some of these Wall Street hotshots are making is incredible. Back in 2005, the top 25 hedge fund managers earned a total of 9 billion dollars. That would be bad enough, but even in these hard economic times the rich just keep getting richer. One year after the recent financial collapse the top 25 hedge fund managers earned a total of approximately $25 billion. That breaks down to an average of $1 billion each. The truth is that the United States has been experiencing uneven prosperity for quite some time and things just seem to get worse with each passing year.
The Poor Are Getting Poorer
7 - Government anti-poverty programs are exploding in size in response to the recent economic difficulties. USA Today is reporting that a record one in six Americans are now being served by at least one government anti-poverty program.
8 - Over 50 million Americans are on now Medicaid. That figure is up more than 17 percent since the beginning of the recession.
9 - The number of Americans in the food stamp program rose to a new all-time record of 40.8 million in May. That number is up almost 50 percent since the beginning of the recession.
10 - The number of Americans who cannot afford even the basic necessities is absolutely staggering. A whopping 50 million Americans could not afford to buy enough food in order to stay healthy at some point over the last year.
11 - Compared to other industrialized nations, the United States is doing very poorly. The U.S. poverty rate is now the third worst among the developed nations tracked by the Organization for Economic Cooperation and Development.
12 - The saddest part of this is what we are doing to our children. According to one recent study, approximately 21 percent of all children in the United States are living below the poverty line in 2010.
13 - But the American people cannot provide for their families if they don't have jobs. Today there are not nearly enough jobs for everyone. In 2010, it takes the average unemployed American worker over 8 months to find a job.
14 - Approximately 10 million Americans are currently receiving unemployment insurance, which is a number that is nearly four times higher than what it was at back in 2007.
15 - The truth is that we are creating a permanent underclass of Americans that cannot get jobs. The number of Americans receiving long-term unemployment benefits has increased over 60 percent in just the past year.
16 - Increasingly, the wealth of the United States is being held in fewer and fewer hands. One study found that as of 2007, the bottom 80 percent of American households held about 7% of the liquid financial assets.
17 - It is not a good time to be living in "the bottom half" in America. The size of "the pie" being divided up among those at the low end of the wage scale is becoming really, really small. In fact, the bottom 40 percent of all income earners in the United States now collectively own less than 1 percent of the nation’s wealth.
The Middle Class Is Being Destroyed
18 - Even those Americans that still do have decent jobs are seeing their wealth fade rapidly. For example, U.S. families have $6 trillion less in housing wealth than they did just three years ago.
19 - Home ownership used to be a sign that one had arrived in the middle class, but in 2010 an increasing number of Americans are finding out that they simply can't afford their homes anymore. One out of every seven mortgages were either delinquent or in foreclosure during the first quarter of 2010.
20 - The reality is that incomes have just not kept up with housing costs. This has put an incredible amount of pressure on the middle class. Just how much pressure? Well, only the top 5 percent of all U.S. households have earned enough additional income to match the rise in housing costs since 1975.
21 - The debt binge middle class Americans have been on over the past couple of decades has drained many of them completely dry, and now more Americans than ever have bad credit scores. Over 25 percent of Americans now have a credit score below 599, which means that they are a very bad credit risk.
22 - A rapidly rising number of Americans are actually choosing bankruptcy as a way out of their financial problems. Nationwide, bankruptcy filings rose 20 percent in the 12 month period ending this past June 30th.
23 - The middle class manufacturing jobs that once defined so many American cities are rapidly disappearing. Despite the fact that the U.S. population has dramatically increased, less Americans are employed in manufacturing today than in 1950.
24 - These days it seems like almost everyone is looking for a good job, but very few people are finding them. According to one recent survey, 28% of all U.S. households have at least one member that is looking for a full-time job.
25 - Even many of those Americans that still have decent jobs have been hit hard by this economic downturn. A recent Pew Research survey found that 55 percent of the U.S. labor force has experienced either unemployment, a pay decrease, a reduction in hours or an involuntary move to part-time work since the recession began.
26 - The number of jobs that are evaporating is absolutely stunning. According to one analysis, the United States has lost a total of 10.5 million jobs since 2007.
