Political Economics

[Crafty_Dog]

The best that can be said for yesterday's June jobs report is that maybe, if we're lucky, it's a lagging indicator. Perhaps the meager 18,000 in net new jobs, and the increase in the jobless rate to 9.2%, are the trailing end of the 2011 slowdown that will turn around in the second half.

Let's hope so because the details of the report are every bit as ugly as the headlines. Revised numbers for May indicate a gain of only 25,000 jobs, instead of the initial report of 54,000. The separate and more volatile household survey found that the labor force shrank by 272,000. So the jobless rate rose even as the supply of workers fell.

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Wages declined by a penny to $22.99 an hour and the average workweek fell slightly to 34.3 hours. The combined rate for jobless and discouraged workers rose to 16.2%, and six million Americans, or 44.4% of the jobless, have been out of work for more than six months. The percentage of working age Americans with a paycheck fell to 58.2%, which is below the 58.5% at this time a year ago. The economy isn't generating President Obama's vaunted "green jobs," or blue- or white-collar jobs, or any color jobs.

Other recent economic indicators have pointed to a growth pickup. Corporate profits are healthy, the stock market (until Friday) had rebounded from its recent correction, manufacturing output has climbed, and consumers increased retail spending at a brisk 7% clip last month.

But it's no wonder that polls find that more than half of Americans believe the economy is still in recession. In six of the last eight recoveries, all the jobs lost were regained within two years of recession's end. In this recovery we are still seven million jobs below peak employment in 2008, and about two million fewer than if the $830 billion 2009 stimulus had worked as advertised and held unemployment below 8%.

President Obama's economic advisers have been leaving one by one to return to private life, and who can blame them. They used the entire Keynesian, liberal playbook to spur economic growth, and this is the result. The intellectual dissonance must be demoralizing.

[DougMacG]

http://www.nationalreview.com/corner/271397/warren-buffett-s-worst-investment-kevin-d-williamson

Warren Buffett’s Worst Investment
July 8, 2011  Kevin D. Williamson

Barack Obama must be the worst investment Warren Buffett has ever made.

The billionaire investor famously supported Barack Obama, who in turn used Buffett as his amulet of normalcy: What, me radical? Tell it to this rich white guy from Omaha. One of the lamest things I can remember having seen in politics transpired in 2008 when Obama was challenged on his radical associations and used Buffett to change the subject. His phrasing was memorably odd: “Let me tell you who I associate with. On economic policy, I associate with Warren Buffett and former Fed chairman Paul Volcker. If I’m interested in figuring out my foreign policy, [Editorial aside: “If”?] I associate myself with my running mate, Joe Biden, or with Dick Lugar, the Republican ranking member on the Senate Foreign Relations.”

So, here’s the wisdom of Associate Buffett on the debt ceiling: “We raised the debt ceiling seven times during the Bush administration. . . . We had debt at 120 percent of the GDP, far higher than this, after World War II, and no one went around threatenin­g that we’re going to ruin the credit of the United States or something in order to get a better balance of debt to GDP.”

Saving the world from Hitler was expensive, to be sure. But in 2011, we haven’t just saved the world from Hitler — we’ve just saved a bunch of bureaucrats and layabouts from honest labor. Not exactly comparable.

But what about World War II, anyway? Coming in at 25.3 percent of GDP, federal spending is higher today than it has been in any year since 1945. What did we do at the end of World War II? We cut spending — radically. In 1944, federal spending was 43.6 percent of GDP. By 1948 it was down to 11.6 percent of GDP. It edged up after that, but from 1948–60, federal spending averaged less than 17 percent of GDP. (Those were not the worst years in the history of the republic.)

What that means is that if federal spending as a share of GDP were reduced to that postwar average from 2012–16, we could balance the budget, start paying down the national debt, and cut taxes by $1 trillion over those five years. Grover Norquist could get his tax cuts, I could get my balanced budget, and Barack Obama still would preside over a government considerably bigger than FDR’s New Deal regime. Not my ideal outcome, but a decent compromise.

Inescapable conclusion: Spending is what is out of whack.

The federal government does a lot more today than it did in 1960. Are those things worth what they’re costing us? The price difference between Eisenhower’s Washington and Obama’s Washington is about 8.4 percent of GDP in 2011, or about $1.25 trillion, roughly the annual economic output of Australia, the thirteenth-largest economy in the world, or just shy of two Switzerlands.

If Warren Buffett thinks that’s a good buy, he’s losing his edge.

[DougMacG]

I tacked this story on to another post elsewhere. but it bears repeating and inclusion in the great thread of political economics.  Obama argues that he inherited a mess, but he was part of the political-economic group that took majorities in Washington by storm in Nov. 2006, not Jan. 2009.  Pelosi-Reid-Obama-Biden-and Hillary were among the group that changed by 180 degrees the economic outlook for the country. 

So what was their starting point?

4.4% unemployment! 50 months continuous job growth.  A closing deficit.  Revenues to the Treasury exceeding (static) estimates by hundreds of billions of dollars.

The most timely and succinct story I have found about the state of affairs prior to that power shift is this story from CNN Money, dated Nov 3 2006, completely oblivious to the change of direction that is 4 days away except to note that the election is not going to be about the economy. 
-----------------
"Never bet against a fully-employed American work force,"..."With full employment and wages on the rise, you can forget any talk of recession."

http://money.cnn.com/2006/11/03/news/economy/jobs_october/
Unemployment sinks to 5-year low
Rate posts unexpected drop to lowest since May 2001; job growth revised higher.
By Chris Isidore, CNNMoney.com senior writer
November 3 2006: 2:42 PM EST

NEW YORK (CNNMoney.com) -- The unemployment rate fell to the lowest level in more than five years in October, the government reported Friday, a sign of unexpected strength in the job market.

The jobless rate sank to 4.4 percent from 4.6 percent in September, the Labor Department said. It was the lowest since May 2001. Economists had forecast the rate would hold steady.


But the September reading was revised up from the originally reported 51,000, and the increase, together with a revision to the August reading as well, had employment up 139,000 above earlier estimates heading into October. Those revisions and the modest October gain mean that 1.5 million jobs have been added so far this year, which is above forecast by most private economists, and blunts the effect of the modest October gain.

The Bush administration hailed the report, but one political analyst said it wasn't likely to help Republicans facing tough elections battles on Tuesday. Polls indicate the economy isn't the top issue in the midterm elections.

The tighter job market is apparently helping to lift wages, according to the Labor Department report, which showed that average wages rose 6 cents to $16.91 an hour last month, a shade above what economists had forecast.

Average wages are now up 3.9 percent over the last 12 months while the Consumer Price Index, the government's main inflation gauge, is up 2.1 percent for the 12 months ending in September, partly due to the recent sharp decline in oil prices. The spike in gas prices in September 2005, in the wake of Hurricane Katrina, also blunted the year-over-year gain in the price measure.

"All this points to a very robust labor market," said Steven Wieting, senior economist at Citigroup. "Almost all the data this week have been weak. It's possible that the cuts in production will clear the deck and set us up for strong growth in 2007."

Rich Yamarone, director of economic research at Argus Research, said he thinks the return to strong growth could come as soon as the fourth quarter.

"Never bet against a fully-employed American work force," he said. "With full employment and wages on the rise, you can forget any talk of recession."

