Recession Buzz: November 2009

Monday, November 30, 2009

On college endowments

According to a study released yesterday by the National Association of College and University Business Officers (NACUBO), the endowment fund of Harvard University is worth $34.6 billion, a 19.8% percent higher than a year ago. 76 colleges and universities sit on endowments over $1b. Even more impressively, almost every one of the 733 institutions analyzed reports a double-digit increase in the value of its fund. (Look up the endowment of your alma mater here.)

Chart 1 (click to enlarge)

Sunday, November 29, 2009

More Americans Expecting Recession in The Next Year

More Americans are expecting a recession in the next year. Consumers are waking up to the reality that the economy has a significant chance of recession next year.

The economic mood took a sharp turn for the worse over the past month, with 40 percent of Americans expecting a recession in the next year, according to a Reuters / Zogby poll released Wednesday.

That was a big rise from a month earlier, when 31 percent of the likely voters polled predicted a recession. The darker mood came as mounting concerns about housing and credit markets pounded Wall Street, and oil prices approached $100 per barrel.

That was a big rise from a month earlier, when 31 percent of the likely voters polled predicted a recession. The darker mood came as mounting concerns about housing and credit markets pounded Wall Street, and oil prices approached $100 per barrel. (CNBC 1/21/07)

Recession times are increasingly being expected. The coming holiday spending season will likely provide important clues to where consumer spending is headed. Consumer spending is about 70% of the US's GDP. Consumer spending is a key factor in a forecasting a recession.

Saturday, November 28, 2009

The Final Sprint for Health Care Has Now Begun, and Where the White House is Placing Its Bets

The real political race for health care has just begun. The significance of the President's speech to Washington insiders was its signal about where the White House is placing its bets and its support. More on this in a moment. First, let's be clear about who's racing and why. Think of the speech as the starting gate of a two-month sprint between two competitors -- and they're not Democrats and Republicans.

On one side are America's biggest private insurers and Big Pharma. They're drooling over the prospect of tens of millions more Americans buying insurance and drugs because the pending legislation will require them to, or require employers to cover them. The pending expansion of Medicaid will also be a bonanza. Amerigroup Corp., UnitedHealth Group Inc. and other companies that administer Medicaid are looking at 10 million more customers. Healthcare Inc.’s Medicaid enrollment is expected to jump by 43 percent, according to its CEO. WellPoint Inc., the largest U.S. insurer, is also looking at big gains.

But the big insurers hate the idea of a public option because it will squeeze their profits. A true public option will force private insurers to compete in markets where there's now very little competition, and also have the bargaining power to force drug companies to offer lower prices. Big Pharma also wants to prevent Medicare and Medicaid from having the power to negotiate lower prices, for the same reason. Private insurers and Big Pharma would rather fudge the question of where the savings will come from or how all this will be paid for. They certainly don't want to pay for wider coverage with a surtax on the rich, because, hey, their executives and shareholders are mainly rich.

On the other side lies the Democratic base (organized labor, grassroots progressives, leading activists) whose main goal is to make health care more affordable for a hundred million American families who are now paying through the nose (higher and higher co-payments, deductibles, and premiums, not to mention wages that are depressed because of employer-provided health insurance), and affordable to the tens of millions who can't get it now. To this end, the Dem base wants a public option and wants Medicare and Medicaid to have negotiating power. That's because every dollar that's squeezed out of the private insurers and Big Pharma is a dollar saved by average Americans on their health care -- or a dollar saved by taxpayers who otherwise end up footing the bills for Medicare and Medicaid. There's simply no more direct way to control costs. And the Dem base isn't at all reluctant to put the burden of paying for wider coverage on the wealthy.

Private insurers and Big Pharma are being represented in this race by Max Baucus and his Senate Finance Committee. Senate Finance is on the verge of reporting out a bill that requires that just about every American have health insurance and just about every business provide it (or else pay a fee). But the bill will not include a public option. Nor will it change current law to allow Medicare to negotiate low drug prices. Nor will it include a surtax on the wealthy. The Committee's only real nod to cost containment is a small tax on expensive insurance policies, which doesn't worry the private insurers because its cost is so easily passed on to the beneficiaries. The Democratic base is being represented by Nancy Pelosi and House Dems, who have reported out a bill that includes a public option, want Medicare and Medicaid to have negotiating power, and will pay for universal coverage with a surcharge on the rich. The Senate's Health, Education, Labor, and Pension Committee, formerly chaired by Ted Kennedy, also represents the Democratic base, and reported a strong bill that parallels the House.

Where's the White House? For months now, it's been straddling the fence -- reassuring the Dem base that the President is with them (he did it as recently as Monday with a rousing speech to organized labor), while at the same time nodding and winking in the direction of the private insurers and Big Pharma. Last spring the White House agreed to Big Pharma's demand that Medicare not be permitted to negotiate low drug prices in return for Pharma's agreement to support the health care bill emerging from the Senate Finance Committee. Since then it has quietly told private insurers that it will work with Senate Finance to find less potent alternatives to the public option, such as Kent Conrad's "cooperatives" or Olympia Snowe's "trigger" mechanism, in return for the private insurers' support of the compromise. And it has told the private insurers and Big Pharma that it will not support a surtax on the wealthy.

Obama's Wednesday night speech reassured the Democratic base that the President is deeply committed to getting universal coverage. But the speech also made clear that the White House has decided to side with the Senate Finance Committee and against the Democratic base on the details. The President was careful to note that a public option is only a means to an end and he remained open to other ideas (read: Conrad's cooperatives or Snowe's trigger). The speech included nothing about Medicare bargaining leverage, thereby letting the drug deal stand. The President clearly sided with Senate Finance on the funding mechanism of a tax or fee on high-end insurance rather than a surtax on the wealthy. And his promise to limit the costs of universal coverage to $900 billion put the President directly in league with the Senate Finance Committee rather than than the House, whose bill is projected to cost more than $1 trillion.

