Can Trump's Economic Standing Save Him?

A friend sent me a recent New York Times article by Jim Tankersley on Trump's standing on the economy. The bottom line is that Trump is overall still rated better on the economy than Biden. I've been watching that too. It's the only issue running in Trump's favor, but it could be the most important issue. So if he's able to prevail, other than his efforts to cheat and manipulate the voting itself, that's what will have saved him.

The upshot of the article, when you read the details, is that Republicans still think Trump's great on the economy. That's not exactly a shocker. And Democrats think he's horrible. That's also predicable. Beyond that, here's a key passage from the article:

"But the plunge in economic activity since the coronavirus began to spread rapidly in the United States late this past winter has hurt Mr. Trump's standing on economic issues as well as his overall approval. Most polls now find Americans are evenly split on whether they approve of his handling of the issue. Gallup, for example, found Mr. Trump enjoyed a 48 percent approval rating on the economy this month, down from 63 percent in January. The decline was particularly acute among moderates, independents and voters who attended at least some college."

Here's link to the full Gallup Poll quoted above. 

So this is the guy who won the three Great Lakes battlegrounds by a combined 78,000 votes in 2016. That's much less than a 1% victory in all three, and he squeaked by in the biggest battleground, Florida, by 1%. Now his standing on the economy has tanked 15%. The decline was "particularly acute" among "moderates and independents," precisely the swing voters. So if, as the article says, almost all Republicans still think he walks on water, and almost all Democrats still think he is Lucifer in the flesh, and their views have scarcely changed from when his economic approval was at 63%, then how much has his economic standing among the third of voters who are moderate and independent declined in order to pull the whole average down by 15 points? Well, the simple arithmetic would put that at around 45%. That's enormous. And again, those are precisely the persuadable people, the "moderates and independents" who are the SWING VOTERS everyone is always talking about. 

Trump could still win. The economy is a potential lifeline, as long as his numbers there aren't as terrible as his numbers on everything else. He could also make headway on patriotism, as he defines it, and on fear of demonstrators, as he's trying to do with his "law and order" pitch. But he needs those numbers to get a lot better. The last four national polls that came in last week gave Biden an average 8.5% national lead. In 2016 Trump was able to eke out an electoral win BARELY, with a 2.1% national deficit. As of right now he's losing, and he'll need those economic numbers to improve substantially to reverse that. It may be possible, but they're not there yet. I'm sure he realizes where he stands and will be working hard to try to get there. 

An Ounce of Climate Prevention

Climate change deniers often like to say we can't afford to undertake the mitigations necessary to reduce carbon pollution and transition to green energy sources. "It's bad for the economy," they say. Compared to what, I ask. According to initial insurance estimates the cost to repair the damage from hurricanes Harvey and Irma will total $50 to $70 billion dollars (source.)

That's just to repair the damage. It doesn't include having the economies of most of East Texas and much of the entire state of Florida off line for several weeks, which will cost the national economy more tens of billions. Just as predicted, the hotter oceans are producing more and stronger storms that cause more damage than ever before.

Why is it that we cannot afford to take the preventative steps to prevent such catastrophes but we generally seem to find the money to put things back together after them? 

Census Bureau: Incomes Up, Poverty Down!

One of the big news items of the week concerns outstanding economic news from the Census Bureau. Major progress in family income and a big drop in the poverty rate headlined a report that surprised many with gains that had not been seen in decades. The figures, covering 2015, were immediately touted by President Obama and ought to provide a boost to the Clinton campaign as they are good news for the incumbent party.

Median household income grew 5.2% for the year, to $56,516, a gain of $2,800 in one year. It was the largest year-to-year improvement since records have been kept. Even more remarkable, it was the poorer end of the population that saw the biggest gains. The bottom ten percent saw their average incomes grow by 7.8%, while the top ten percent grew by 2.9%. The poverty rate went from 14.8% in 2014 to 13.5% in 2015, the largest yearly percentage drop since 1968. Three and a half million people were lifted out of poverty status in one year. The minimum wage was raised in 20 states, likely a big part of the reason for the strong performance. The jobs picture was also strong. "Last year, 1.4 million more men and 1 million more women were working full time year-round than in 2014," the census found.

There was good news on health care, too. 2015 saw 9.1% of Americans without health insurance, a drop from 10.4% the previous year, and the lowest uninsured rate on record. That was a single-year reduction of 4 million people, from 33 million to 29 million. The primary reason was the second full year of  implementation the Affordable Care Act, or Obamacare. These are rather spectacular gains. When the ACA was passed, some 15% of the population was not covered, about 47 million people. We thus already have 18 million more people, 6% of the population, insured than before the Act.

The news does not correspond to the Trump campaign's narrative of stagnating jobs and wages. Trump campaign economic spokesman Peter Navarro "did not respond to requests for comment" on the report. Meanwhile the President, campaigning for Clinton in Pennsylvania, said, "So now let's face it; the Republicans don't like to hear good news right now. But it's important just to understand this is a big deal. More Americans are working, more have health insurance, incomes are rising, poverty is falling, and gas is $2 a gallon...Thanks, Obama!"