[DougMacG]

More famous people caught reading the forum , Thomas Sowell picks up on the point about damage done by uncertainty.

The fact that intelligent and informed investors have no clue what tax or regulatory scheme they would operate under if they invested in the U.S. today gives us characteristics of a 3rd world country and does more damage perhaps than the actual taxes and regulations.  That damage of what positive economic activity did not happen because of these unknowns is immeasurable.
----------------------
http://www.realclearpolitics.com/articles/2011/07/12/unknown_unknowns_110534.html

July 12, 2011
Unknown Unknowns
By Thomas Sowell

When Donald Rumsfeld was Secretary of Defense, he coined some phrases about knowledge that apply far beyond military matters.

Secretary Rumsfeld pointed out that there are some things that we know that we know. He called those "known knowns." We may, for example, know how many aircraft carriers some other country has. We may also know that they have troops and tanks, without knowing how many. In Rumsfeld's phrase, that would be an "unknown known" -- a gap in our knowledge that we at least know exists.

Finally, there are things we don't even know exist, much less anything about them. These are "unknown unknowns" -- and they are the most dangerous. We had no clue, for example, when dawn broke on September 11, 2001, that somebody was going to fly two commercial airliners into the World Trade Center that day.

There are similar kinds of gaps in our knowledge in the economy. Unfortunately, our own government creates uncertainties that can paralyze the economy, especially when these uncertainties take the form of "unknown unknowns."

The short-run quick fixes that seem so attractive to so many politicians, and to many in the media, create many unknowns that make investors reluctant to invest and employers reluctant to employ. Politicians may only look as far ahead as the next election, but investors have to look ahead for as many years as it will take for their investments to start bringing in some money.

The net result is that both our financial institutions and our businesses have had record amounts of cash sitting idle while millions of people can't find jobs. Ordinarily these institutions make money by investing money and hiring workers. Why not now?

Because numerous and unpredictable government interventions create many unknowns, including "unknown unknowns."

The quick fix that got both Democrats and Republicans off the hook with a temporary bipartisan tax compromise, several months ago, leaves investors uncertain as to what the tax rate will be when any money they invest today starts bringing in a return in another two or three or ten years. It is known that there will be taxes but nobody knows what the tax rate will be then.

Some investors can send their investment money to foreign countries, where the tax rate is already known, is often lower than the tax rate in the United States and -- perhaps even more important -- is not some temporary, quick-fix compromise that is going to expire before their investments start earning a return.

Although more foreign investments were coming into the United States, a few years ago, than there were American investments going to foreign countries, today it is just the reverse. American investors are sending more of their money out of the country than foreign investors are sending here.

Since 2009, according to the Wall Street Journal, "the U.S. has lost more than $200 billion in investment capital." They add: "That is the equivalent of about two million jobs that don't exist on these shores and are now located in places like China, Germany and India."

President Obama's rhetoric deplores such "outsourcing," but his administration's policies make outsourcing an ever more attractive alternative to investing in the United States and creating American jobs.

Blithely piling onto American businesses both known costs like more taxes and unknowable costs -- such as the massive ObamaCare mandates that are still evolving -- provides more incentives for investors to send their money elsewhere to escape the hassles.

Hardly a month goes by without this administration coming up with a new anti-business policy -- whether directed against Boeing, banks or other private enterprises. Neither investors nor employers can know when the next one is coming or what it will be. These are unknown unknowns.

Such anti-business policies would just be business' problem, except that it is businesses that create jobs.

The biggest losers from creating an adverse business climate may not be businesses themselves -- especially not big businesses, which can readily invest more of their money overseas. The biggest losers are likely to be working people in America, who cannot just relocate to Europe or Asia to take the jobs created there by American multinational corporations.

[Crafty_Dog]

Industrial production increased 0.2% in June To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 7/15/2011


Industrial production increased 0.2% in June, coming in slightly below the consensus expected gain of 0.3%. Including revisions to prior months, production rose 0.1%. Output is up 3.4% in the past year.

Manufacturing, which excludes mining/utilities, was unchanged in June. Auto production fell 2.0% in June. Non-auto manufacturing increased 0.1%. Auto production is up 2.5% versus a year ago while non-auto manufacturing has risen 3.8%.
 
The production of high-tech equipment increased 0.6% in June and is up 10.0% versus a year ago.
 
Overall capacity utilization was unchanged at 76.7% in June. Manufacturing capacity use was unchanged at 74.4%.
 
Implications:  Industrial production grew modestly in June but is going to surge sharply in July as automakers start to recover from the supply-chain disruptions coming from Japan. In the past three months, auto and light truck assemblies have dropped at a 39% annual rate, resulting in razor-thin inventories and slower sales (as auto companies and dealers curbed incentives). The reversal of that problem is going to generate eye-grabbing and positive headlines in the next few months. Since the multiple disasters that hit Japan, we have been following manufacturing production excluding autos to assess the underlying trend – even though some of these manufacturers were also temporarily hurt by the supply-chain problems. That production increased 0.1% in June, the most since the disasters hit in March, and was up 3.8% versus a year ago. In addition, we expect business investment in equipment to accelerate. Corporate profits and cash on the balance sheets of non-financial companies are at record highs. Meanwhile, companies can fully expense these purchases for tax purposes through year-end. In other news this morning on the manufacturing sector, the Empire State index, a measure of manufacturing activity in New York, increased to -3.8 in July from -7.8 in June. This is a smaller gain than the consensus expected but we expect better regional survey numbers where the auto industry is more prominent.

[G M]

**Of course the question is: If Buraq was trying to damage this country, what would he be doing differently from what he is now?

http://yidwithlid.blogspot.com/2011/07/house-report-obamas-gulf-oil-slowdown.html

Thursday, July 21, 2011
House Report: Obama's Gulf Oil Slowdown Costing 230,000 Jobs!
 


The oil lease regulatory process is holding holding back oil exploration and production activity in the Gulf of Mexico. This delay is and this is holding economic benefits that spread past the gulf states, to the entire country  if the gulf oil activity activity were allowed to  match industry capacity.

That was one of the important findings Restarting “the Engine”–Securing American Jobs, Investment, and Energy Security, a study done by IHS CERA and IHS Global Insight which was released by the House Oversight Committee today (and embedded below).

Committee Chair Rep Issa commented about the study's release.

"The Obama Administration has systematically blocked domestic energy production in the Gulf of Mexico, and today's report puts that action in stark terms. It documents a 250 percent increase in the deepwater exploration permit backlog with a decrease of nearly 80 percent for plan approvals and deepwater drilling. That means a loss of $9 billion dollars in capital investment in 2011, along with a projected loss to the government of $25 billion in royalties and tax payments over the next 3 years, to say nothing of the tens of thousands of jobs lost.

"Our domestic energy resources are the largest in the world. Tapping these resources will create more than 500,000 jobs in the next three years, grow the economy and put us on the path to recovery.

The study looks at the plan and permit levels in the six months following the lifting of the deepwater activity moratorium in October 2010. The analysis finds a:

•250% increase in the backlog of deepwater plans pending governmental approval
•86% drop in the pace of regulatory approvals for plans
•60% drop in all GoM drilling permits
•38% increase in the time required to reach each regulatory approval required.
One unexpected finding from the study was that “an increase in oil and gas activity reverberates throughout the broader economy,” said James Diffley, senior director of IHS Global Insight’s U.S. Regional Economic Group. “Each new hire (in the Gulf) results, on average, in more than three additional jobs in an array of industries around the country” – not just in the Gulf region.