The Dem leadership got the message. Yesterday, Senate majority leader Harry Reid said that while he favored a strong public option, he could be satisfied with establishment of nonprofit cooperatives. And Nancy Pelosi, who as recently as two weeks ago said the House would not support a bill that didn't include a public option, passed up a chance to say it was a nonnegotiable demand. When pressed, she said that as long as legislation makes quality health care more accessible and affordable, "we will go forward with that bill."

But, again, the race has just begun. Your input is still important -- in fact, more important now than before. The Senate Finance's bill will be reported out next week and voted on by the entire committee in the following week, then go to the floor of the Senate for a vote in mid October. The House bill will go to the floor at about the same time. Each side is now counting noses. Pelosi knows she won't have any Republicans with her, so will need to keep 40 Dems from bolting. If Reid can't get 60 votes by October 15, he'll add health care to a reconciliation bill, which will need only 51.

The more you can make your voices heard, the more likely it is that the race will be won by the public rather than the private interests.

Friday, November 27, 2009

Thursday, November 26, 2009

Income mobility and education

Wednesday, November 25, 2009

Googling "recession" from United States has Tripled in the Past Year

Tuesday, November 24, 2009

The Snowe Job, and Why a "Trigger" for a Public Option is Nonsense

I was just on the phone talking with a reporter for a national media outlet who referred to Senator Olympia Snowe's idea for a public option "trigger" as the "centrist position." Whoa. When the mainstream media start naming something as "centrist" the game is almost over because just about everyone with any authority in our nation's capital wants to be at the "center."

Let me back up a step. The public insurance option has become a lightening rod for Republicans, hate radio jocks, Fox News, the Wall Street Journal's editorial page, and lobbyists for the health-industrial complex who accuse the White House and Democrats of planning a "government takeover" of health care. Anything that has the word "public" in it is always an automatic target for their rants. But most Democrats understand that a public insurance option is essential to control healthcare costs and expand coverage -- both because private for-profit insurers now face so little competition in most markets that only the prod of a public option will force them to lower costs and extend coverage, and also because a nationwide public option would have the scale and authority to negotiate lower rates with drug companies and healthcare providers, thereby pushing private insurers to do the same.

The White House is looking for a way to be in favor of a public option but also get enough Blue Dog Democrats -- many of whom hail from swing districts and states, and therefore need some cover -- to vote for it. One such cover is a Republican Senator from Maine, named Olympia Snowe. If she votes for the bill, Blue Dogs can calm their constituents -- who have been worked up into a lather by the right -- by saying "you see? Even a prominent Republican senator is voting for this."

So will Snowe play ball? It depends. Her idea (evidently encouraged by Rahm Emanuel, the President's chief of staff) is to hold off on any public option. Give the private insurance companies a period of time -- say, five years -- within which to make changes that extend coverage to more people and also drive down long-term costs. If those goals for coverage and cost aren't met by end of the five-year grace period, kaboom: the public option is triggered -- which will force such changes on the insurance companies.

The beauty of Snowe's proposal is that it seems to offer Blue Dogs a way out and liberal Democrats a way in. Nobody has to vote for or against a public option. The public option just happens automatically if its purposes -- wider coverage and lower costs -- aren't achieved. And the trigger idea seems so, well, centrist.

The problem is twofold. First, it's impossible to design airtight goals for coverage and cost reductions that won't be picked over by five thousand lobbyists and as many lawyers and litigators even if, at the end of the grace period, it's apparent to everyone else that the goals aren't met. Washington is a vast cesspool of well-paid specialists who know how to stop anything resembling a "trigger." Believe me, they will.

Second, any controversial proposal with some powerful support behind it that gets delayed -- for five years or three years or whenever -- is politically dead. Supporters lose interest. Public attention wanders. The media are on to other issues. Right now the public option is very much alive because so many Democrats care deeply about it, with good reason. But put it off for years, and assign it to the lawyers and lobbyists I just mentioned, and you can kiss it goodbye for ever.

If the idea is to have a public option waiting in the wings in case private insurers blow it, why wait for it at all? If it gets lower costs and wider coverage, it should be included right from the start.

What worries me isn't just that the mainstream media are calling Snowe's trigger "centrist," but that the White House might see it as an easy out. "I continue to believe that a public option within that basket of insurance choices would help improve quality and bring down costs," the President said Monday. Fine. But he hasn't yet said the public option is essential. He hasn't threatened to veto a bill lacking it. There's even reason to believe the White House has quietly encouraged Olympia Snowe to pursue her "trigger."

The best way to give Blue Dogs cover is for the President to explain clearly and boldly why the public option is essential to health care reform, and why he's ready to veto any bill that doesn't include it. That's also the only way to give the nation a good chance of getting true health care reform. Hopefully, that's what he'll do Wednesday evening.

Otherwise, we get a trigger to nowhere.

Monday, November 23, 2009

Sunday, November 22, 2009

Personal bankruptcy and consumption smoothing

The welfare effects of bankruptcy legislation are not correctly understood. Policymakers and the general public think, for the most part, that laws that protect borrowers in the event of default are beneficial to consumers. In practice, however, those laws have negative effects on the households that need credit most — and, ironically, those whom the legislation was intended to protect.