27 - So where are the jobs going? It doesn't take a genius to figure it out. China's trade surplus (much of it with the United States) climbed 140 percent in June compared to a year earlier.
28 - The truth is that "globalism" and "free trade" have put middle class American workers in direct competition with the cheapest labor in the world. This is what middle class American workers must now compete against: in China a garment worker makes approximately 86 cents an hour and in Cambodia a garment worker makes approximately 22 cents an hour.
29 - Due to these difficult economic conditions, the middle class is being squeezed as never before. According to a poll taken in 2009, 61 percent of Americans "always or usually" live paycheck to paycheck. That was up significantly from 49 percent in 2008 and 43 percent in 2007.
30 - So what kind of future do our young people have in front of them? Unfortunately, things don't look pretty. Many fresh college graduates can't even get a job that will allow them to be independent. One recent survey of last year's college graduates discovered that 80 percent moved right back home with their parents after graduation. That was up significantly from 63 percent in 2006.
30 Statistics That Prove The Elite Are Getting Richer, The Poor Are Getting Poorer And The Middle Class Is Being Destroyed
Not everyone has been doing badly during the economic turmoil of the last few years. In fact, there are some Americans that are doing really, really well. While the vast majority of us struggle, there is one small segment of society that is seemingly doing better than ever. This was reflected in a recent article on CNBC in which it was noted that companies that cater to average Americans are doing rather poorly right now while companies that market luxury goods and services are generally performing exceptionally well. So why aren't all American consumers jumping on the spending bandwagon? Well, it seems that there are a large number of Americans who either can't spend a lot of money right now or who are very hesitant to. A stunningly high number of Americans are still unemployed, and for many other Americans, there is a very real fear that hard economic times will return soon. On the other hand, there is a significant percentage of Americans who are blowing money on luxury goods and services as if the economy has fully turned around and it is time to let the good times roll. So exactly what in the world is going on here?
Well, in 2010 life is very, very different depending on whether you are a "have" or a "have not". The recent article on CNBC referenced above described it this way....
Consumer spending in the U.S. has turned into a tale of two cities in 2010, with an entire segment of consumers splurging confidently on the finer things in life, while another segment, concerned about unemployment and with little or no discretionary income, spends only on bare necessities.
So why is this happening?
It is happening because the rich are getting richer and they have plenty of money to buy stuff and the poor are getting poorer and have less money to spend than ever.
In case you haven't been paying attention over the past couple of decades, what we have in America today is a system that is designed to funnel as much wealth into the hands of the elite as possible.
This isn't capitalism that we have in America in 2010. Instead, what we have created is a system where the laws are set up so that the power elite and their big, dominant corporations always win.
Why do you think so many of America's largest corporations pay so little in taxes?
Why do you think so many of them are showered with government subsidies, tax breaks and bailouts?
It's not about competition anymore.
It's about rigging the game in your favor.
The power elite and the giant corporations they control spend millions and millions on lobbying and campaign contributions and they expect a big return on that investment.
Let's take a look at one example. Many people think that Barack Obama and the Democrats are supposed to be anti-business, right?
Well then why are some of Barack Obama's biggest donors the very same corporations that are receiving giant bailouts, making record profits and paying their employees billions in bonuses?
Goldman Sachs was Barack Obama's second biggest donor. Microsoft was number four. Citigroup was number six. JPMorgan Chase was number seven. Time Warner was number eight.
Are you starting to get the picture?
Every single year, the U.S. Congress passes law after law after law that makes it easier for big corporations to dominate and makes it easier for the rich to get even richer.
America's economy is not about competition anymore.
It is about eliminating competition.
And unfortunately for middle class Americans, the giant predator corporations that now dominate our economy are realizing that they don't really need nearly as many American workers anymore.
Instead, they are slowly but surely shipping our jobs off to the other side of the world where workers are willing to work for about a tenth as much.
And yet we still run out to the "big box" stores and fill up our carts with a bunch of plastic crap made on the other side of the world by these giant corporations.