Obama Adminstration Achievements in 2015

Despite opposition from and dysfunction in the Republican-controlled congress, 2015 has been another year of remarkable achievements for the Obama administration. On the economic front, the past 12 months have seen the creation of 2,637,00 jobs, and the all-time record of consecutive positive job creation months is now up to 69. A moderate growth rate of 2.1% combined with a low 0.5% inflation rate has yielded a healthy net growth rate of 1.6% over inflation. The United States is now the largest oil producer in the world, while at the same time renewable energy production continues to break records with each passing day and fuel economy continues to grow. The result is a 27% reduction in oil imports and a huge price savings for the American consumer at the pump. Here's a list of the highlights of accomplishments in 2015.

April 16: New Medicare reimbursement formula rewards doctors for health outcomes instead of just for performing services.
April 16: Medicare Access and CHIP (Children's Health) Reauthorization Act signed.
June 30: Overtime pay threshold for hourly workers improved from $23,660 through $50,440.
July 14: US and Cuba reopen embassies after 54 years.
July 16: US and six major powers reach agreement with Iran to curb its nuclear program and accept inspections in exchange for sanctions relief.
August 4: Each state required to reduce its carbon emissions to set targets by 2030.
August 18: First openly transgender employee hired by the White House.
September 3: Discrimination against transgender people in health or medical insurance is banned.
September 7: Employees of federal contractors must be offered at least 7 days of paid sick leave per year.
September 18: First openly gay American nominated for Secretary of the Army.
October 6: Sentences reduced and adapted for 6,000 people serving excessive punishment for nonviolent crimes.
October 22: 70 ISIS hostages rescued in Iraq by US Special Forces.
November 6: Keystone Oil Pipeline rejected for not serving the interests of the United States.
December 3: All military positions become open to females.
December 10: Every Student Succeeds Act signed.

Positive New Jobs Numbers

The latest jobs numbers came out last Friday from the Bureau of Labor Statistics. They show a preliminary job creation number of 173,000 new private-sector non-farm American jobs were created in August. When final statistics come in that number may be adjusted up or down somewhat, but it's a good snapshot.The most important thing it shows is that positive news keeps coming in. We are currently on the longest roll of consecutive months of net positive job creation since statistics have been kept for the nation.

The other thing the stats do is underscore an important but little-known fact about American employment statistics: the strong superiority of these numbers when a Democrat occupies the White House. I went back to the inauguration of John F. Kennedy in 1961, ran the numbers, and here is what I found: There have been 5 Republicans in office for a total of 28 years. During that time there was a net gain of 857,000 jobs a year during Republican administrations. There have also been 5 Democrats as president from JFK to now, for a total of a little less than 27 years. During that time a net average of 1,844,000 jobs have been added every year during Democratic administrations.

The numbers are stark and remarkable. More than twice as many jobs per year have been created under Democrats as under Republicans, almost a million a year more! Why Democrats don't trumpet this to the skies every election cycle is beyond my understanding. Maybe they ought to start doing that.

Report: 22 States Face Deficits This Year

The Associated Press has recently done a study showing that even in economic recovery, 22 states are looking at budget shortfalls for the upcoming year. That's an ominous sign, causing consternation about how bad things might get the next time the economy goes back into a downturn. There are two main culprits: states that have tried to spur growth with tax cuts, and states that rely heavily on oil revenues. It's more confirmation that the trickle-down "tax cut your way to prosperity" plan doesn't seem to work.

California and Colorado are singled out as two states that are running surpluses and in strong financial shape. California followed a liberal program; voters approved tax increases on high incomes, instituted a statewide sales tax increase, and gave the legislature authority to pass budgets with a simple majority. It's also committing $1 billion to water projects and going ahead with high speed rail construction. Contrary to conservative expectations, the Golden State is on its way to a projected $3 billion surplus this year.

Kansas and Alabama are highlighted as states in which tax cutting fever failed to produce strong growth rates and is leading instead to substantial deficits that will require either restoring the taxes or severe cuts to education and the judicial system in order to restore balance. Kansas school districts are closing early this year because they are running out of money.Alaska is the poster child for excessive reliance on oil revenues. With global prices down by half from their peaks, Juneau faces an expected $3.2 billion deficit over the next two years.


 

Record is Clear: Economy Thrives Under Democratic Governance

Democrats need to do a better job of touting their economic record. If the American people knew the truth about the effectiveness of the two parties in office it's hard to see how the GOP would win many elections. Let’s compare the economic results of the past 80-plus years under Republican and Democratic administrations. First, the Republicans. From Hoover to George W. Bush Republican administrations produced an anemic average growth rate of only 1.68% a year, with an unemployment rate of 7.3% and an average inflation rate of 3.9%.* Under the Democrats from Roosevelt to Obama economic growth averaged 5.1% a year, unemployment averaged 7.2% and inflation averaged 3.4%.  The Democrats, the more liberal party, outperformed the Republicans, the more conservative party, in all three areas, as you can graphically see in the figures below.  

All Administrations, 1929-2014, including the Great Depression.

                        Years      Growth  Unemployment  Inflation

Republicans       40        1.68%           7.3%            3.9%*

Democrats         46         5.07%           7.2%            3.4%

But what if we exclude the Great Depression as an anomaly? Even without Hoover, the other 36 years under GOP control from Eisenhower to George W. Bush have produced the following stats: an average growth rate of 2.53%, unemployment rate of 6.1%, and inflation rate of 3.9 %. If you don’t count the first four years of Roosevelt’s time in office, when the country was digging out from under massive unemployment figures accumulated by his Republican predecessor, the Democrats averaged a 4.22% growth rate (and remember, we’re not counting the excellent growth rates Roosevelt compiled in the New Deal years) with only 5.1% unemployment and a lower 3.7% inflation rate than under the Republicans. Put another way, for the last 73 years, the economy has grown 68.8% faster and unemployment has been 19.6% lower when a Democrat ran the country. Whichever way you slice it, liberal policies have produced consistently and decisively better results for the American people over a very lengthy period of time. The figures below make it clear.   