Traditionally, Chapter 7 has been the most popular type of bankruptcy filing. Under that section of the Bankruptcy Code, a filer relinquishes her assets, minus a certain exempted amount, and in return is discharged from her unsecured debt (credit card debt, personal loans, student loans, etc.).

State law sets those exempted amounts. In Illinois, for instance, exemptions are: $7,500 for home equity, $1,200 for motor vehicles, $750 for tools of the trade, and $2,000 for any other generic property. So suppose that you file for bankruptcy in the “Land of Lincoln,” and that you have $20,000 worth of home equity, and a car with a market value of $600. Then you can sell the house and keep $7,500 of the proceeds, and sell your car and keep the $600 (since that’s below the $1,200 limit).

Since 1978, with the passage of the Bankruptcy Reform Act (BRA), there’s also a federal exemption. Some states allow filers to choose between the state and the federal amounts. Obviously, if given the opportunity, filers use whichever is highest.

There is an enormous disparity of bankruptcy exemptions across states, even after accounting for the existence of the federal limits. For example, in 2006 the states of Texas, Florida, Oklahoma, Iowa, Kansas, South Dakota, and the District of Columbia, all allowed for an unlimited homestead exemption. In the states of Ohio and Virginia, at the other extreme, the limit is set at $5,000 (and those states don’t allow for the application of the federal exemption). The map below shows the maximum exemption that a married homeowner could claim in 2003, after combining homestead and non-homestead amounts, and taking the highest of the state and federal limit (where the federal limit is available). The limits also vary over time, although high-exemption states tend to remain the same over the years.

Bankruptcy exemptions under Chapter 7 of the Bankruptcy Code
(in 2003, for a home owner)
Click to enlarge

Saturday, November 21, 2009

Economist: America's Vulnerable Economy

Friday, November 20, 2009

The Lessons from History on Health Care Reform

With Congress returning from recess to consider health care legislation and the President set to deliver a major address on the subject to both houses of Congress tomorrow, a bit of history may be in order. An excellent starting place David Blumenthal's and James Marone's "The Heart of Power," which I reviewed for the New York Times this past weekend. Here are the major points:

Universal health care has bedeviled, eluded or defeated every president for the last 75 years. Franklin Roosevelt left it out of Social Security because he was afraid it would be too complicated and attract fierce resistance. Harry Truman fought like hell for it but ultimately lost. Dwight Eisenhower reshaped the public debate over it. John Kennedy was passionate about it. Lyndon Johnson scored the first and last major victory on the road toward achieving it. Richard Nixon devised the essential elements of all future designs for it. Jimmy Carter tried in vain to re-engineer it. The first George Bush toyed with it. Bill Clinton lost it and then never mentioned it again. George W. expanded it significantly, but only for retirees.

All the while, the ideal of universal care has revolved around two poles. In the 1930s, liberals imagined a universal right to health care tied to compulsory insurance, like Social Security. Johnson based Medicare on this idea, and it survives today as the “single-payer model” of universal health care, or “Medicare for all." The alternative proposal, starting with Eisenhower, was to create a market for health care based on private insurers and employers; he locked in the tax break for employee health benefits. Nixon came up with notions of prepaid, competing H.M.O.’s and urged a requirement that employers cover their employees. Everything since has been a variation on one or both of these competing visions. The plan now emerging from the White House and the Democratic Congress combines an aspect of the first (the public health care option) with several of the second (competing plans and an employer requirement to “pay or play”).

Devising a plan is easy compared with the politics of getting it enacted. Mere mention of national health insurance has always prompted a vigorous response from the ever-vigilant American Medical Association; in the 1930s, the editor of its journal equated national health care with “socialism, communism, inciting to revolution.” Bill Clinton’s plan was buried under an avalanche of hostility that included the now legendary ad featuring the couple Harry and Louise voicing their fears that the Clinton plan would substitute government for individual choice — “they choose, we lose.”

One lesson is that a new president must move quickly, before opponents have time to stoke public fears. After his 1964 landslide, Johnson warned his staff to push Medicare immediately because “every day while I’m in office, I’m going to lose votes. I’m going to alienate somebody. We’ve got to get this legislation fast.” George W. Bush started planning what became the Medicare drug benefit months before he was elected.

Clinton, by contrast, suffered from delay. Right after his election, national health insurance looked so likely that even some Republicans began lining up behind various plans. A year later, it was dead. In the interim, battles over Clinton’s budget and Nafta drained his political capital, gave his opponents ample time to rouse public concerns about government-sponsored health care and soured key allies like organized labor and the AARP.

Congress can be just as much of an obstacle: one lesson from history is that a president must set broad health reform goals and allow legislators to fill in the details, but be ready to knock heads together to forge a consensus. “I’m not trying to go into the details,” Johnson repeatedly said of his Medicare bill, yet he flattered, cajoled, intimidated and bluffed recalcitrant members until they agreed. “The only way to deal with Congress is continuously, incessantly and without interruption,” he quipped.

Carter, on the other hand, pored endlessly over his incipient health care plan, scribbling opinions in the margins about every detail, and dealt with Congress at arm’s length. And Clinton delivered a plan so vast and complex that even a Democratic Congress chose simply to ignore it. Republicans, meanwhile, decided that a defeat of Clinton’s health care bill would be seen as a repudiation of the new administration and might give them a shot at retaking the House and Senate.