Meanwhile, those giant corporations are taking the profits they make out of our communities and they are taking our jobs and are shipping them overseas.
So in the final analysis, is it any wonder why the income inequality gap is growing?
Without small businesses having a legitimate chance to compete and without good jobs for American workers, the middle class in America is going to continue to get chewed up and spit out.
The following are 30 statistics that prove that the elite are getting richer, the poor are getting poorer and the middle class is being destroyed in 2010....
The Rich Are Getting Richer
1 - As of 2007, the top 1 percent of all Americans was taking home 24 percent of the national income. This was a level that had not been seen since the days of the Great Depression.
2 - Incomes have been growing in the United States, but those at the very top of the pyramid have been gobbling up almost all of the income growth. According to Harvard Magazine, 66% of the income growth between 2001 and 2007 went to the top 1% of all Americans.
3 - Even official government figures bear out the fact that the rich are getting richer. An analysis of income-tax data by the Congressional Budget Office a few years ago found that the top 1% of all American households own nearly twice as much of the corporate wealth as they did just 15 years ago.
4- Most Americans have suffered during the last few years, but not the boys and girls down on Wall Street. New York state Comptroller Thomas DiNapoli says that Wall Street bonuses for 2009 were up 17 percent when compared with 2008.
5 - Even as the number of Americans living in poverty skyrockets, the number of millionaires just keeps growing. In fact, the number of millionaires in the United States rose a whopping 16 percent to 7.8 million during 2009.
6 - The amount of money some of these Wall Street hotshots are making is incredible. Back in 2005, the top 25 hedge fund managers earned a total of 9 billion dollars. That would be bad enough, but even in these hard economic times the rich just keep getting richer. One year after the recent financial collapse the top 25 hedge fund managers earned a total of approximately $25 billion. That breaks down to an average of $1 billion each. The truth is that the United States has been experiencing uneven prosperity for quite some time and things just seem to get worse with each passing year.
The Poor Are Getting Poorer
7 - Government anti-poverty programs are exploding in size in response to the recent economic difficulties. USA Today is reporting that a record one in six Americans are now being served by at least one government anti-poverty program.
8 - Over 50 million Americans are on now Medicaid. That figure is up more than 17 percent since the beginning of the recession.
9 - The number of Americans in the food stamp program rose to a new all-time record of 40.8 million in May. That number is up almost 50 percent since the beginning of the recession.
10 - The number of Americans who cannot afford even the basic necessities is absolutely staggering. A whopping 50 million Americans could not afford to buy enough food in order to stay healthy at some point over the last year.
11 - Compared to other industrialized nations, the United States is doing very poorly. The U.S. poverty rate is now the third worst among the developed nations tracked by the Organization for Economic Cooperation and Development.
12 - The saddest part of this is what we are doing to our children. According to one recent study, approximately 21 percent of all children in the United States are living below the poverty line in 2010.
13 - But the American people cannot provide for their families if they don't have jobs. Today there are not nearly enough jobs for everyone. In 2010, it takes the average unemployed American worker over 8 months to find a job.
14 - Approximately 10 million Americans are currently receiving unemployment insurance, which is a number that is nearly four times higher than what it was at back in 2007.
15 - The truth is that we are creating a permanent underclass of Americans that cannot get jobs. The number of Americans receiving long-term unemployment benefits has increased over 60 percent in just the past year.
16 - Increasingly, the wealth of the United States is being held in fewer and fewer hands. One study found that as of 2007, the bottom 80 percent of American households held about 7% of the liquid financial assets.
17 - It is not a good time to be living in "the bottom half" in America. The size of "the pie" being divided up among those at the low end of the wage scale is becoming really, really small. In fact, the bottom 40 percent of all income earners in the United States now collectively own less than 1 percent of the nation’s wealth.
The Middle Class Is Being Destroyed
18 - Even those Americans that still do have decent jobs are seeing their wealth fade rapidly. For example, U.S. families have $6 trillion less in housing wealth than they did just three years ago.
19 - Home ownership used to be a sign that one had arrived in the middle class, but in 2010 an increasing number of Americans are finding out that they simply can't afford their homes anymore. One out of every seven mortgages were either delinquent or in foreclosure during the first quarter of 2010.