The study reports that there is some sort of logjam in the regulatory process, however it does not report what the logjam is or how it was caused. That answer may come from a study Issa released in late May when Issa's House Oversight and Government Reform Committee issued a scathing report about the nation's energy  saying in part that the President has deliberately created policies which would cause energy prices to rise.


"The United States has the largest reserves in the world—resources that can provide good paying American jobs and fuel our economic expansion. But standing between that energy and U.S. consumers is an obstacle course of government red tape, regulation, delays and obfuscations," Chairman Darrell Issa (R-CA) said. He pointed to statements by President Obama and Energy Secretary Chu about intentionally raising energy costs for Americans and how these goals are being implemented throughout the government.
The committee's report found that U.S. domestic energy resources are currently the largest on earth—greater than Saudi Arabia, China and Canada combined. It also said that the recent EPA and Department of Interior regulatory actions, some in collaboration with environmental groups or outside normal scope, are having a detrimental impact on independent energy producers.

Once again it seems as if the Barack Obama's politics has taken precedence of over the needs of the country, not just the energy needs but in this case a much-needed stimulus to the economy.

[bigdog]

http://globalpublicsquare.blogs.cnn.com/2011/07/21/who-owns-america-hint-its-not-china/?hpt=hp_bn2

[ccp]

Tea Party would defeat Obama by supporting McConnell plan on debt

By George Will

http://www.JewishWorldReview.com | The Tea Party, the most welcome political development since the Goldwater insurgency in 1964, lacks only the patience necessary when America lacks the consensus required to propel fundamental change through our constitutional system of checks and balances. If Washington's trajectory could be turned as quickly as Tea Partyers wish — while conservatives control only one-half of one of the two political branches — their movement would not be as necessary as it is. Fortunately, not much patience is required.

The Goldwater impulse took 16 years to reach fruition in the election of Ronald Reagan. The Tea Party can succeed in 16 months by helping elect a president who will not veto necessary reforms. To achieve that, however, Tea Partyers must not help the incumbent achieve his objectives in the debt-ceiling dispute.

One of those is to strike a splashy bargain involving big — but hypothetical and nonbinding — numbers. This would enable President Obama to run away from his record and run as a debt-reducing centrist. Another Obama objective is tax increases that shatter Republican unity and dampen the Tea Party's election-turning intensity. Because he probably can achieve neither, he might want market chaos in coming days so Republicans henceforth can be cast as complicit in the wretched recovery that is his administration's ugly signature.

Mitch McConnell's proposal would require Obama to make three requests for additional debt-ceiling increases. Each time he would be required to recommend commensurate spending reductions. Concerning them, Congress would, of course, retain its constitutional power to do what it wishes.
 Obama could muster sufficient Democratic votes (one-third plus one, in one house) to sustain his veto of Congress's disapproval of his requests. But this would not enhance presidential power. Rather, McConnell's proposal would put a harness on the president, tightly confining him within a one-time process.

Congressional primacy would be further enhanced by McConnell's proposed special congressional committee. It would not be another commission; it would have no administration members or other outsiders. Its proposals would be unamendable, and would be voted on this year.

Thanks largely to the Tea Party, today, more than at any time since Reagan's arrival 30 years ago, Washington debate is conducted in conservatism's vocabulary of government retrenchment. The debt-ceiling vote, an action-forcing mechanism of limited utility, has at least demonstrated that Obama is, strictly speaking, unbelievable.

Five months ago he submitted a budget that would have accelerated indebtedness, and that the Democratic-controlled Senate rejected in May, 97 to 0. Just three months ago he was demanding a "clean" increase in the debt ceiling, containing nothing to slow the spending carousel. Now he calls for "the largest possible" debt-reduction deal. Today, he says, "If you look at the numbers, then Medicare in particular will run out of money and we will not be able to sustain that program no matter how much taxes go up." Last year he advertised Obamacare as a sufficient reform of health care. He denounces Republicans as uncompromising regarding tax increases but vows "I will not accept" a deal that does not increase taxes.

Obama vaguely promises to "look at" savings from entitlements because "we need to find trillions in savings over the next decade." But when McConnell learned that negotiations chaired by Vice President Biden had identified a risible $2 billion in 2012 discretionary spending cuts — a sum equal to a rounding error on the GM bailout — McConnell concluded that Obama's frugality pantomime required a response that will define the 2012 election choice.

Obama's rhetorical floundering is the sound of a bewildered politician trying to be heard over the long, withdrawing roar of ebbing faith in a failing model of governance. From Greece to California, with manifestations in Italy, Spain, Portugal, Ireland, Illinois and elsewhere, this model is collapsing. Entangled economic and demographic forces are refuting the practice of ever-bigger government financed by an ever-smaller tax base and by imposing huge costs on voiceless future generations.

Richard Miniter, a Forbes columnist, is right: "Obama is not the new FDR, but the new Gorbachev." Beneath the tattered, fading banner of reactionary liberalism, Obama struggles to sustain a doomed system. Democrats' dependency agenda — swelling the ranks of government employees, multiplying government-subsidized industries, enveloping ever-more individuals in the entitlement culture — is buckling under an intractable contradiction: It is incompatible with economic growth sufficient to create enough wealth to feed the multiplying tax eaters.

Events are validating the Tea Partyers' arguments. Time is on their side — but not on America's, unless the impediment to reform is removed in 16 months.

[DougMacG]

Very enlightening.  I recall seeing before that China 'only' owns a trillion or so out of $14T, when you so often hear it implied that they own nearly all of it.  The rest of the story is: who will buy the next $10 trillion or so coming down the pike, and at what cost?

They largest holder by far (19%) is the social security 'lockbox', which is a figment of our imagination, we owe ourselves that money?  Isn't SS now at about a breakeven so that removes them from 'helping' with our debt going forward.

The idea of default on these borrowings reminds me of when people suggested dismantling the evil capitalist BP, only to find out the largest shareholder is the British pension system.

We already 'default' on our total debt roughly 2-3% on a good year compounded continuously with the never-ending inflation and devaluation of our currency.  That alone wipes the slate nearly clean of dollar based debt in only a little over a couple of decades - if we would only stop borrowing more now.

[G M]

http://www.nationalreview.com/exchequer/272257/democrat-downgrade-reality-and-repercussions





Exchequer

NRO’s eye on debt and deficits . . . by Kevin D. Williamson.

The Democrat Downgrade: Reality and Repercussions

July 19, 2011 8:01 P.M.

By Kevin D. Williamson

 

Tags: Fiscal Armageddon


Question: How many U.S. banks and insurance companies do you think will remain rated AAA if the U.S. government gets downgraded?
 
That is not a rhetorical question.
 
The direct consequences of a downgrade of Uncle Sam’s credit on U.S. public finances would be pretty bad. But, as with natural disasters, the aftershocks of this man-made catastrophe might prove more devastating than the main event. In this case, imagine a tsunami of rolling corporate downgrades following the earthquake of a Treasury downgrade, a run on the banks, a discredited FDIC, frozen money-market funds, and a plunging dollar.
 