Administrations, 1942-2014, not including the Great Depression.

                          Growth            Unemployment           Inflation

Republicans       2.53%                    6.1%                       3.9%

Democrats          4.22%                   5.1%                       3.7%

Oil Prices Plunge at the Intersection of Economics and Politics

There has been a rather amazing decline in the price of oil lately.  Crude was as high as $115 a barrel in June, but is now going for $80.  That's an amazing 30% drop in four months.  This has resulted in big drops in the price of gas at the pump.  The nationwide average was as high as $4.11 a gallon in 2008, stood at $3.94 in April of 2012, was at $3.69 this year in June, and now is down to $3.12.  Source US Energy Information Service.   That reduction amounts to 57 cents a gallon in four months, a 15 percent savings so far, with likely more to come as the full drop in the price of crude works its way through the chain.

The first thing to comment on is that this is having a positive economic effect.  Despite price wars over fares, for instance, airlines turned in strong profits in the past six months.  The nine largest U.S. carriers saw their net earnings increase to $3.8 billion compared to $1.6 billion over the same period last year.  The main reason?  Lower fuel costs.  It could spur increased consumer spending too, perhaps for Christmas.  Research shows that every one cent drop in the price of gasoline puts $1 billion into the pockets of the American people.

There are some domestic factors driving the price drop.  Part of it is increased efficiency in gas mileage in the U.S. auto fleet, and the beginnings of a real expansion in renewables, both jump-started by Obama administration policies initiated in 2009.  America uses 1.8 million barrels a day less than it did in 2007.  American production is up too, growing from 5.00 million barrels a day in 2008 to 7.44 million a day at present.  Combine these factors together and the U.S. is importing 4 million fewer barrels of foreign oil a day than it did seven years ago.  That's a foreign exchange improvement of about $12 billion a month, or $144 billion a year--a significant chunk of change, about .8% of GDP, to add to the U.S. economy. 

Just as intriguing are the global forces at work.  In the past, when a global oil glut threatened to erode prices, Saudi Arabia would cut back on its production, making oil scarce and thereby bolstering the price.  This time, however, the Saudis have maintained production and discounted prices to their Asian customers in order to retain market share.  It's very likely there's a geopolitical motive operating here, perhaps even in coordination with the United States.  Sunni Muslim Saudi Arabia is in a real contest for dominance in the Middle East with Shi'ite Muslim Iran.  The major flash point is the Syrian Civil War, in which autocratic President Bashar Assad is being supported by Iran and Russia.  Iran is under international sanctions due to its nuclear program, as Russia is for its recent imperialistic moves in Ukraine.  The Saudis and other Sunni oil states have been supporting the opposition.  But another way to cripple Iran's and Russia's efforts would be to strike a heavy blow against the price of oil.  Russia gets 50% of its budget revenue from oil exports, and Iran gets 60% of its from the same source.

The seriousness of Russia's problem is underscored in a recent article in the Wall Street Journal, which reports, "Russian inflation is at a three year-high, the ruble is trading at new lows, and capital outflows are expected to exceed $100 billion this year. The ruble is under downward pressure both from higher demand for dollars, as companies find it hard to borrow abroad, and from lower oil prices. It has already weakened by more than 20% since the start of the year."  Finance Minister Anton Siluanov publicly warned the Russian Duma (Parliament) that the budget may become untenable.  Expect to see more on this soon.  The economic squeeze on Iran and Russia is not coincidental, and may result in some interesting diplomatic musical chairs in the next few months.  Stay tuned.            

Business Analysis: Income Inequality Holding Back Recovery

It's nice to see that after 33 years in the making and plenty of research and warnings by Nobel Prize winning economists like Paul Krugman and Joseph Stiglitz, business analysts are finally beginning to appreciate the pernicious effects of rising economic inequality.  The Standard & Poor's rating agency has released a new report, How Increasing Income Inequality is Dampening U.S. Economic Growth, And Possible Ways to Change the Tide.  It says the "widening gap between the wealthiest Americans and everyone else has made the economy more prone to boom-bust cycles and slowed the 5-year-old recovery from the recession."  They have revised their forecast of U.S. economic growth over the next ten years downward from 2.8% per year to 2.5% as a result.  S& P chief economist Beth Ann Bovino said that economic disparities have reached extremes that "need to be watched because they're damaging to growth."

The breakthrough in analysis is important because it indicates how the economic discussion may be changing.  For years liberals have been calling attention to this very phenomenon, while conservatives and the business community either rejected the reality of growing income inequality or downplayed its negative effect on the economy as a whole.  So the fact that a major business organ is now coming to a similar conclusion as the liberal economists is highly significant.  The first step in solving a problem is admitting it exists.  S & P is a numbers-heavy service, and the analytics are simply getting too obvious to ignore.  People without sufficient disposable income to spend are not spending it, especially after the credit crash.