20 - The reality is that incomes have just not kept up with housing costs. This has put an incredible amount of pressure on the middle class. Just how much pressure? Well, only the top 5 percent of all U.S. households have earned enough additional income to match the rise in housing costs since 1975.
21 - The debt binge middle class Americans have been on over the past couple of decades has drained many of them completely dry, and now more Americans than ever have bad credit scores. Over 25 percent of Americans now have a credit score below 599, which means that they are a very bad credit risk.
22 - A rapidly rising number of Americans are actually choosing bankruptcy as a way out of their financial problems. Nationwide, bankruptcy filings rose 20 percent in the 12 month period ending this past June 30th.
23 - The middle class manufacturing jobs that once defined so many American cities are rapidly disappearing. Despite the fact that the U.S. population has dramatically increased, less Americans are employed in manufacturing today than in 1950.
24 - These days it seems like almost everyone is looking for a good job, but very few people are finding them. According to one recent survey, 28% of all U.S. households have at least one member that is looking for a full-time job.
25 - Even many of those Americans that still have decent jobs have been hit hard by this economic downturn. A recent Pew Research survey found that 55 percent of the U.S. labor force has experienced either unemployment, a pay decrease, a reduction in hours or an involuntary move to part-time work since the recession began.
26 - The number of jobs that are evaporating is absolutely stunning. According to one analysis, the United States has lost a total of 10.5 million jobs since 2007.
27 - So where are the jobs going? It doesn't take a genius to figure it out. China's trade surplus (much of it with the United States) climbed 140 percent in June compared to a year earlier.
28 - The truth is that "globalism" and "free trade" have put middle class American workers in direct competition with the cheapest labor in the world. This is what middle class American workers must now compete against: in China a garment worker makes approximately 86 cents an hour and in Cambodia a garment worker makes approximately 22 cents an hour.
29 - Due to these difficult economic conditions, the middle class is being squeezed as never before. According to a poll taken in 2009, 61 percent of Americans "always or usually" live paycheck to paycheck. That was up significantly from 49 percent in 2008 and 43 percent in 2007.
30 - So what kind of future do our young people have in front of them? Unfortunately, things don't look pretty. Many fresh college graduates can't even get a job that will allow them to be independent. One recent survey of last year's college graduates discovered that 80 percent moved right back home with their parents after graduation. That was up significantly from 63 percent in 2006.
Friday, September 3, 2010
A really good idea and one we had before.
The business columnist in the Washington Post, Steve Pearlstein, has the same idea we advanced in The Great Recession Conspiracy. Here is the meat of the column.
For several decades, policymakers have tossed around the idea of an National Infrastructure Bank to provide loans and matching grants for highway and transit projects, a new air traffic control system, high-speed rail, clean-energy generation and smart electric grids, and an expansion of state college and university systems. Over the years, this idea has won bipartisan support from business groups, labor unions, governors and big-city mayors. And with interest rates at record lows, construction costs down 25 percent and so many construction workers unemployed, there is no better time to launch such an effort.
With an independent board, a professional staff and its own sources of operating funds, the Infrastructure Bank could be insulated, as much as possible, from political influence and the pork-laden congressional appropriation process. And by devoting the first three years of revenue from the "millionaires" tax increase, it could be capitalized initially at $100 billion, enough to leverage investments of two or three times that amount over the coming decade.
This ought to be a no-brainer. Given the economic challenges we face and the anxiety we all feel, if Democrats can't make a convincing case for raising taxes on 315,000 millionaires and using the money to rebuild the country's aging infrastructure, then maybe they don't deserve to be reelected.
For several decades, policymakers have tossed around the idea of an National Infrastructure Bank to provide loans and matching grants for highway and transit projects, a new air traffic control system, high-speed rail, clean-energy generation and smart electric grids, and an expansion of state college and university systems. Over the years, this idea has won bipartisan support from business groups, labor unions, governors and big-city mayors. And with interest rates at record lows, construction costs down 25 percent and so many construction workers unemployed, there is no better time to launch such an effort.