It’s not Beijing that’s going to take it in the shorts — it’s our still-fragile financial system.
 
Standard & Poor currently gives AAA ratings to six major insurance companies: New York Life, Northwestern Mutual, etc. Those companies already are on the watch-list for a downgrade, simply because of their extensive holdings of U.S. Treasury securities — regardless of the fact that Treasuries themselves have not yet been downgraded.
 
Many banks could find themselves downgraded as well, just because of all the U.S. government debt on their balance sheets. One of our old friends from the bailout days, the AAA-rated Temporary Liquidity Guarantee Program, could get downgraded as well, along with Fannie Mae, Freddie Mac, the Federal Home Loan Banks, and, critically, the FDIC. And Fannie and Freddie still prop up a bunch of mortgage-backed securities. What happens to them? Here’s what Fitch says: “Ratings on bonds with direct credit enhancement provided by Fannie Mae, Freddie Mac, or other GSEs would generally reflect the ratings of the credit enhancement provider.” In English: If the government isn’t AAA, nothing that the government backs is AAA, either.
 
Fitch also warns that money-market funds could face “liquidity pressure,” something to keep in mind if there’s a run on downgraded banks backed by a downgraded FDIC.
 
So, who’s who in this world of hurt?
 
The ten major holders of U.S. Treasury debt are, in order: 1. the Fed, which has more than doubled its holdings of U.S. sovereign debt in the past few years; 2. individual investors, mostly in the United States; 3. the Chinese; 4. the Japanese; 5. pension funds; 6. mutual funds; 7. state and local governments; 8. the Brits; 9. the banks; and 10. insurance companies. (More here.) The national governments have worries of their own already — some of them are in pretty dire straits (the Japanese national debt is 200 percent of GDP) and some of their situations are basically unknowable (China). God alone knows what the Fed will do.
 
Even if the banks and insurances companies don’t get downgraded, a Treasury downgrade is still going to be enormously disruptive to their businesses. Typically, regulated financial institutions are required to hold “investment grade” assets, which does not limit them to AAA bonds. AA is still “investment grade.” So they don’t have to dump all their Treasuries. (Which is not to say they won’t.) But capital-requirement rules — which govern the amount of money a financial institution has to hold in reserve — naturally take into account whether bonds are AAA, AA, or something else. That’s because $1 worth of Exxon debt is not really worth the same thing as $1 worth of debt from Barney’s Subprime Bait-’n’-Tackle, and $1 million in Swiss bonds is not the same thing as $1 million in Haitian bonds. A downgrade of U.S. Treasuries would mean that basically every bank and insurance company of any stature would immediately have to raise a great deal of capital to offset the downgrade of the more than $1 trillion worth of U.S. Treasury debt they are holding. They’ll have to try to raise that capital in a market suffering a jacklighted panic over that sovereign downgrade, scrambling for investment in an environment in which the U.S. government is no longer considered a gold-plated, top-shelf safe haven. In terms of a “credit event,” that’s probably going to make 2008 look like a day relaxing upon the sandy beaches of Calais with tropical-themed umbrella-garnished drinks.
 
State and local governments are holding another $1 trillion or so in Treasuries, meaning that the credit profile of our already struggling states and cities would have about as much credibility as Dominique Strauss-Kahn’s wedding vows. A lot of that pension-fund exposure to Treasury debt is for state and local government retirees, too, so Austin and Sacramento and Boise and Augusta will be right between the hammer and the anvil, getting pounded. And so will Springfield — the Typhoid Mary of fiscal contagion at the state level. As I’ve written before, I suspect that Illinois will be the first state to go into something like a full-blown insolvency, largely due to its unfunded pension liabilities. Just Monday, Ben Bernanke confessed himself worried about the situation in Illinois and California. And if I may be forgiven for repeating myself: Most states have either statutory or constitutional obligations to pay those pensions, so they cannot just reduce them or walk away. There’s really no such thing as a state-bankruptcy law, so nobody knows how a default would unfold. How’s that for uncertainty in the markets?
 
Back to those banks and insurance guys: Contrary to what our dear leaders in Washington have claimed, the world’s financial system has not been reformed. In fact, a great deal of the bailouts and the legislation that followed them was designed specifically to prevent the kind of fundamental reforms that are needed. A global financial system brought to its knees by a raft of bad mortgages is going to be knocked ass-over-teakettle by a downgrade of U.S. Treasury debt.
 
I was in Washington Monday, debating Cato’s erudite Dan Mitchell about the no-new-taxes pledge. Mr. Mitchell and I agree on the fundamentals and differ on the politics. What I found mildly despair-inducing, however, was the question-and-answer session, during which the predominant concern expressed by the audience was how to ensure that our guys “win” the debt-ceiling debate. While I understand that you have to win elections to get things done, we simply must head off a downgrade, even if at great political cost. Nobody is going to “win” a downgrade.
 
The thing that has not been sufficiently understood,  I think, is this: The United States is not on a downgrade watch because the markets fear we won’t raise the debt ceiling in time to avoid a default; the United States is on a downgrade watch because the markets believe the debt-ceiling debate presents the last real opportunity for the government to enact a meaningful fiscal-reform program before it is well and truly too late to avoid a national crisis. The credit agencies, wisely or not, aren’t worried about the short-term political fight leading to an immediate default, but about the near- to medium-term fiscal situation, which is plainly unsustainable.
 
I sincerely hope that in five or ten years, I will have to sheepishly admit that I was among the alarmists back in 2011. But right now, I believe that the question isn’t how to “win” the debt-ceiling fight, but how to survive the underlying economic disorder it represents.
 
—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism,published by Regnery. You can buy an autographed copy through National Review Online here.
 

[Crafty_Dog]

This piece makes an important distinction.  That said, a short term debt ceiling so as to place the issue front and center for the elections would not be a problem IMHO.  The real issue is whether the Rep Party can come up with the equivalent of Newt's "Contract with America" on how, when, where spending will be cut.

[DougMacG]

A lengthy, wide-ranging, worthwhile (IMO) piece on pro-growth economics with global and historical perspective in Commentary Magazine: http://www.commentarymagazine.com/article/growth-is-the-only-way-out-of-this-mess/

[DougMacG]

Taylor is one economist who Gov. Pawlenty named for backing his 5% aspirational economic growth goal.  This piece is about policies and results, not candidates or parties.

The End of the Growth Consensus
America added 44 million jobs in the 1980s and '90s, when both parties showed they had learned from past mistakes. The lessons have been forgotten.
http://online.wsj.com/article/SB10001424053111903554904576457752586269450.html?mod=WSJ_Opinion_LEADTop
By JOHN B. TAYLOR

This month marks the two-year anniversary of the official start of the recovery from the 2007-09 recession. But it's a recovery in name only: Real gross domestic product growth has averaged only 2.8% per year compared with 7.1% after the most recent deep recession in 1981-82. The growth slowdown this year—to about 1.5% in the second quarter—is not only disappointing, it's a reminder that the recovery has been stalled from the start. As shown in the nearby chart, the percentage of the working-age population that is actually working has declined since the start of the recovery in sharp contrast to 1983-84. With unemployment still over 9%, there is an urgent need to change course.