If a greater share of national income were going to the working and middle classes their spending would be able to drive a more robust recovery.  Since 96% of national income gains since the recovery began have gone to the top 1%, there are not enough of them to translate those gains into major GDP growth.  A low percentage of 1% income gains go into extra spending; most goes into savings or investments, often overseas.

The S & P report recommends increasing educational achievement as a means to boost working and middle class income growth, since additional years of higher or vocational ed are associated with higher income.  That would certainly be a good idea, but more direct means, such as increasing the minimum wage, revamping the tax code and bolstering union organizing rights in the retail, service and fast food sectors would also pay more immediate dividends.  One can hardly expect a business publication to advocate such steps, at least yet, but now that the discussion is open and on the table and we have some states like Washington and California taking such steps, the experiential data will be coming.  And if the numbers confirm the thesis, as the Krugmans and Stiglitzes have been predicting, the S & P's of the world may eventually have to admit the handwriting on the wall on solutions as they now have on income inequality itself.       

Valley Economic Development

My last post on water issues ( "Getting Real About Water," February 9, 2014) raised the discomfiting but inescapable prospect that the realities of water supply in our San Joaquin Valley region mean that some of the farming we now do will have to be scaled back.  This raises the question of economic viability.  Will the reduction in agriculture, the area's biggest industry, necessarily mean economic disaster?

The answer to that is an emphatic "NO!"  It might instead be just the impetus that leads to the kinds of development that could revolutionize the economy for the better.  A recent piece by a UCLA economist suggests four avenues of progress that could bring solid prosperity.  Jerry Nickelsburg is Adjunct Professor of Economics and Senior Economist at the UCLA Anderson School of Management.  His open letter to "inland Californians" was published in the Fresno Bee.  Here are his ideas for transformation.

1) Education.  There are two University of California schools (Davis and Merced) and four California State University campuses (Bakersfield, Chico, Fresno, Stanislaus( in the Central Valley.  With an underserved worldwide demand for education, and California already a "magnet" for students, each facility could be expanded to enrollments of 50,000.  An estimated 80% of the additional 200,000 students would be out-of-staters paying full tuition.  This would fund many thousands of good jobs in teaching, administration and support services, adding $20 billion to the economy.  It would also create spinoffs, filling the area with researchers, entrepreneurs and cultural assets and the related climate of innovation they would foster.

2) Nickelsburg suggests a new major airport in the region, connected by the high-speed rail system throughout California.  He sees this as a way to connect the cities of the Central Valley to "the people and markets of vibrant Pacific Rim cities such as Shanghai, Singapore and Guangzhou," replicating what the Interstate Highway System did for the U.S. economy in the 1960s and 70s.

3) Become a retirement mecca.  The region should take advantage of and market its warm climate to "snowbound Easterners" from "weather-challenged parts of the country" now that "a record number of Boomers are preparing to retire."  It would require a workforce trained in senior care, which the community colleges could supply.  The university environments would could offer music, art, drama and intellectual stimulation.  There would also be needed infrastructure improvements, as in hospitals.  The rail upgrade would be an enticement, bringing accessible day trips to the Sierra National Parks, Pacific beaches, and the urban attractions of San Francisco and Los Angeles easily within reach.  Why not lure a few million retirees this way rather than see them go to Florida?

4) Monterey shale.  Nickelsburg feels the development of this resource will be too enticing to stop.  And when it happens, he sees it as a potential economic boon.  The fields themselves won't sustain very many jobs once the initial drilling is done.  But the region should still benefit from refining and chemical industries, as well as distribution services.   

Nickelsburg draws a sharp lesson from the experience of Appalachians when the coal business declined.  They blamed government and environmentalists and did nothing, sliding into permanent depression.  The Central Valley can do the same thing when ag begins to decline, or it can make use of the other considerable assets it has to ensure future prosperity.  His thoughts deserve careful consideration. 

Strong Economy Prompts Federal Reserve Action

There was good economic news today.  According to the Wall Street Journal, Fed Chairman Ben Bernanke, in what is likely the last press conference of his tenure, announced the economy is strong enough that the Fed decided at its last meeting to scale back its monthly stimulus of bond-buying from $85 to $65 billion a month.  With manufacturing, construction, home and auto sales all up, it was determined that the program of "quantitative easing" could itself be eased.  The New york Stock Exchange responded with a jump on the Dow of 292 points today to a new record high of 16,167.

Interest rates will be kept low for at least another year to keep big-ticket purchases affordable and continue to work on the unemployment rate, which is projected to drop about 10% next year, from the current 7% down to 6.3% in 2014.

There is no question the budget austerity imposed by Republicans on Capitol Hill has delayed and reduced the recovery.  Bernanke, a Bush appointee, attributes "fiscal drag," the slashing of government jobs and spending during a downturn, to shaving about 1.5% off U.S. economic growth this year.  2013's decent growth of 2.3% could have been a robust 3.8% without the ideological foolishness of sequesters, shutdowns and layoffs during hard times.

      

OPEC and Speculators Push Gas Price Surge

Nationally, gasoline prices at the pump have gone up 44 cents in the past month, to an average $3.74.  Over the same period they've risen 50 cents in Fresno to $4.06 and 48 cents in Visalia, to $4.04.  We have boosted domestic production immensely, which the "drill baby drill" chanters promised would reduce prices.  So what's going on?  As an analysis in today's Fresno Bee by Kevin G. Hall points out, it's the usual suspects: the OPEC cartel and financial industry speculators.  It continues to pound home a lesson we should have learned long ago: so long as we continue to rely on a commodity like a fossil fuel for our main energy needs we will never be able to get ahead of this vulnerability.  We will only enjoy true independence and predictability once we have made the switch to renewables like solar and wind.