With an independent board, a professional staff and its own sources of operating funds, the Infrastructure Bank could be insulated, as much as possible, from political influence and the pork-laden congressional appropriation process. And by devoting the first three years of revenue from the "millionaires" tax increase, it could be capitalized initially at $100 billion, enough to leverage investments of two or three times that amount over the coming decade.
This ought to be a no-brainer. Given the economic challenges we face and the anxiety we all feel, if Democrats can't make a convincing case for raising taxes on 315,000 millionaires and using the money to rebuild the country's aging infrastructure, then maybe they don't deserve to be reelected.
Thursday, September 2, 2010
The Institute for New Economic Thinking
George Soros (he of fabulous riches from betting against the British pound) has funded an organization with name of the title of this entry. The idea is that main stream economic thinking is a bunch of crap, but if you have been reading here, you already knew that. And all you have to do is look at our unemployment numbers to know that the main stream economic thinking (Summers, Romer, et al) is destroying the country.
In August, the Institute announced that they would fund fifty research proposals devoted to New MacroEconomic thinking. The grants were from $30,000 to $250,000.
I submitted a proposal but it was not funded. They said they received over 200 proposals requiring $70 million in funding. You can do the math to understand something smells bad here.
In any case, I have enclosed my proposal here for your personal amusement.
New Approaches to Empirical Macroeconomics
A Proposal
The concept of an encouraging new economic thinking is certainly timely. The existing ideas about macroeconomic thinking have proven borderline useless in the past three years. Here is a timely example. Unemployment in the U.S. is currently about 10% and has been at that level for many months now, and shows no immediate signs of improving in spite of the happy talk from Washington. One camp of macroeconomists insists that those people are unemployed because they are lazy and they will all go back to work as soon as their unemployment benefits run out. The other camp insists that the unemployed are incompetent and that is the reason they are unemployed.
When those two theories are put to the test of describing reality, they become just plain ludicrous, no matter how many Nobel prizes their authors have received.
The Bureau of Labor Statistics says there are now five applicants for every job opening. Four of those five people will remain unemployed, not because they are lazy or incompetent. They will remain unemployed because there is only one job opening.
The larger point here is that most current macroeconomic thinking has no basis in reality, and that is the main reason that it is useless beyond creating elegant mathematical theories, getting invited to speak at conferences and as a basis for securing tenure in some economics department filled with like minded people.
One more example before we leave the dis-connect between macroeconomic thinking and reality. The “Cash for Clunkers” bill was based on a theory that such purchases would stimulate the economy. Anyone with any experience in reality would have known that all that was going to happen was that sales would be shifted forward into the “discount” period, and fall as soon as the “sale” was over. And that is exactly what happened.
The idea for this proposal is that New Economic Thinking is most likely going to come from outside the present economic theory community.
The Basic Idea Supporting This Proposal For New Macroeconomic Thinking
The Business Cycle is one indisputable fact of life in every developed economy over the past five hundred, or so, years. It recurs again and again, and always with the same characteristics. The economic thinkers who have bothered to even think about these facts have concluded that “shocks” to “supply” or “demand” are the explanation for the expansion and then contraction of economies. This disagreement is close to the one about how many fairies could dance on the head of a pin.
In reality, the Business Cycle is driven by psychology, not finance, and certainly not economic theory. However, lending is the mechanism that enables the expansion/contraction cycle that is the Business Cycle. This proposal is for a research project to demonstrate the connections between consumer psychology, the expansion and contraction of the economy, and the lending mechanism that facilitates it.
A Note
I have read the Grant Program Guidelines and I understand that this proposal has two shortcomings from the beginning.
1) I am not an economist. I do have a Doctor’s degree from the Graduate School of Business Administration, University of Southern California. In order to graduate, I passed the written test in economics. My recent book, The Great Recession Conspiracy (available at www.scribd.com/doc/16864582/The-Great-Recession-Conspiracy and as a Kindle book) concerns the reality of Business Cycles and the government policies that would be most appropriate.