Presidents who have been most successful in moving the country toward universal health coverage have disregarded or overruled their economic advisers. Plans to expand coverage have consistently drawn cautions or condemnations from economic teams in every administration, from Harry Truman’s down to George W. Bush’s. An exasperated Lyndon Johnson groused to Ted Kennedy that “the fools had to go to projecting” Medicare costs “down the road five or six years.” Such long-term projections meant political headaches. “The first thing, Senator Dick Russell comes running in, says, ‘My God, you’ve got a one billion dollar [estimate] for next year on health. Therefore I’m against any of it now.” Johnson rejected his advisers’ estimates and intentionally lowballed the cost. “I’ll spend the goddamn money.” An honest economic forecast would most likely have sunk Medicare.

It’s not so much that presidential economic advisers have been wrong — in fact, Medicare is well on its way to bankrupting the nation — but that they are typically in the business of thinking small and trying to minimize risk, while the herculean task of expanding health coverage entails great vision and large risk. Economic advice is important, but it’s only one source of wisdom.

Yet since Johnson, presidents have found it increasingly difficult to keep their economists at bay, mainly as a result of the growth of Washington’s economic policy infrastructure. Cost estimates and projections emanating from the White House’s Office of Management and Budget and the Congressional Budget Office, both created during the Nixon administration, have bound presidents within webs of technical arguments, arcane rules and budget limits. To date, Democratic presidents have felt more constrained by this apparatus than Republicans, perhaps because they have felt more of a need to prove their cost-cutting chops.

President Obama seems to have anticipated many of these lessons. He’s moved as quickly on the issue as this terrible economy has let him, and he has not been too rattled by naysaying economists (although the cost estimates of the Congressional Budget Office set him back). But although he outlined his goals but left most details to Congress, the lesson from history is that he may have waited too long to force a deal on that disorderly body (especially disorderly when Democrats are in charge). The question remains whether, in the weeks and months ahead, he can knock Congressional heads together to clinch it, and overcome those who inevitably feed public fears about a “government takeover” of health care and of budget-busting future expenditures. He needs to work fast, and be tough as nails.

But even if Obama fails, there is an art to losing, too — in a way that can tee up the issue for future presidents. Truman lost but nonetheless redefined the terms of debate, setting the stage for Medicare (which is why Johnson honored Truman when he signed it into law). Compare him with Clinton, who walked away from the wreckage of his health care plan and rarely mentioned the subject again. This allowed opponents to gain control over the spin and history, so that the Democrats’ signature cause slipped out of political sight for a decade.

Any history of the fight for universal care in America contains a subplot with a supporting actor who, although he never became president, is repeatedly heard from offstage — goading, pushing, threatening and pulling presidents of both parties toward universal coverage. Ted Kennedy first introduced his ambitious national health insurance proposal 40 years ago, and he never stopped promoting the cause. A deal he reached with President Nixon was the closest this country has ever come to universal care. Even before Kennedy’s death last month, his illness had tragically sidelined him just when his powerful voice was most needed. Yet when and if America ever achieves universal coverage, it will be due in no small measure to the tenacity and perseverance of this one remarkable man.

Thursday, November 19, 2009

Who's Paying For Your Fix?

by Kate Duncan

May/Jun 2003 Issue

Unless your morning latte was a fair trade blend, it probably cost more than what the farmer who picked the beans earns in a day.

Conventional coffee prices are at their lowest in a century, even below the cost of production. Farmers have been leaving the fruit to rot on the tree, pulling the kids out of school, abandoning the family land and pouring into the cities to find non-existent work. That’s why, as the most heavily traded commodity after oil, and the most common beverage after water, coffee is a major focus of the fair trade movement.

If your morning latte was a fair trade brew, it means the person who farmed the beans is earning enough to support his family. This is all well and good, but the way fair trade is usually explained - with prices, numbers and statistics - ignores it’s lasting benefits. The true point of fair trade is the cultural, communal, and environmental stability it bolsters.

A farmer who sells through fair trade is a member of a cooperative that is a vehicle for community empowerment. And not just a neighborhood watch: The people typically organized via fair trade are those whom the free market has filtered to the lowest economic stratum. Rather than maneuvering them into a position where they’re forced to take what they can get, fair trade recognizes farmers as equal partners, a platform from which they can command more control over their business and lives.

'Fair trade is a different kind of business relationship between the producer and buyer, which has been an inspiration to help these communities pull together instead of caving to the pressure of all the things trying to blow them apart,' says Monika Firl. Monika heads up producer relations for Cooperative Coffees, and as such, led half a dozen coffee roasters and me (as a grateful representative of Idyll Development Foundation, one of Cooperative Coffee’s funders) on a buying trip to farmers’ co-ops in Nicaragua, Guatemala, and Mexico in February, where we were able to see the effect for ourselves. [Clamor]

Wednesday, November 18, 2009

On inflation expectations

With Federal Reserve and government doing their best to stimulate demand, people have started looking at inflation. The worry is that the economy is not as sick as our policymakers think, and so the fiscal and monetary medicines are excessive. Markets disagree.

Expected inflation is an important determinant of future inflation. If the public expects higher inflation, workers demand higher wages, prompting employers to raise the price of their goods, which results in higher actual inflation.

Markets in fixed-income securities provide timely information about inflation expectations. Treasury inflation-protected securities (TIPS) deliver interest and principal payments that are tied to inflation. Payments from regular Treasury notes, on the other hand, are not indexed to inflation. The difference between the yield rates of the two types of securities must be equal to the inflation rate expected by the markets—otherwise there would be an arbitrage opportunity. In practice, because of technical issues, the yield spread is only an approximation to expected inflation, and people call it the break-even inflation (BEI) instead. (More on this below.) From here on I use BEI and “expected inflation” interchangeably.

Because the Treasury has created notes with different maturities, we can use the spread between nominal and TIPS securities to gauge inflation expectations for different horizons. For example, today’s difference between the yield of five-year TIPS and that of five-year nominal notes is approximately equal to the inflation rate expected over the five years starting now (2008-2012).