Higher gas prices suck the steam out of the economic recovery.  They reduce the purchasing power American consumers have to spend on other items.  Hall writes, "Gasoline expenditures as a percentage of U.S. household income hit three-decade highs in 2012." 

This hasn't been abated by our own ramping up of drilling and production.  From 2011 to 2012 the U.S. domestic oil industry, largely unleashed by the Obama Administration, expanded its drilling by 800,000 barrels a day.   American production is on track to "rise from 6.89 million barrels a day in November 2012 to 8.15 million by December 2014."  We now produce more than half the oil we consume, up from less than a third at our lowest.  Thanks to increasing vehicle fuel economy, we are also using less.  As a result of these factors, as you can see by the chart in this link, we have cut imports by about 20% since President Obama took office.  That is all good, but it still hasn't resulted in a big price break for U.S. consumers.  That's because we don't really have a free market for oil, and also because we do.  Let me explain.

On one level, there isn't enough free enterprise in the market.  The OPEC oil cartel can, and does, intervene to keep the price of oil at a level they want.  They do this by cutting production when price drops too far or increasing production if they want the price to go down.  The OPEC countries with large reserves but small populations to support, like Saudi Arabia, simply drill less oil, and by the laws of supply and demand, the price goes up.  That is even though world demand has recently gone down.  The International Energy Agency reports that, "Lacking demand, OPEC, the oil-exporters cartel, has reduced production."

But that's only half the story.  The other half is where we have too much free enterprise, and that refers to energy speculators.  Rather than trucking companies and airlines, who are consumers themselves and used to buy most of the oil futures at prices designed to keep costs in check, these days, as Hall reports, "Non-commercial financial speculators now dominate 70% of the market.  The trading is dominated by Wall Street banks, hedge funds and other financial institutions that have no intention to take delivery of the oil needed to make gasoline."

They buy all the uncontracted oil they can and hang onto it, starving the world's economies of oil until desperate consumers begin bidding up the price.  Then they sell at a hefty profit.  According to Bart Chilton of the Commodity Futures Trading Commission, "It's speculators who are moving markets.  They are almost the entire market at certain periods of time."  So manufacturers, transportation companies and everyday drivers are stuck with crippling and escalating costs so that the already engorged oil cartel and Wall Street operators can continue adding to their untold billions.

Whether we drill more or not, those who have the system rigged in their favor are certain to get their pound of flesh.  Only when we get the lion's share of our energy directly from sources they can't control and gouge the rest of us to access--like renewables--will we break ourselves from this stranglehold.  That makes the President's wind, solar and conservation initiatives all the more critical for the well-being of the "real" economy and the average American consumer.      

"Fiscal Cliff" Postmortem

The recently concluded budget fight over the so-called "fiscal cliff," demonstrates that neither side in Washington really cares very much about the deficit.  The term deficit is thrown around and used to appeal to the public, but it isn't what either Democrats or Republicans are truly primarily concerned with.  And in today's economic climate, that may actually be a good thing.

Start with President Obama and the Democrats.  The President campaigned and was re-elected on letting income tax rates return to the Clinton-era levels for individuals making over $200,000 and couples making over $250,000.  Yet even with the threat of cliff-mandated tax increases for all and defense cuts that Republicans hate strengthening his hand, he agreed to raise those figures to $400,000 and $450,000.  That change reduced the projected revenue to be generated by about $25 billion a year, revenue that if he had stuck to his position he would likely have been able to get to help reduce the deficit.

Now take a look at the Republicans.  They went along with the tax increase without forcing any spending cuts at all.  When they were in power under President Bush they cut taxes significantly without paring spending.  Then they funded two wars and a Medicare prescription drug benefit without securing any revenue for them, using borrowed money.  All these actions added to the deficit, of course.  So what gives?

First of all, Federal Reserve Chairman Bernanke coined the term "fiscal cliff" in reference to the automatic tax increases and spending cuts that would have kicked in on January 1 when the Bush tax cuts expired and the "sequestration" (large spending cuts, half in defense and half in domestic programs) of $120 billion in federal spending would have kicked in.  So, wouldn't these things have reduced the deficit if they had been allowed to happen?  Well, yes at least on paper.  But the combined effect of taking quite a bit more money out of so many regular taxpayers' checks, laying off thousands of federal workers and cancelling orders would have, according to the nonpartisan Congressional Budget Office estimate, have pushed the economy back into recession.  That's why it was called a "cliff."  Yet what was realized is that growth and the health of the economy are far more important than the annual deficit.

In fact, it is recession that primarily fuels the deficit.  The deficit Obama inherited for the year 2009 stood at $1.4 trillion.  It eased to $1.29 trillion in 2010 and $1.29 trillion again in 2011 as weak recovery got underway.  It fell to $1.1 trillion in 2012 and, as we are now halfway through fiscal 2013 and the recovery is gaining some steam, it projects to come in at about $900 billion this year.  (Deficit figures source.)  That's a reduction of 18% this year from last and 36% over the four years--a pretty good record, even without much tweaking of the tax code or changes on the spending side other than savings of about $80 billion a year we are now enjoying from ending the Iraq War. 