I have spent my career studying consumer behavior (which, presumably is what economics is about) so I know a great deal about how actual people make decisions, and why they do. (The Role of Risk in Consumer Behavior, Journal of Marketing, 1974, et al). In addition, I have had management positions in two major corporations, and I have been a principal in three small businesses. In short, I have had considerable practical experience with how the economy actually works in addition to an academic career at the California State University system.
2) I do not have a current university affiliation. However, if this proposal is funded, I will recruit an associate from the University of California Irvine where I was a visiting professor. But the good news is that no overhead charges will be required in the budget.
What Is The Problem and Why Is It Important?
The fundamental problem is that the Business Cycle is poorly understood, if at all, by economists. As a result, government policies are continually developed that are utterly inappropriate for effective dealing with the economy. One example; in over five hundred years of observing Business Cycles, the characteristics are remarkably consistent. One characteristic is that the economy under study is either expanding or contracting, and there has never been an equilibrium point where the economy was neither expanding or contracting. Yet economists continue to talk about "ending the bubble", or some version of the idea that there is an equilibrium point.
Such an equilibrium point only exists in macroeconomic mathematical models; it does not exist in real life. As a result, misguided economic policies are continually implemented that are wasteful and useless at best, and counter productive at the worst.
And that goes to the heart of this proposal. Much of current macroeconomic theory does not describe, or reflect the way real people make decisions about their lives and how they deal with their assets and liabilities.
Against a broader canvas, there is now a debate raging in Congress about further stimulation of the economy, or new programs aimed at deficit reduction. Neither proposal displays the slightest understanding of the Business Cycle.
The importance of this project lies in its ability (perhaps) to provide useful guidelines for government policies that are based in reality, not theory, and will actually work to the benefit of the economy and the citizens of the U. S. Those guidelines are exactly what are missing from current government policy.
It is easy to promise great changes coming to government policy based on new data. The president likes to say he favors fact and data based plans. If this project is successful, perhaps it will give him (and succeeding presidents) a fact based method of developing economic policy. But the reality is that the usefulness of the results of this project depends on the whimsy of politicians, and it would be a mistake to over promise.
The Research Project
This proposal is a direct response to the challenge presented by; “In the absence of rigorous testing of the empirical validity of each of the competing theories, the debate concerning theories and implications of business fluctuations appears to be vacuous.” (The Business Cycle”, Theories and Evidence. Proceedings of the Sixteenth Annual Economic & Policy Conference of the Federal Reserve Bank of St. Louis, 1992)
This project will examine the relationship between the Gross National Product (NBER series dates) and a series of data that reflect the realities of the Business Cycle. Regression analysis would be the tool of choice.
Financial variables:
Fed Funds Rate
Libor Rates
Loans Outstanding
Direct variables:
University of Michigan Consumer Confidence Index
Conference Board Consumer Confidence Index
Purchasing Agents Index
Unemployment
Indirect variables:
Marriages
Divorces
Suicides
New Mortgages
Credit Cards Issued
New Housing Starts
New Business Licenses
Business Failures
Late Credit Card Payments
Foreclosures
Auto Sales
Personal Bankruptcies
Bank Robberies
And undoubtedly, there will be others. The objective is to find leading, lagging and co-incident variables to better understand the working of the Business Cycle. Even if there is no measurable correlation between any of these variables and the expansion and contraction of the economy, this would be a finding of consequence.
Budget and Time Table
I have managed dozens of exploratory research projects, and the one lesson I have learned is never commit to a fixed budget until the outlines of the project are very, very clear. Every time, new directions, new ideas, new facts emerge from exploratory research that sends the project in new directions. But, based on a rough estimate of two senior researchers @50/hour, plus UCI computer time, a budget in the area of $50,000 to $60,000 seems appropriate. A time table of approximately six months is probably a good estimate.
Publications
The primary focus would be on Congress first. Then on business media, i.e., Wall Street Journal, Financial Times, Bloomberg Business Week, Economist, etc. General media would also be included, i.e., New York Times, Washington Post, Los Angeles Times, etc. Selected economic journals would also be included. And any publicity that the Institute can arrange would be welcomed.