The Fed is interested in long-term inflation expectations, because in the short term prices are affected by transitory or volatile factors, such as commodity prices. One measure of long-term expectations, which we can also derive from yields, is the five-year, five-year forward rate. That is an approximation to the rate of inflation expected for the five years starting five years from now. Today, that would be the period from 2013 through 2017.

* * *

Chart 1 (click to enlarge)

Tuesday, November 17, 2009

Economy Slowing Says Calculated Risk

Great Blogger, Calculated Risk "Clearly the economy is slowing sharply"

Monday, November 16, 2009

The Real News About Jobs and Wages -- An Ode to Labor Day

Why aren't we hearing more about the worst job and wage situation since the Great Depression?

The latest employment figures (released this morning) show job losses continuing to grow. According to the payroll survey, job losses are increasing more slowly than in previous months. According to the household survey, they're accelerating -- from 9.4 percent of the workforce in July to 9.7 percent in August. Bottom line: almost one out of six Americans who need a full-time job either can't find one or is working part-time. Meanwhile, wage growth among people who have jobs has just about stopped. The Economic Policy Institute reports that between 2006 and 2008, wages grew at an annualized rate of 4.0%; by contrast, over the past three months annual wage growth has plummeted to just 0.7%. At the same time, furloughs -- requiring workers to take unpaid vacations -- are on the rise: recent surveys show 17% of companies imposing them. More than 20% of companies have suspended their contributions to 401(k)s and similar pension plans.

So why isn't the media screaming? Partly because these job and wage losses are not, for the most part, falling on the segment of our population most visible to the media. They're falling overwhelmingly on the middle class and the poor. Unemployment among those who have been in the top 10 percent of earnings is closer to 5 percent, and their earnings continue to climb -- although, to be sure, much more slowly than before the meltdown. It's much the same with health-care and pension benefits. Among people under 65 who are in the bottom 20% of incomes, only 21.9% have employer-sponsored health insurance -- if they have a job at all. Half of all people nearing retirement age have a 401(k) balance of less than $40,000.

I keep hearing that the economic meltdown has taken a huge toll on the stock portfolios of the rich. That's true. But the rich haven't lost nearly as much of their assets, proportionately, as everyone else. According to a report from the Bank of America Merrill Lynch ("The Myth of the Overleveraged Consumer"), analyzing data from the Federal Reserve, the bottom 90 percent of Americans hold 50 percent of more of their assets in residential real estate, which has taken a far bigger beating than stocks and bonds. The top 10 percent of Americans have only a quarter of their assets in housing; most of their assets are in stocks and bonds. And although the stock market is still a bit tipsy, it has rallied considerably since it hit bottom earlier this year. Home values, on the other hand, are down by an average of a third across the country, and are still falling.

What does all this mean for the economy as a whole? It raises the fundamental question of where demand will come from to get us out of this hole. If so manyAmericans are losing their jobs and wages, you have to wonder who will be returning to the malls.

That same Bank of America Merrill Lynch report notes cheerfully that 42 percent of consumer spending before the meltdown came from the top-earning 10 percent of Americans (not too surprising given that the top 10 percent was raking in half of total earnings) and the top 10 percent continues to do relatively well. So, says Bank of America Merrill, we can rely on the spending of the top 10 percent to get the economy moving again. Indeed, they conclude, Congress and the White House should be careful not to raise taxes on the top 10 percent, lest the consuming ardor of these most privileged members of our society be dampened.

This logic is morally and economically indefensible. If we've learned anything from the Great Recession-Mini Depression of the last 18 months, it's that the skewing of income and wealth to the top has made our economy far less stable. When the majority of middle-class and poor Americans are either losing their jobs or feel threatened by job loss, and when those who still have jobs are experiencing flat or declining wages, there's simply no way to get the economy back on track. The track we were on -- featuring stagnant median wages, widening inequality, and job insecurity -- got us into this mess in the first place.

Saturday, November 14, 2009

Sugar Giants Shove Their Sweetener

by Chris Tenove

Jul/Aug 2003 Issue

What does anybody know about the sugar industry? The people who put the frosting on the frosted flakes keep a low profile and are happy when folks are too busy eating to ask a lot of questions. Now, though, a dust-up with the World Health Organization (WHO) has flushed them into the limelight, where they're pitting profits against public health.

The conflict was inflamed by a new set of dietary guidelines drawn from two years of research by the WHO and the UN Food and Agricultural Organization. The guidelines are part of a worldwide strategy to tame the swelling epidemic of obesity, diabetes, osteoporosis and cardiovascular diseases. One recommendation is that free sugars (i.e. sugar added to foods) should make up no more than 10 percent of our daily caloric intake. The sugar lobby reacted to that suggestion like a toddler asked to hand back his Halloween booty...

'It was particularly stupid for them to put in writing that they're going to try to get Congress to take away WHO's money,' says Michael Jacobsen, executive director of the Center for Science in the Public Interest. 'It gave consumers a chance to see the kind of bullying that is usually done behind closed doors.' [Adbusters]

Friday, November 13, 2009

A bash for confidence indexes

Every month the University of Michigan and the Conference Board conduct a survey of households’ confidence on the state of the economy. Each pollster asks several questions and summarizes the results with an index, which is closely watched for signs of consumer distress. Last November, the Michigan index fell by 4.8 points from October; the Conference Board Index dipped by 7.9 points. Supposedly this is bad news because worried consumers are thrifty consumers. Don’t let the surveys fool you: they are almost complete rubbish — unless you know how to use them.