The exasperating "fiscal cliff" process will get under way again soon.  On February 28 the debt ceiling will need to be raised again.  On March 1 the threatened sequester cuts will come back.  And about March 27 the money will theoretically run out if the debt ceiling hasn't been raised.  Congressional Republicans will attempt to use these benchmarks to force what they really want, which their actions demonstrate is not about reducing the deficit.  What they really want is to repeal as many social insurance programs and environmental and workplace safeguards as they can. 

      

Time for a Big Jobs Program

President Obama announced he will be coming out with a jobs bill after Labor Day. Here's hoping it will be something really big, because that's what the country needs. Incidentally, it would also be good politics for him too.

To start with, it's long past time we had a big jobs push. The fight over the debt ceiling that lasted most of the summer was a distraction from what most of the American public was interested in and what the economy really needs. The original stimulus from 2009 stabilized the free-fall but now has largely run out. This latest round of Republican-pushed budget cuts, to take effect sometime in late November, will do nothing for jobs. Spending cuts do not produce jobs; to the contrary, in order to institute them jobs will have to be cut. That's been the problem as job creation has stalled the past few months: modest gains in the private sector have been offset by downsizing in the public sector.

No doubt there will be some tax credits for companies that fill new positions in Obama's plan, but he needs to go farther. The principal reason hiring is slow is because consumer demand is weak. Consumer spending is 70% of the U.S. economy. Corporate America has been enjoying strong profits of late by cutting jobs and boosting productivity. Indeed, 96% of the top 500 companies were profitable over the past 12 months. They are sitting on an estimated 2 to 2 and a half trillion dollars in cash. American companies produced 1.0 million jobs in America in the pat year but 1.4 million overseas. The reason is that with high unemployment, skittish lending and hesitant buying patterns, demand is picking up faster overseas than here. Source for this paragraph. The solution? We need more jobs here, more money in the pockets of American consumers.

Since private business is not doing it, not only incentives but direct government hiring ought to take place. Many have called for a big push on infrastructure construction for part of this program. You can expect an "infrastructure bank" to be part of the Obama proposal in September. That is a good idea and ought to be done, but I feel his proposal ought to go farther. We have 8 million people out of work. Consider that directly funding 1 million jobs at $35,000 a year would cost $35 billion. When you consider a year of the war in Afghanistan costs three times that much or that the yearly deficit is expected to be over $1.2 trillion (thirty times that much) that amount is a relative bargain. If Obama were to propose opening up 2 million jobs right now for $70 billion it would have an electrifying effect on the unemployed and the economy. And for you fiscal hawks, it would only add 6% to the yearly deficit. Former Secretary of Labor Robert Reich has a ten-point plan for jump starting employment that makes a lot of sense. It includes a mix of tax and regulatory changes and direct government actions. Take a look at it here.

There is certainly plenty for 2 million people to do. Everything from classroom aides to neighborhood cleanup to weatherizing buildings to transportation maintenance to the huge backlog of postponed work at National and State Parks to care for the elderly--there are a host of productive things that need doing, would help the country, would restore a sense of purpose and hope in the lives of the unemployed and would return $70 billion of buying power to the economy.

It would be good for the President politically too. Would the Republican-controlled House of Representatives refuse to go along? Almost certainly yes. Their preference is Hooversim; do nothing and hope for the best. The contrast between a strong program to directly provide millions of jobs juxtaposed with further excuses for more inaction could only work to Obama's advantage in next year's elections.

Deficits, Tax Fairness and the Economy

Even Goldman Sachs says that to cut federal domestic outlays by $61 billion right now would result in a "1.5% to 2% drag on GDP growth." Even the Los Angeles Chamber of Commerce supports California Governor Jerry Brown's plan to put a 5-year tax extension plan on the June ballot to take care of half of the state's $26 billion deficit problem. But Republican lawmakers in both cases continue with an ideological approach that considers only cuts as a response to current economic and fiscal challenges.

State governments across the country have laid off 426,000 workers in the past year. These people are no longer making house, rent or car payments, buying major appliances, going on trips or dining out. The contraction of their spending contributes to the slow recovery.

Although government spending is always a cause celebre for the GOP, it must be remembered that government spending did not cause the recession. Badly regulated housing and speculative markets did that. Budgets that used to balance do not now balance because government receipts are down, not because spending went up. And the reason they are down is because most people are not spending much. Robert Reich points out that high-end sales are booming as the upper class is doing quite well. But prosperity and spending among the top 5% is not enough to pull up the entire economy. "Americans bought 17 million new cars in 2005 but just 12 million last year." Yet compensation at the 25 biggest Wall Street players was $130 billion in 2007 and is now at $140 billion. And we all know that corporate America is sitting on $2 trillion in cash from increased profits over the past couple of years, profits they are not using to step up much hiring because sales haven't grown that much.

If the capital gains rate were 20%, or even the 40% it was at the peak of American prosperity in the 1950s and 1960s, and if the top income tax rate had even been restored to 39% from 1999 when we had a balanced budget rather than the 35% where it now is, the deficits and impetus to cut would scarcely exist. Yet rather than ask the wealthy to contribute as they once did, we see the spectacle of laying off thousands of teachers, bus drivers and police and a drag on the entire economy. It's the oldest play in the book: turn the have-nots against each other while the aristocrats wallow in luxurious indifference.