Some blame the weak recovery on special factors such as high personal saving rates as households repair their balance sheets. But people are consuming a larger fraction of their income now than they were in the 1983-84 recovery: The personal savings rate is 5.6% now compared with 9.4% then. Others blame certain sectors such as weak housing. But the weak housing sector is much less of a negative factor today than declining net exports were in the 1983-84 recovery, and the problem isn't confined to any particular sector. The broad categories of investment and consumption are both contributing less to growth. Real GDP growth is 60%-70% less than in the early-'80s recovery, as is growth in consumption and investment.

In my view, the best way to understand the problems confronting the American economy is to go back to the basic principles upon which the country was founded—economic freedom and political freedom. With lessons learned from the century's tougher decades, including the Great Depression of the '30s and the Great Inflation of the '70s, America entered a period of unprecedented economic stability and growth in the '80s and '90s. Not only was job growth amazingly strong—44 million jobs were created during those expansions—it was a more stable and sustained growth period than ever before in American history.

Economic policy in the '80s and '90s was decidedly noninterventionist, especially in comparison with the damaging wage and price controls of the '70s. Attention was paid to the principles of economic and political liberty: limited government, incentives, private markets, and a predictable rule of law. Monetary policy focused on price stability. Tax reform led to lower marginal tax rates. Regulatory reform encouraged competition and innovation. Welfare reform devolved decisions to the states. And with strong economic growth and spending restraint, the federal budget moved into balance.

As the 21st century began, many hoped that applying these same limited-government and market-based policy principles to Social Security, education and health care would create greater opportunities and better lives for all Americans.

But policy veered in a different direction. Public officials from both parties apparently found the limited government approach to be a disadvantage, some simply because they wanted to do more—whether to tame the business cycle, increase homeownership, or provide the elderly with better drug coverage.

And so policy swung back in a more interventionist direction, with the federal government assuming greater powers. The result was not the intended improvement, but rather an epidemic of unintended consequences—a financial crisis, a great recession, ballooning debt and today's nonexistent recovery.

The change in policy direction did not occur overnight. We saw increased federal intervention in the housing market beginning in the late 1990s. We saw the removal of Federal Reserve reporting and accountability requirements for money growth from the Federal Reserve Act in 2000. We saw the return of discretionary countercyclical fiscal policy in the form of tax rebate checks in 2001. We saw monetary policy moving in a more activist direction with extraordinarily low interest rates for the economic conditions in 2003-05. And, of course, interventionism reached a new peak with the massive government bailouts of Detroit and Wall Street in 2008.

Since 2009, Washington has doubled down on its interventionist policy. The Fed has engaged in a super-loose monetary policy—including two rounds of quantitative easing, QE1 in 2009 and QE2 in 2010-11. These large-scale purchases of mortgages and Treasury debt did not bring recovery but instead created uncertainty about their impact on inflation, the dollar and the economy. On the fiscal side, we've also seen extraordinary interventions—from the large poorly-designed 2009 stimulus package to a slew of targeted programs including "cash for clunkers" and tax credits for first-time home buyers. Again, these interventions did not lead to recovery but instead created uncertainty about the impact of high deficits and an exploding national debt.

Big government has proved to be a clumsy manager, and it did not stop with monetary and fiscal policy. Since President Obama took office, we've added on complex regulatory interventions in health care (the Patient Protection and Affordable Care Act) and finance (the Dodd-Frank Wall Street Reform and Consumer Protection Act). The unintended consequences of these laws are already raising health-care costs and deterring new investment and risk-taking.

If these government interventions are the economic problem, then the solution is to unwind them. Some lament that with the high debt and bloated Fed balance sheet, we have run out of monetary and fiscal ammunition, but this may be a blessing in disguise. The way forward is not more spending, greater debt and continued zero-interest rates, but spending control and a return to free-market principles.

Unfortunately, as the recent debate over the debt limit indicates, narrow political partisanship can get in the way of a solution. The historical evidence on what works and what doesn't is not partisan. The harmful interventionist policies of the 1970s were supported by Democrats and Republicans alike. So were the less interventionist polices in the 1980s and '90s. So was the recent interventionist revival, and so can be the restoration of less interventionist policy going forward.

Mr. Taylor, a professor of economics at Stanford and a senior fellow at the Hoover Institution, is the author of "Getting Off Track: How Government Actions and Interventions Caused, Prolonged and Worsened the Financial Crisis" (Hoover Press, 2009).

[DougMacG]

I wonder if there is any way to show graphically what affect big government programs like Obamacare, with increased taxes, increased spending, increased regulations and increased government takeover of private decisions has on employment...  The break on the curve is the passage of Obamacare and the difference in the rate of job growth is ten-fold!  I guess one could argue that there were other damaging policies and uncertainties coming out of Washington in that same time period.

[DougMacG]

Touting my own post  the graph in the previous post is extremely consequential.  Go back and take a look if you missed it.  Job growth under Obama dropped by tenfold after Obamacare.  The political shift at that point was nothing compared to the economic shift that occurred.
----------------

WIth Krugman down to sputtering nonsense it is time to tackle the other lead progressive economic voice:  Robert Reich says cutting the deficit is (current example) to 'take 2.7 trillion out of the economy'. 

Robert Reich, Fmr. Secretary of Labor: "There is a big lie being perpetrated by Republicans it it transcends our deficit/debt issue. And the lie is: If the government reduces its spending, somehow we create more jobs. That is exactly the reverse of reality, Ed (Schultz, the host).

"The reality is: Because of Medicaid and Medicare and Social Security payments people have more money to spend. Because of roads bridges and light rail and education and basic research and development, people have more jobs."
http://www.msnbc.msn.com/id/21134540/vp/43889146#43889146
-----------
What's wrong with THAT picture? 

a) we are already taking that $2.7 trillion out of the productive economy.  The public sector, necessary and good up to a point that we passed a LONG time ago, rides on the wagon pulled by the private, productive sector.  Paul doesn't get paid without robbing Peter.  Heavier and heavier loads with fewer and fewer people proportionately pulling, Robert Reich and all Keynesians and progressives don't even see the host-parasite relationship. The government, even when it is governing, does not create jobs or employ resources.  It is an overhead cost/burden on our productive resources, labor and capital.

b) If there was some change in the formula for the "more than 80 million checks a month" (http://www.washingtonpost.com/blogs/post-partisan/post/geithners-80-million-checks/2011/07/11/gIQATkJi9H_blog.html) we write, some of those people might work one more hour, one more month or one more year, changing with double magnitude the ratio between people pulling and people riding on the public expense wagon.

c) It always has to be a 'lie', not a difference in professional analysis or opinion.  On MSNBC, Reich knows his audience.

d) He goes on to say that it would be okay if it were coupled with tax INCREASES.  Huh?  The part where I was going to agree with him is that cuts alone are only discretely stimulative.  If you are of able mind and body and your check is cut, some will be stimulated to go do something productive AFTER they are conviced the government is not the reliable provider.  Others, like public workers in Madison, will just get angry, holler and shout their welfare rights demands at least for one more election cycle. 