There is the possibility of a book, but that is getting way ahead of the story.
Finally
Reinhart and Rogoff say, “No matter how different the latest financial frenzy or crisis always appears, there are usually remarkable similarities with past experience from other countries and from history. Recognizing these analogies and precedents is an essential step toward improving our global financial system, both to reduce the risk of future crisis and to handle catastrophes when they happen.” And a little later they say, “Countries, institutions, and financial instruments may change across time, but human nature does not.” (This Time Is Different, 2009)
In August, the Institute announced that they would fund fifty research proposals devoted to New MacroEconomic thinking. The grants were from $30,000 to $250,000.
I submitted a proposal but it was not funded. They said they received over 200 proposals requiring $70 million in funding. You can do the math to understand something smells bad here.
In any case, I have enclosed my proposal here for your personal amusement.
New Approaches to Empirical Macroeconomics
A Proposal
The concept of an encouraging new economic thinking is certainly timely. The existing ideas about macroeconomic thinking have proven borderline useless in the past three years. Here is a timely example. Unemployment in the U.S. is currently about 10% and has been at that level for many months now, and shows no immediate signs of improving in spite of the happy talk from Washington. One camp of macroeconomists insists that those people are unemployed because they are lazy and they will all go back to work as soon as their unemployment benefits run out. The other camp insists that the unemployed are incompetent and that is the reason they are unemployed.
When those two theories are put to the test of describing reality, they become just plain ludicrous, no matter how many Nobel prizes their authors have received.
The Bureau of Labor Statistics says there are now five applicants for every job opening. Four of those five people will remain unemployed, not because they are lazy or incompetent. They will remain unemployed because there is only one job opening.
The larger point here is that most current macroeconomic thinking has no basis in reality, and that is the main reason that it is useless beyond creating elegant mathematical theories, getting invited to speak at conferences and as a basis for securing tenure in some economics department filled with like minded people.
One more example before we leave the dis-connect between macroeconomic thinking and reality. The “Cash for Clunkers” bill was based on a theory that such purchases would stimulate the economy. Anyone with any experience in reality would have known that all that was going to happen was that sales would be shifted forward into the “discount” period, and fall as soon as the “sale” was over. And that is exactly what happened.
The idea for this proposal is that New Economic Thinking is most likely going to come from outside the present economic theory community.
The Basic Idea Supporting This Proposal For New Macroeconomic Thinking
The Business Cycle is one indisputable fact of life in every developed economy over the past five hundred, or so, years. It recurs again and again, and always with the same characteristics. The economic thinkers who have bothered to even think about these facts have concluded that “shocks” to “supply” or “demand” are the explanation for the expansion and then contraction of economies. This disagreement is close to the one about how many fairies could dance on the head of a pin.
In reality, the Business Cycle is driven by psychology, not finance, and certainly not economic theory. However, lending is the mechanism that enables the expansion/contraction cycle that is the Business Cycle. This proposal is for a research project to demonstrate the connections between consumer psychology, the expansion and contraction of the economy, and the lending mechanism that facilitates it.
A Note
I have read the Grant Program Guidelines and I understand that this proposal has two shortcomings from the beginning.
1) I am not an economist. I do have a Doctor’s degree from the Graduate School of Business Administration, University of Southern California. In order to graduate, I passed the written test in economics. My recent book, The Great Recession Conspiracy (available at www.scribd.com/doc/16864582/The-Great-Recession-Conspiracy and as a Kindle book) concerns the reality of Business Cycles and the government policies that would be most appropriate.
I have spent my career studying consumer behavior (which, presumably is what economics is about) so I know a great deal about how actual people make decisions, and why they do. (The Role of Risk in Consumer Behavior, Journal of Marketing, 1974, et al). In addition, I have had management positions in two major corporations, and I have been a principal in three small businesses. In short, I have had considerable practical experience with how the economy actually works in addition to an academic career at the California State University system.
2) I do not have a current university affiliation. However, if this proposal is funded, I will recruit an associate from the University of California Irvine where I was a visiting professor. But the good news is that no overhead charges will be required in the budget.