Corporate Profits Up But National Well-Being Isn't

Wow, great news! The Commerce Department reported yesterday that in the third quarter of 2010, U.S. corporate profits surged to an all-time record high. They came in at an annual rate of $1.659 trillion. You can read all about it in the New York Times, or in this article from CNBC. Corporate profits have grown 11% this year. Sam Stovall, chief investment strategist for the Standard & Poor's 500 index says, "Profit margins for S & P firms are now above 9 percent - nosebleed territory."

This excellent news brings some questions to mind. First, aren't Obama and the Democrats supposed to be bad for business? The U.S. Chamber of Commerce just spent $200 million in the last election cycle to tell us so. Yet it certainly looks like the facts fail to support that assertion. The national economy grew at an annualized rate of 2.5% for the quarter while corporate profits were up 11%. A much higher percentage went into corporate coffers than into the rest of the economy.

Well, that must mean more jobs, right? No, it apparently doesn't. While the monthly losses of 700,000 jobs that greeted Obama's inauguration have been staunched, the turnaround that is cheering Wall Street hasn't fully translated to Main Street. According to the Bureau of Labor Statistics, 151,000 private-sector jobs were added in October, but unemployment remains stuck at 9.6%. Job creation is lagging because much of the profit has come from increases in "productivity," i.e. getting more work from fewer people. Much of the rest comes from the nature of where the increased profits are coming from. Three-fourths of all these profits are coming from the financial sector of the economy. Much of it therefore comes not from anyone producing anything, but from betting on where the stock, bonds and commodities markets are heading (futures) and related gimmickry such as derivatives. And these games do not require a lot of workers to make them happen.

Well then, that makes it all the more imperative to extend the Bush tax cuts for the rich to produce these extra jobs, doesn't it? No, it doesn't. If you have been paying attention you realize that these lower rates for the rich are currently in effect. They have been for years. And where are the jobs? They weren't being created in the Bush years, and with record profits now, they still aren't. What part of facts and results do people still not get?

The hard truth that many do not want to see is that corporations do not WANT to create jobs. They want to make profit, and if they can do that without hiring they will, for that will make profit higher yet. They do not WANT to provide health care or contribute to society. To a corporate entity these are costs. They did not, and still do not when they can avoid it, WANT
to pay workers a living wage, give them a forty hour week, vacations, lunch breaks, ventilation, safe working conditions or any other humane terms of employment until they were forced to do so by workers united together in strong unions and by labor and consumer legislation rammed down their throats by politicians more worried about losing the votes of an aroused populace than about losing corporate money.

Are they using this immense trove of cash, now estimated to be over $2.5 trillion, for the alleviation of national distress? Are they hiring? Are they offering to help pay down the national debt, contribute to the solvency of Medicare and Social Security, or make any other contribution to national life in return for the tax breaks and bailouts they have received? If society crumbles around them and people are unemployed they are not concerned. As long as profits are high and taxes are low they have what they want.

Why do you think they are always for this kind of "smaller government?" Think about it.

An Interesting Week

It's been an interesting week. The Gulf oil spill remains staunched and a more permanent fix may be near. In related news, former BP chief Tony Hayward is receiving his wish about getting his life back. He's currently even casting himself as the victim. See the Wall Street Journal on this here.

Ag Department official Shirley Sherrod's image went from racist to lightning rod to wronged party to hero in the span of three days. News now is she is planning to sue right wing blogger Andrew Breitbart for intentionally and falsely maligning her by doctoring that speech of hers to the NAACP many years ago. See Breitbart defending himself on Fox News here. It'd be fun to see the would-be character assassin get what he deserves in court. I wouldn't bet on it, though.

Private First Class Bradley Manning is being held in Quantico, Virginia on charges of leaking classified material. He may well be the primary suspect in the 92,000 pages of Afghanistan War reports recently sent to WikiLeaks. The Washington Post reports evidence this young man was a rather troubled fellow already, having already been busted down in rank. Liberal sources are making much hay over the numerous references to heavy civilian loss of life there as a result US and coalition action and pointing to that and the hushing it up as causative of the ongoing conflict there. Conservatives rage about the leak of classified materials they fear will help insurgents in the war. Both are right to be upset. I'm disturbed that one 22-year-old PFC has access to so much of that kind of information. Who the hell is in charge of security over there?

The performance of GM and Chrysler is vindicating the Obama Administration's decision to extend them stopgap loans over a year ago. Both have returned to profitability and GM has paid its back four years ahead of schedule. If the Republicans had had their way both companies would now be defunct and another 400,000 workers in the two corporations and their suppliers would now almost certainly be unemployed. Good move.

Meanwhile, the slow recovery continues. The second quarter GDP grew at an annualized rate of 2.4%. The pundits are painting this negatively because a higher rate was widely forecast. Still, given where we have come from, another quarter of positive growth is, well, positive. If an economy were to grow at 2.4% every year its overall output would double in less than 30 years. Revised figures also point to a worse recession than previously thought. CBS News reported the economy contracted 2.6% from the last quarter of '08 through the middle of '09. Expect to see better job growth return fairly soon. Soon enough to help the Dems in November's midterms? We'll see. A lot of that depends on whether the media reports the glass half empty or half full.