Thursday, November 12, 2009

Risk Factors For A 2008 Recession

Here are the top risk factors for 2008 US Recession:

Continuing Housing Bust
High Oil Prices
Security Issues
Credit Crunch
High Consumer Debt
Large Trade Deficit
Consumer Spending is slowing (it makes up 70% of the US GDP)
Commercial Construction decline

Wednesday, November 11, 2009

What Obama Must Demand from Congress on Health Care

Congress returns next week to one of the fiercest and most important debates in recent memory -- whether and to what extent the nation will provide health care to all Americans, and how we will reign in the soaring costs of health care overall. But do not expect unusual courage from this Congress in standing up to demagogic lies and money-toting lobbyists. An unusually large portion is facing close races in 2010, both in primaries and in the general election. Republicans have many primary challenges from the right. A record number of Democrats, who took over Congress in 2006, hail from traditionally Republican or swing states and districts.

In order to get anything meaningful through this session of Congress, then, the President will have to give congressional Democrats far more leadership and more cover. Doing so is harder now than before the recess, when he was still basking in the afterglow of a honeymoon and 60 percent favorabilities.Yet it's not too late. Addressing a joint session of Congress next Wednesday is a good idea but Obama can't rely solely on his exceptional rhetorical skills. He'll need to twist arms, cajole, force recalcitrant members to join him, threaten retribution if they don't come along.

Most importantly, he'll need to be specific about what he wants -- especially about three things. I hope says the following next Wednesday, and makes clear to individual members that he means business.

1. I will not stand for a bill that leaves millions of Americans without health care. It's vitally important to cover all Americans, not only for their and their childrens' sakes and not only because it's a moral imperitive, but because doing so will be good for all of us. One out of three Americans will experience job loss and potential loss of health insurance for themselves and their families at some point. One out of four of us who have health insurance is underinsured --unable to afford the preventive care we and our kids need on an ongoing basis. And those of us who don't get preventive care can get walloped with diabetes, heart disease, and other major illnesses that wipe us out financially, or force us into emergency rooms that all of us end up paying for.

2. The only way to cover all Americans without causing deficits to rise is to require that the wealthiest Americans pay a bit extra. The wealthy can afford to make sure all Americans are healthy. The top 1 percent of earners now take home 23 percent of total national income, the highest percentage since 1928. Their tax burden is not excessive. Even as income and wealth have become more concentrated than at any time in the past 80 years, those at the top are now taxed at lower rates than rich Americans have been taxed since before the start of World War II. Indeed, many managers of hedge funds, private-equity partners, and investment bankers -- including those who have been bailed out by taxpayers over the last year -- are paying 15 percent of their income in taxes because their earnings are, absurdly, treated as capital gains. We should eliminate this loophole as well, and use it to guarantee the health of all.

3. Finally, I want a true public insurance option -- not a "cooperative," and not something that's triggered if certain goals aren't met. A public option is critical for lowering health-care costs. Today, private insurers don't face enough competition to guarantee low prices and high service. In 36 states, three or fewer insurers account for 65 percent of the insurance market. A public insurance option would also have the scale and authority needed to negotiate low drug prices and low prices from medical providers. Commercial insurers now pay about 30 higher rates to providers than the government pays through Medicare, because Medicare has the scale to get those lower rates. A nationwide public option could get similar savings. And those savings would mean lower premiums, deductibles and co-payments for Americans who can barely afford health insurance right now.

We'll see.

Tuesday, November 10, 2009

There Was a Reason They Called It... The Casino Economy

by Thomas Croft

02 Jul 03

In the last three years, a 'perfect storm' of rising energy costs, record consumer and corporate debt and massive trade and current account deficits joined with unsustainable investment practices, and resulted in an economic collapse. The first recession since 1929 to be primarily caused by over-investment, these 'collateral damage' investing schemes-in overseas boondoggles and sweatshops, extreme mergers, absurd dot-coms and derivative scams-all came home to roost. Enron used all of these investment tricks and more. The corruption scandals of 2001-2 completed the melt-down. Now, the world is probably in a double-dip recession, thanks partly to the scandal and continuing international disruptions.

The problem with casino bets and Russian Roulette is that somebody always loses. [CounterPunch]

Monday, November 9, 2009

The fiscal stimulus: ineffective or wrong?

The latest economic data show that output growth has weakened and unemployment is creeping up. The government is worried, with good reason, that the economy is going through a pronounced slowdown, perhaps even a recession. To limit the damage, Congress yesterday approved a battery of fiscal measures. By my reckoning, however, the plan will at best provide a short-lived nudge to consumption, but not employment; at worst, it’ll do nothing.

Starting in May, the government will send $600 checks to individuals ($1,200 for couples and an extra $300 for each child). People who earn too little to pay income taxes, but make more than $3,000, will receive a $300 payment. Payments will total $106 billion and will add to the budget deficit.

Cash outlays are supposed to boost private consumption expenditures and accelerate overall growth. $106b may seem a small stimulus for a $14 trillion economy, but the payments are expected to have a “multiplier effect”: higher demand will prompt businesses to hire more workers, and increased employment will further stimulate private consumption, which in turn will induce more hiring. The process continues ad infinitum. The outlays, therefore, can have a final effect on aggregate demand that is many times bigger than the initial stimulus —hence the name “multiplier.”

The effectiveness of the measure hinges on two factors. First, the fraction of the government outlays that will be spent immediately. According to Bruce Bartlett, previous experiences with tax rebates in 1975 and 2001 indicate that it's small. The recent study by Elmendorf and Furman indicates that it's a 50 percent.