The cuts (I mentioned once or twice) need to be coupled with overtly pro-growth policies or stagnation very likely will continue. 
-------------
Some immediate pro-growth possibilities if we were so inclined:
1) New corp tax code with the highest rate down to below the OECD average and every American operation paying something.
2) New individual tax code: Chop out all credits and all but about 2 deductions, lower the marginal rates and lower the jumps between brackets.
3) Jump start energy production with shall-issue permit legislation.
4) Moratorium on about 50,000 overly ambitious employment regulations.  Offer first year businesses and first year new-hires a 1099 option instead of withholding and all payroll compliance regs.
5) Repeal Obamacare and replace with the most generous of the Republican options: limited amnesty for pre-existing conditions to jump into coverage now, medical liability reform and an opening of choices and competition across state lines.

[G M]

http://www.cnbc.com/id/43941459

The U.S. economy grew less than expected in the second quarter as consumer spending barely rose, and growth braked sharply in the prior quarter, a government report showed on Friday.

 

Growth in gross domestic product—a measure of all goods and services produced within U.S. borders—rose at a 1.3 percent annual rate, the Commerce Department said.

First-quarter output was sharply revised down to a 0.4 percent pace from 1.9 percent.

Economists had expected the economy to expand at a 1.8 percent rate in the second quarter.

In addition, fourth-quarter growth was revised down to a 2.3 percent pace from 3.1 percent, indicating that the economy had already started slowing before the high gasoline prices and supply chain disruptions from Japan hit.

Economists had expected the economy would show signs of perking up by now with Japan supply constraints easing and gasoline prices off their high, but data has disappointed.

This and the sharp downward revisions to the prior quarters suggest a more troubling and fundamental slowdown might be underway.

[Crafty_Dog]

I suspect he will say that he relied upon the data previously given and revises his opinion with the revision.

More seriously now, this does not sound good at all.  Wesbury has been my hope that the rest of me was been spooked by fearmongering , , ,

[Crafty_Dog]

Well, here we go:


Data Watch



The first estimate for Q2 real GDP growth is 1.3% at an annual rate To view this
article, Click Here

Brian S. Wesbury - Chief Economist
 Robert Stein, CFA - Senior Economist

Date: 7/29/2011






 
The first estimate for Q2 real GDP growth is 1.3% at an annual rate, slightly less
than the consensus expected.
 
The largest positive contributions to the real GDP growth rate were net exports,
which added 0.6 points to the real GDP growth rate, and business investment which
added 0.6 points.
 
The weakest component of real GDP was government purchases, which reduced the real
GDP growth rate by 0.2 points.
 
The GDP price index increased at a 2.3% annual rate in Q2. Nominal GDP – real
GDP plus inflation – rose at a 3.7% rate in Q2 and is up 3.7% versus a year
ago.   
 
Implications: Real GDP growth came in a bit slower than the consensus expected for
the second quarter and growth in the first quarter was revised down to only a 0.4%
annual rate. However, First Trust had anticipated a slower than consensus report for
Q2 and we still believe in a marked acceleration in the second half as the economy
gets over supply-chain disruptions from Japan. Also, most of the downward revision
for the first quarter was due to slower inventory accumulation, which leaves more
room for future growth. In other words, today’s revisions are not a sign of a
double-dip recession. Reinforcing this view is that today’s numbers include an
8.7% upward revision to corporate profits in the first quarter. Going back further
with the revisions, new data show the economic panic in late 2008 and early 2009 was
even worse than previously estimated but that growth in 2010 was faster.
Today’s data do not support the case for keeping short-term interest rates at
near zero. Nominal GDP – real GDP growth plus inflation – is up at a
4.1% annual rate in the past two years. More timely reports show the economy is
accelerating out of the first half slog. New claims for unemployment insurance
dropped 24,000 last week to 398,000. Continuing claims for regular state benefits
fell 17,000 to 3.70 million. On the housing front, pending home sales, which are
contracts on existing homes, increased 2.4% in June after an 8.2% surge in May.
These figures strongly suggest existing home sales (counted at closing) will rise in
July.

[G M]

I'm reminded of the black knight from Monty Python and the Holy Grail.  

[youtube]http://www.youtube.com/watch?v=dhRUe-gz690[/youtube]

[Crafty_Dog]

When do the July numbers come out?

[Crafty_Dog]

The ISM Manufacturing index fell to 50.9 in July from 55.3 in June To view this
article, Click Here

Brian S. Wesbury - Chief Economist
 Robert Stein, CFA - Senior Economist

Date: 8/1/2011






The ISM Manufacturing index fell to 50.9 in July from 55.3 in June, coming in well
below the consensus expected decline to 54.5. (Levels higher than 50 signal
expansion; levels below 50 signal contraction.)

The major measures of activity all fell in July, but most remained above 50.0,
signaling growth. The supplier deliveries index slipped to 50.4 from 56.3 and the
production index fell to 52.3 from 54.5. The new orders index declined to 49.2 from
51.6 and the employment index fell to 53.5 from 59.9.

The prices paid index declined to a still elevated 59.0 in July from 68.0 in June.

Implications: From time to time, the ISM index is a better measurement of sentiment
among manufacturers than actual levels of activity. We think July – a month
dominated by (misleading) headlines about a potential default on US Treasury
securities – was one of those months. As a result, we do not read much into
the ISM index coming in well below consensus expectations and anticipate a large
rebound next month. Taken at face value, the 50.9 reading on the ISM may be
disappointing, but it still correlates with 2.9% real growth according to officials
at the ISM. News from the auto sector suggests the supply-chain disruptions due to
Japan are dissipating. That was also the message from last week’s large drop
in initial unemployment claims. Auto production will keep rebounding as inventories
are low and getting more cars on lots will generate more sales. In other news this
morning, construction increased 0.2% in June and rose 2.5% including large upward
revisions for prior months.  The revisions were widespread, including home building,
commercial construction, and government projects.  The rise in June was due to
commercial construction, primarily manufacturing facilities, retail shops, and
communications structures.  We did not go into a double-dip at the start of the
year, we are not entering one now, and there is no need for the third round of
quantitative easing.

[Crafty_Dog]

Personal income increased 0.1% in June, while personal consumption fell 0.2% To view
this article, Click Here

Brian S. Wesbury - Chief Economist
 Robert Stein, CFA - Senior Economist

Date: 8/2/2011






Personal income increased 0.1% in June, slightly less than the consensus expected.
Personal consumption fell 0.2% versus a consensus expected gain of 0.2%. In the past
year, personal income is up 5.0% while spending is up 4.4%.
Disposable personal income (income after taxes) was up 0.1% in June and is up 3.7%
versus a year ago. The gain in June was led by interest and dividend income, which
was up 4.6% from a year ago.
 
The overall PCE deflator (consumer inflation) fell 0.2% in June but is up 2.6%
versus a year ago. The “core” PCE deflator, which excludes food and
energy, was up 0.1% in June and is up 1.3% since last year.
 
After adjusting for inflation, “real” consumption was unchanged in June
but is up 1.8% versus a year ago.
 