Blaming the Victim Makes Headway

As economic recovery inches slowly along with Republicans ideologically opposed to anything that would alleviate it and Democrats struggling to keep a majority together to act, a movement to set up a new class of scapegoats is gathering steam. This new group against whom animosity and envy are now being directed are public employees. I saw a CNN report on Saturday that discussed the nationwide protests March 4 against drastic cuts and rising tuition. Here in California, for instance, tuition at the Cal State schools has gone up 68% and at the University of California 61% over the past five years.

I was most distressed to hear the anchor ask a guest "expert" for commentary about the situation. His take was that the protesting students should look at the teachers next to them in the protest line for the blame on service cuts and tuition hikes. If they would simply accept a pay freeze, he stated, none of these budget-balancing steps would be necessary. This kind of talk is absurd. No one is getting pay increases as it is now. At Fresno State, faculty is taking 18 "furlough" days per year, resulting in a 9.23% pay cut. Los Angeles Unified laid off 4,000 personnel in 2009, more than half of them teachers. Its Board voted last week to ready another 5,200 layoffs this year, including another 2,300 teachers.

Consider how the dialogue is changing. Until a few months ago, the primary blame for the Great Recession focused on selfish and short-sighted mortgage practices and derivatives brokering. Most public anger was directed at the banks and investment firms that inflated and then crashed the housing and credit markets, took public bailout money and then used it to reward themselves with billions of dollars in bonuses.

Now that large cuts to public services are underway thanks to declining earnings and thus revenues, much attention seems to be zeroing in on workers who have managed to secure half-decent wages and respectable pensions. The idea seems to be to take these away and relegate the middle class to third world status. They spread resentment that a higher percentage of public sector workers are unionized, rather than encouraging more private-sector workers to organize and improve their conditions. They seek to divide the middle class against itself rather than point out that CEO's who used to earn 30 times what their workforce averaged now earn 344 times as much. And these upper earners do so at tax rates that are half what they were in the 1970's.

Rather than calls to return to the compensation and tax ratios, particularly for the super-rich, and the stricter regulation and levels of public expenditure and unionization that were producing good schools, expanding infrastructure and widespread middle class prosperity in the 1950s and 1960s there is more and more "race to the bottom" talk about cutting more from the middle and bottom--the approach that has been followed since 1980 and that has led to the current situation. It is easy to see whose interest this line serves. For a chart of historical top marginal income tax rates click here. You might find yourself amazed.

Republican Wins Massachusetts Senate Race

The news services have just declared State Senator Scott Brown the winner over Attorney General Martha Coakley in the Massachusetts special election to fill the U.S. Senate seat held by Ted Kennedy from 1962 until his death in 2009. This is big news. Though Republicans have won four of the past five races for governor in the Bay State, there are no Republicans in the state's House delegation and there hasn't been a GOP Senator there since 1972. Massachusetts is widely regarded as one of the most liberal states in the union, and Barack Obama won the state by nearly 26 points in November, 2008.

There will be a lot of post mortems on the meaning of this vote. I feel there were some local factors in play here, but there are messages for the nation too. Zeroing in on local conditions, here are some points to think about.

1. Massachusetts has three times as many Democrats as Republicans. But the majority are independents. It's about 36% Democrats, 12% Republicans and 52% independent. Obviously, I feel analysis will show Brown did well among the independents. Turnout was much lower than a general election, and as a bloc Republicans typically turn out at a higher percentage than Democrats.
2. Gender was likely a factor. Only four women have ever been elected to Congress from the state, and none of these to the Senate. There were no women representatives from Massachusetts in Washington for 25 years before Niki Tsongas was elected in 2007. And she, of course, enjoyed the coat-tails of being the widow of former representative and Senator Paul Tsongas.
3. In much the same way that liberals were energized in opposition to the Bush presidency, so conservatives are against the Obama presidency and its agenda.
4. Coakley and the state party in general took the campaign for granted and got off to a slow and late start. Brown's message was clear and simple.

Now for some observations with national implications.

5. The Democrats have hurt themselves very badly by dragging the health care process on for so long. They would have done much better to resolve it quickly, however they were to do it, and get on to what the electorate cares most deeply about--jobs. Surveys showed the people in 2008 were concerned about health and wanted reform. But they felt change would happen faster than this. Something quick and simple such as extending Medicare would have been the kind of decisive and understandable step more people would have supported.
6. The Democrats have also hurt themselves by some of the deal making they did to get such as Ben Nelson and unions with extraordinarily good health insurance on board the health plan. Obama campaigned on change, and most especially on changing the way things are done in Washington. Deals like that smack of the same old same old.
7. Many people are genuinely concerned about the increase in the deficit. Although the Congressional Budget Office says the plan will reduce the deficit in the long run, many are skeptical.
8. The problems Obama inherited are becoming his own. The Republicans in congress are not interested in helping. So to the extent that things are not getting better in the economy faster the Democrats are starting to get blamed.
9. People are angry and fed up in general. It may not seem logical to vote for someone whose views are precisely what allowed the economy to crash and the health problems to get out of hand in the first place, but the Democrats (particularly in Massachusetts) are now in control and they took the brunt of the anger in this race. It will be interesting this fall to see whether such anger is directed at all incumbents or merely at Democrats.
10. Obama and the Democrats had better come up with some plans fast to create jobs. If they have any brains at all they had better get that message at least.