The second requirement, which has received less attention, is that businesses will respond to the initial surge in demand by hiring new workers. If they don’t, then the fiscal package will have no second-round impact on demand, and the stimulus to consumption will total just $50b.

Because the first two quarters of 2008 will be marked by considerable uncertainty about the course of the economy in the medium term, the announcement of the fiscal plan will not have an immediate effect on hiring. Manufacturers may ratchet up their inventories, in anticipation of the small jolt of demand in May, but they will do so by using overtime and temp workers, rather than hiring permanent employees. In the services sector, we won’t see any change in employment until the late spring, and even then employers will similarly meet spikes in demand with overtime hours and temp workers, at least initially. If, come June, forecasts have improved, we may see employment pick up over the fall. But by then the effect of the government checks will have played out. In conclusion, the fiscal package won’t provide any significant boost to employment.

A less obvious reason to reject the stimulus is that the slowdown in aggregate demand is necessary, even healthy. Most of the growth experienced between 2002 and 2006 was based on low interest rates, over-valued real estate, and loose lending standards.

Chart 1, from a story by Michael Mandel at BusinessWeek, tells it all. Mandel estimates that, “if consumer spending had tracked the overall economy over the past decade as it has in the past, Americans today would be spending about $600 billion less a year. The extra spending has amounted to a total of about $3 trillion since 2001.” That extra spending was financed with debt. Quite literally, Americans were borrowing their prosperity from the future —not exactly a sustainable growth path.

Chart 1 (left) and 2 (right). Click to enlarge.

Sunday, November 8, 2009

Recession Fears Grow

Reuters reports that "Unsold goods are piling up in warehouses as the housing meltdown and soaring oil prices strain consumers, raising fears that already glum fourth-quarter growth prospects may tip toward recession."

"The sluggishness is apparent in the retail sector, where 70 percent of chain stores posted weaker-than-expected October sales results, according to research firm Retail Metrics.

"We expect the challenging retail environment to continue for the foreseeable future," Mike Ullman, chairman and chief executive officer of department store chain J.C. Penney (JCP.N: Quote, Profile, Research), said last week. He added that the company would keep inventory levels tight through 2008."

Respected economist Nouriel Roubini writes "Any recession call for the U.S. is clearly dependent on US consumption faltering. Since residential investment is only 5% of even a worsening housing recession cannot – by itself – trigger an economy-wide recession. Rather, since private consumption is over 70% of aggregate demand a sharp and persistent slowdown in consumption growth – below 1% or even negative - is necessary to trigger a full blown recession

Saturday, November 7, 2009

The Guns of August, and Why the Republican Right Was So Adept at Using Them on Health Care

What we learned in August is something we've long known but keep forgetting: The most important difference between America's Democratic left and Republican right is that the left has ideas and the right has discipline. Obama and progressive supporters of health care were outmaneuvered in August -- not because the right had any better idea for solving the health care mess but because the rights' attack on the Democrats' idea was far more disciplined than was the Democrats' ability to sell it.

I say the Democrats' "idea" but in fact there was no single idea. Obama never sent any detailed plan to Congress. Meanwhile, congressional Dems were so creative and undisciplined before the August recess they came up with a kaleidoscope of health-care plans. The resulting incoherence served as an open invitation to the Republican right to focus with great precision on convincing the public of their own demonic version of what the Democrats were up to -- that it would take away their Medicare, require "death panels," raise their taxes, and lead to a government takeover of medicine, and so on. The Obama White House -- a veritable idea factory brimming with ingenuity -- thereafter proved unable to come up with a single, convincing narrative to counteract this right-wing hokum. Whatever discipline Obama had mustered during the campaign somehow disappeared.

This is just the latest chapter of a long saga. Over the last twenty years, as progressives have gushed new ideas, the right has became ever more organized and mobilized in resistance -- capable of executing increasingly consistent and focused attacks, moving in ever more perfect lockstep, imposing an exact discipline often extending even to the phrases and words used repeatedly by Hate Radio, Fox News, and the oped pages of The Wall Street Journal ("death tax," "weapons of mass destruction," "government takeover of health care.") I saw it in 1993 and 1994 as the Clinton healthcare plan -- as creatively and wildly convuluted as any policy proposal before or since -- was defeated both by a Democratic majority in congress incapable of coming together around any single bill and a Republican right dedicated to Clinton's destruction. Newt Gingrich's subsequent "contract with America" recaptured Congress for the Republicans not because it contained a single new idea but because Republicans unflinchingly rallied around it while Democrats flailed.

You want to know why the left has ideas and the right has discipline? Because people who like ideas and dislike authority tend to identify with the Democratic left, while people who feel threatened by new ideas and more comfortable in a disciplined and ordered world tend to identify with the Republican right. Democrats and progressives let a thousand flowers bloom. Republicans and the right issue directives. This has been the yin and yang of American politics and culture. But it means that the Democratic left's new ideas often fall victim to its own notorious lack of organization and to the right's highly-organized fear mongering.

I suppose I'm as guilty as anyone. A few weeks ago I casually mentioned in a web conversation on Politico's web page that if supporters of universal health care and a "public option" felt their voices were not being heard in our nation's capital they should march on Washington. A few moments later, when someone wrote in asking when, I glanced at a calendar and in a burst of unreflective enthusiasm offered September 13. I didn't check with anyone, didn't strategize with progressive groups that have been working on health care for years, barely checked in with myself.