Implications:  Income and spending both came in below expectations in June, in part
due to a steep (and what now appears to have been a temporary) drop in commodity
prices. “Real” (inflation-adjusted) personal income was up a solid 0.3%
in June. Real personal spending was unchanged but will be one of the last greatly
affected by the supply-chain disruptions from Japan. Later today automakers will
report on car and light truck sales in July and those figures should show a rebound
that will boost the consumer spending data a month from now. Although overall
consumption prices declined in July due to commodities, the Federal Reserve
can’t see the report as vindication. “Core” consumption prices,
which exclude food and energy, increased 0.1% in June and are up at a 2.2% annual
rate in the past three months. That is above the Fed’s target of 2%. The Fed
must be confused about how core inflation could be rising when the unemployment rate
is above 9% and capacity utilization in the industrial sector is below 80%. In their
worldview, core inflation should only be rising when resources are constrained, and
we’re not even close to that environment in their thinking. Over the long run,
we think consumer spending should strengthen for a number of reasons. Consumer
balance sheets are healthier and financial obligations (monthly payments like
mortgages, rent, car loans/leases, as well as other debt service), are the smallest
share of disposable income since 1994. Meanwhile, the underlying trend in worker
income continues in a favorable direction, with real private-sector earnings (wages,
salaries, and small business profits) up 2.1% in the past year.

[ccp]

Is this guy always too rosey or is it me?

One thing from hearing about the debt debate is it highlighted to me at least how much of a hole we are in.

With the population aging et al - I can't see it not getting worse before it gets better.

[DougMacG]

"Is this guy [Brian Wesbury] always too rosey or is it me?"

Wesbury was my armchair pick for Fed Chair.  He is right from my point of view on policy issues, a great analyst and formerly a great forecaster.  He was especially good when things were going well.

Now I agree with CCP.  Wesbury's employer is First Trust which I assume is an investment house.  If the chief economist proclaims that all is going to hell, they won't do much business.  So now I read his work for the facts, trends and analysis, not for macroeconomic forecasting.

He is very much a pro-growth supply-sider who I assume would be very comfortable with a freedom-based agenda from someone like a Marco Rubio or Ronald Reagan.  But what he assumes, like leftist Dems do, is that the American economy is so strong and resilient that it can weather through bad policy after bad policy and continue some kind of growth at a snail's pace.  Maybe so and maybe not.

I'm sure he voted against the Pelosi-Obama congress in 2006 and the Obama presidency in 2008, but I doubt he sufficiently anticipated in his writings the economic destruction that followed that change in direction.  

Businesses and consumers may be sitting with money on the sidelines right now, but that does not change the fact that what the see out their is an economic world that is going to hell, laced with policial and economic uncertainty.  Cases in point, how are the best companies in your area, 3M stock here for example, manufacturing and production, doing compared to gold which is a bet directly against innovation, our currency, and the productive economy?

Also remember that 'breakeven' growth is something like what they call 3.1% 'real' growth.  Whether they revise the numbers to 0.1% or 2.9%, we are just arguing over how far and how fast we are moving backwards.  Double dip IMHO is a fact right now, not something new to fear in the future.  The long and hard argued budget deal now behind us does nothing significant in either direction to move us off our stagnation/decline path.  

The rosy scenario view seems to believe that investors will start investing and innovators will start innovating again out of boredom rather than waiting for us correct any of the (fuct) fundamentals that put us in this downward spiral.

[Crafty_Dog]

I continue to post Wesbury because of his strong track record, credentials, and quality supply side analysis AND because this forum (most certainly including me!) definitely needs to be reminded of the bullish case.

That said, in the next month or so, his projections are going to be put to the test in a very definitive manner.

[Crafty_Dog]

Data Watch



Non-farm payrolls increased 117,000 in July and revisions to May/June added 56,000
To view this article, Click Here

Brian S. Wesbury - Chief Economist
 Robert Stein, CFA - Senior Economist

Date: 8/5/2011






Non-farm payrolls increased 117,000 in July and revisions to May/June added 56,000,
generating a net gain of 173,000, more than doubling the consensus expected gain of
85,000.

Private sector payrolls increased 154,000 in July. Revisions to May/June added
49,000, bringing the net gain to 203,000.  July gains were led by professional &
business services (+34,000), health care (+31,000), retail (+26,000) and
manufacturing (+24,000). Government payrolls declined 37,000.

The unemployment rate declined to 9.1% in July (9.092% unrounded) from 9.2% in June
(9.182% unrounded).

Average weekly earnings – cash earnings, excluding benefits – increased
0.4% in July and are up 2.6% versus a year ago.

Implications:  Private-sector payrolls rebounded sharply in today’s report,
rising 203,000 including upward revisions to May and June. Part of the rebound is
due to the auto sector, with jobs at automakers and autos/parts sellers increasing
17,000 in July. Hiring was solid elsewhere in the manufacturing sector, and at
retailers, and private health companies. In the past year private payrolls have
increased 150,000 per month. We think this trend will accelerate in the second half
as the economy recovers from Japan-related disruptions. Another strong part of
today’s report was that average hourly wages increased 0.4% in July and are up
at a 3.5% annual rate in the past three months. Some short-sellers may focus on the
fact that payrolls declined 1.23 million when not seasonally-adjusted. But
that’s a highly misleading number. The drop is almost all due to state/local
public school teachers, which fell 1.26 million. Not seasonally-adjusted
private-sector payrolls fell only 4,000, which for July is stronger than in nine of
the past eleven years. The only legitimately negative part of today’s report
was that household employment, an alternative measure of jobs, declined 38,000 and
is up only 63,000 per month in the past year. Usually this measure of jobs leads
payrolls in recoveries. It may be lagging this time as smaller firms are more likely
to remain credit constrained than their larger counterparts. In other recent news,
new claims for unemployment benefits dipped 1,000 last week to 400,000. The
four-week moving average fell to 408,000 versus 440,000 in May. Continuing claims
for regular state benefits increased 10,000 to 3.73 million.

[ccp]

Beneath Jobs Report Surface Lies Some Ugly Truths
Published: Friday, 5 Aug 2011 | 10:20 AM ET Text Size By: Jeff Cox
CNBC.com Staff Writer

AP

Before getting too excited about the modest uptick in net job creation and a slight downward move in the unemployment rate, it’s probably worth a look under the hood.

As is usually the case, there is far more than meets the eye to the Labor Department’s report that the economy added 117,000 jobs last month and the unemployment rate fell to 9.1 percent.

Let’s start with the reality that fewer people actually were working in July than in June.

According to a Bureau of Labor Statistics breakdown, there were 139,296,000 people working in July, compared to 139,334,000 the month before, or a drop of 38,000.

But the job creation number was positive and the unemployment rate went down, right? So how does that work?

It’s a product of something the government calls “discouraged workers,” or those who were unemployed but not out looking for work during the reporting period.
Recession Seen Looming as Jobless Benefits End

This is where the numbers showed a really big spike—up from 982,000 to 1.119 million, a difference of 137,000 or a 14 percent increase. These folks are generally not included in the government’s various job measures.

So the drop in the unemployment rate is fairly illusory—stick all those people back in the workforce and you wipe out the job creation and the drop in unemployment.

For once, some of the government’s other tools of economic voodoo didn’t help the count.

The vaunted birth-death model, a byzantine approximation of business creation and failure, actually subtracted 18,000 from the total job creation after a five-month run where it added a total of 741,000 positions to the count.

And the so-called “real” unemployment rate, which adds in discouraged workers and others not counted as part of the headline unemployment rate, actually pulled back one notch to 16.1 percent.