What Is The Problem and Why Is It Important?
The fundamental problem is that the Business Cycle is poorly understood, if at all, by economists. As a result, government policies are continually developed that are utterly inappropriate for effective dealing with the economy. One example; in over five hundred years of observing Business Cycles, the characteristics are remarkably consistent. One characteristic is that the economy under study is either expanding or contracting, and there has never been an equilibrium point where the economy was neither expanding or contracting. Yet economists continue to talk about "ending the bubble", or some version of the idea that there is an equilibrium point.
Such an equilibrium point only exists in macroeconomic mathematical models; it does not exist in real life. As a result, misguided economic policies are continually implemented that are wasteful and useless at best, and counter productive at the worst.
And that goes to the heart of this proposal. Much of current macroeconomic theory does not describe, or reflect the way real people make decisions about their lives and how they deal with their assets and liabilities.
Against a broader canvas, there is now a debate raging in Congress about further stimulation of the economy, or new programs aimed at deficit reduction. Neither proposal displays the slightest understanding of the Business Cycle.
The importance of this project lies in its ability (perhaps) to provide useful guidelines for government policies that are based in reality, not theory, and will actually work to the benefit of the economy and the citizens of the U. S. Those guidelines are exactly what are missing from current government policy.
It is easy to promise great changes coming to government policy based on new data. The president likes to say he favors fact and data based plans. If this project is successful, perhaps it will give him (and succeeding presidents) a fact based method of developing economic policy. But the reality is that the usefulness of the results of this project depends on the whimsy of politicians, and it would be a mistake to over promise.
The Research Project
This proposal is a direct response to the challenge presented by; “In the absence of rigorous testing of the empirical validity of each of the competing theories, the debate concerning theories and implications of business fluctuations appears to be vacuous.” (The Business Cycle”, Theories and Evidence. Proceedings of the Sixteenth Annual Economic & Policy Conference of the Federal Reserve Bank of St. Louis, 1992)
This project will examine the relationship between the Gross National Product (NBER series dates) and a series of data that reflect the realities of the Business Cycle. Regression analysis would be the tool of choice.
Financial variables:
Fed Funds Rate
Libor Rates
Loans Outstanding
Direct variables:
University of Michigan Consumer Confidence Index
Conference Board Consumer Confidence Index
Purchasing Agents Index
Unemployment
Indirect variables:
Marriages
Divorces
Suicides
New Mortgages
Credit Cards Issued
New Housing Starts
New Business Licenses
Business Failures
Late Credit Card Payments
Foreclosures
Auto Sales
Personal Bankruptcies
Bank Robberies
And undoubtedly, there will be others. The objective is to find leading, lagging and co-incident variables to better understand the working of the Business Cycle. Even if there is no measurable correlation between any of these variables and the expansion and contraction of the economy, this would be a finding of consequence.
Budget and Time Table
I have managed dozens of exploratory research projects, and the one lesson I have learned is never commit to a fixed budget until the outlines of the project are very, very clear. Every time, new directions, new ideas, new facts emerge from exploratory research that sends the project in new directions. But, based on a rough estimate of two senior researchers @50/hour, plus UCI computer time, a budget in the area of $50,000 to $60,000 seems appropriate. A time table of approximately six months is probably a good estimate.
Publications
The primary focus would be on Congress first. Then on business media, i.e., Wall Street Journal, Financial Times, Bloomberg Business Week, Economist, etc. General media would also be included, i.e., New York Times, Washington Post, Los Angeles Times, etc. Selected economic journals would also be included. And any publicity that the Institute can arrange would be welcomed.
There is the possibility of a book, but that is getting way ahead of the story.
Finally
Reinhart and Rogoff say, “No matter how different the latest financial frenzy or crisis always appears, there are usually remarkable similarities with past experience from other countries and from history. Recognizing these analogies and precedents is an essential step toward improving our global financial system, both to reduce the risk of future crisis and to handle catastrophes when they happen.” And a little later they say, “Countries, institutions, and financial instruments may change across time, but human nature does not.” (This Time Is Different, 2009)
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