I was deluged with emails. Many people said they were planning to march. Someone put up a web page, another a Facebook page, a member of Congress announced his support. But most people said they couldn't manage September 13. It was too soon. It conflicted with other events. It followed too closely behind a right-wing march against health care reform already scheduled for September 12. It was a day AFL leaders were out of town, so couldn't lend their support. Many who emailed me wanted another day -- September 20, or the 27th, or early October. Others said they'd rather march on their state capital, in order that local media cover it. When I finally checked in with the heads of several progressive groups and unions in Washington -- all with big mailing lists and the resources to organize a big march -- they said they were already planning a march, for October. But they still haven't given me a date. (I will pass it on as soon as I hear.)

August is coming to a close, and congressional recess is about over. History is not destiny, and Democrats and progressives can yet enact meaningful health care reform -- with a public option. But to do so, we'll need to be far more disciplined about it. All of us, from Obama on down.

Friday, November 6, 2009

Thursday, November 5, 2009

EZer taxes

Imagine if you didn’t have to file a tax return. Imagine if, come T-day, the only thing you needed to do to comply with your tax obligations was to sign a form and mail it. And imagine if this could be done without changing a comma of the tax code. This is not a pipe dream—millions of citizens in different parts of the world already do it.

Austan Goolsbee, professor at the University of Chicago Graduate School of Business and head economic adviser to Barack Obama, is proposing to let the Internal Revenue Service, America’s tax man, put together drafts of individual tax returns and mail them to taxpayers. Experts know the system as “Tax Agency Reconciliation” (TAR). Goolsbee has had the good sense to re-baptize as “Simple Return.”

Tax collection agencies receive all the information they need to fill out the returns of many taxpayers. By law, employers and financial institutions send the data to them. The time spent by filers collecting statements, putting the numbers in the right boxes of the tax form, figuring out the standard deductions and exemptions, and calculating the tax bill--not to mention the fees paid to tax prepapers--are thus a waste.

Sweden and Denmark use the system. In Spain, with seven years of TAR experience, some filers can even request and confirm their pre-filled tax returns by sending a text message. Some Spaniards don’t even have to sacrifice precious TV time: they can do their taxes through their interactive, digital TV sets. (I encourage readers who know of other countries in the EZer Club to let me know in the comments or by e-mail. I’d like to make a list. If you respond, please specify whether the country does TAR or exact withholding.)

Wednesday, November 4, 2009

Housing Bubble Sites

National Sites

Regional Sites

Tuesday, November 3, 2009

Beware Authoritative "Inside Washington" Sources Who Say The Public Option is Dead

Washington, D.C. is an echo chamber in which anyone who sounds authoritative repeats the conventional authoritative wisdom about the "consensus" of inside opinion, which they've heard from someone else who sounds equally authoritative, who of course has heard it from another authoritative source. Follow the trail to its start and you often find an obscure congressional or White House staffer who has seen some half-assed poll number or briefing memo, but seeking to feel important hypes it a media personality or lobbyist who, desperate to sound authoritative, pronounces it as truth. In any other place on the planet it would be called rumor, gossip, or drivel. In our nation's capital it's called "inside information." The process would be harmless except that it creates self-fulfilling prophesies. Since most of our elected representatives would rather not stick their necks out lest they lose their heads, they tend to rush toward whatever consensus seems to be emerging -- which, of course, is based on authoritative reports about the emerging consensus.

In the last few days authoritative sources have repeatedly told me that the public option is dead, that the President won't be able to get a comprehensive health care bill, and that the White House and congressional leadership already know the best they'll be able to do now is move incrementally -- starting with insurance reforms such as barring insurers from using someone's preexisting health conditions to deny coverage -- with the hope of more reforms in the years ahead. The rightwing media fearmongers and demagogues have won.

Don't believe it. The other thing about Washington is how quickly conventional authoritative wisdom changes, especially when the public is still in flux over some large matter. Rightwing fearmongers and demagogues thrive only to the extent the mainstream media believes they're thriving. Although polls continue to show that while most Americans like the health care they're getting, they also dislike their insurance companies, worry that they or their families will be denied coverage, and are anxious about the increasing co-payments, deductibles, and premiums they're facing. Most are still eager for reform.

In addition, we've come to the point where health-care incrementalism won't work. To be sure, the health-insurance industry is powerful and will fight reforms that threaten their profits. But they won't fight if they know their profits will be restored when everyone is required to have health insurance. (This isn't just conventional authoritative wisdom; it's political fact.) Obviously, in order to require everyone to have health insurance, tens of millions of Americans will need help affording it. The only way the government can possibly pay that tab is to raise taxes on the rich while also getting long-term health-insurance costs under control. And one of the surest ways to get long-term costs under control is to force private insurers -- which in most states and under most employer-provided plans face very little competition -- to compete with a public insurance option that can use its bargaining clout with drug companies and medical providers to negotiate lower prices.

When you go through the logic, it starts to look a lot like comprehensive reform.

Years ago, as the story goes, Britain's Parliament faced a difficult choice. On the European continent drivers use the right lanes, while the English remained on the left. But tunnels and fast ferries were bringing cars and drivers back and forth ever more frequently. Liberals in Parliament thought it time to change lanes. Conservatives resisted; after all, Brits had been driving on the left since William the Conquerer's charriot. Parliament's compromise was to move from the left to right lanes -- but incrementally, on a voluntary basis. Truckers first.

Lest anyone in Washington repeat this story authoritatively, it's a joke -- but with a kernel of truth. Sometimes reform has to occur in a big way, everything or nothing, if it's to happen at all. That's the way it is with health care reform at this stage. Every moving piece is related to every other one. That's also why a public option is necessary.

So forget the authoritative sources. Mobilize and organize. We can get comprehensive, meaningful health care reform if we push hard enough. And we must.