But there’s plenty of bad news to go around otherwise.

The average duration of unemployment rose for the third straight month and is now at a record 40.4 weeks—about 10 months and now double where it was when President Obama took office in January 2009. The total number unemployed for more than half a year now stands at 6.18 million, 130 percent higher than when the president’s term began.

Among the nuggets of good news—the jobless rate for blacks slipped to 15.9 percent and for Latinos to 11.3 percent, both at four-month lows.

But how good or bad the unemployment picture really may not come into view until next month, because of distortions from seasonal adjustments.

Including teachers and others who experience seasonal unemployment, total joblessness actually rose 1.23 million.

CORRECTION: An earlier version incorrectly stated the percentage drop of employed people.

[G M]

**Thankfully Obama has liberated America from the oppressive burden of being a AAA rated nation. He really is a historic president!

http://hotair.com/archives/2011/08/05/breaking-sp-downgrades-u-s-to-aa/

Breaking: S&P downgrades U.S. to AA+; Update: S&P statement added
 

 

posted at 8:39 pm on August 5, 2011 by Allahpundit

 
With a “negative outlook” to boot.
 
America is now a risky investment.
 

U.S. Treasuries, once undisputedly seen as the safest investment in the world, are now rated lower than bonds issued by countries such as the UK, Germany, France or Canada.
 
The outlook on the new U.S. credit rating is negative, S&P said in a statement, a sign that another downgrade is possible in the next 12 to 18 months.
 
See the last few updates in the other thread for details on this afternoon’s drama between S&P and the White House. Supposedly the agency admitted privately that it goofed in using the wrong debt-to-GDP baseline — a $2 trillion error. But when you’re $14 trillion in the hole and set to add $6 trillion more by the end of the decade, what’s $2 trillion, really? A deadbeat’s a deadbeat.
 
Odds of that negative outlook turning into a further downgrade if the Super Committee chokes: High. Stand by for updates.
 
Update: A grumpy White House points to S&P’s math error and calls it “amateur hour.”
 
Update: Zero Hedge has the text of S&P’s statement. The debt-ceiling deal wasn’t good enough:
 

We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade…
 
The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year’s wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability…
 
When comparing the U.S. to sovereigns with ‘AAA’ long-term ratings that we view as relevant peers–Canada, France, Germany, and the U.K.–we also observe, based on our base case scenarios for each, that the trajectory of the U.S.’s net public debt is diverging from the others. Including the U.S., we estimate that these five sovereigns will have net general government debt to GDP ratios this year ranging from 34% (Canada) to 80% (the U.K.), with the U.S. debt burden at 74%. By 2015, we project that their net public debt to GDP ratios will range between 30% (lowest, Canada) and 83% (highest, France), with the U.S. debt burden at 79%. However, in contrast with the U.S., we project that the net public debt burdens of these other sovereigns will begin to decline, either before or by 2015.
 
Not only can’t the Super Committee fail, it’ll be under enormous public pressure to reach a grand bargain. That’s the silver lining in this cloud — they have to get serious now. They have no choice.

[Crafty_Dog]

I'm not really comfortable with that last line at all.

As I have previously posted, the alleged Medicare cuts are in payments to providers, not beneficiaries and as such are a scam for the reasons I discussed at the time, while the cuts to the military will be real and vast.  My prediction:  The Reps will fold again, agreeing to raise tax rates in order to defend the military and achieve the psuedo-cuts to Medicare.  I find little reason to assume that tax rate increases will actually increase revenues and may well serve to depress economic activity further, thus setting off a vicious spiral of higher govt costs (e.g. food stamps, welfare, unemployment, etc) and lower revenues due to declining economic activity.

[DougMacG]

"I'm not really comfortable with that last line at all."

The odds that a 50-50 committee will do the right thing is not better than 50-50.

Yes, the wrong 'solution' exacerbates the problem.  You can't raise taxes in a recession, but you also can't say, as we do now, that we will raise them the instant we are out of the recession either.  It has the same destructive effect without capturing any additional revenue.

The only thing I can think of to head off the wrong answer out of committee is to take offense with the public before they act, instead of playing defense after.

The serious, leading Pres. candidates need to shift from saying in 2011 what they would do as President in 2013 to being the leaders of the opposition party now, and call loudly and persuasively for a specific list of actions now.  Call on the House and Senate, in response to the downgrade, to finish the job in September that could not be completed before the August 4 birthday deadline.  The save the nation later plan is not capturing anyone's imagination or attention whatsoever.

If your house is on fire now (Marco Rubio's analogy is that you save the whole house), the discussion about what to do after it is just ashes smoldering seems rather academic.

[ccp]

"The serious, leading Pres. candidates need to shift from saying in 2011 what they would do as President in 2013 to being the leaders of the opposition party now, and call loudly and persuasively for a specific list of actions now"

Hopefully a repub will start to emerge the party can rally around.

The journolist MSM is already going after every viable Repub with their hit squads most recently making a big deal out of Rick Perry calling for prayer.  Suddenly they are trying to elevate this to scandal level to delegitimize him even before he announces.

It is now deemed scandulous to be a Christain or a Mormon.

Yet murderers screaming "ala akbar" (or whatever it was) are not "Muslim" terrorists.
They are just deranged or ill or from tough childhoods.

[G M]

Sunday Reflection: Why the GOP should give Obama the higher taxes he wants
 

By:Glenn Harlan Reynolds | 08/06/11 8:05 PM.
 
Well, the debt deal is behind us, but it's clear that the White House wants more taxes. Instead of fighting this head-on, the GOP might want to think about future ways of giving President Obama what he says he wants. Done properly, it just might be what academics like Obama call a "teachable moment."
 One of the things that's been floating around the Web over the past week is a video clip from 1953. It's a short film produced by the motion picture industry, seeking the end of a 20 percent excise tax on movie theaters' gross revenues that had been imposed at the end of World War II as a deficit-cutting measure. (Yes, gross, not net).
 
In the film, figures ranging from industry big shots to humble ticket collectors talk about how the tax is hurting their industry and killing jobs, and ask Congress to repeal the tax.
 
They even explain, in a sort of pre-Art Laffer supply-side way, that a cut in theater taxes might actually produce an increase in federal revenues as the result of greater economic growth.
 
The effort -- which includes a call aimed at "Congressman John Dingell," father of the current Rep. John Dingell, who took over from his father a mere two years later in 1955 -- ultimately succeeded.
 
But while I'm usually for tax cuts, in this case I think that's too bad. Because with this battle over, Hollywood stopped talking loudly about the damage done by high taxes, pretty much for good.
 
When, since, have we seen such a firmly expressed appreciation of the harm that excessive taxation can do to the economy, voiced by representatives of the entertainment industries?
 
Today, those industries are a major source of Democratic contributions and spread-the-wealth rhetoric, even as they prosper based on this tax cut, and numerous other bits of favorable treatment scattered throughout the Internal Revenue Code. It's time for a change.
 
Were I a Republican senator or representative, I would be agitating to repeal the "Eisenhower tax cut" on the movie industry and restore the excise tax. I think I would also look at imposing similar taxes on sales of DVDs, pay-per-view movies, CDs, downloadable music, and related products.
 
I'd also look at the tax and accounting treatment of these industries to see if they were taking advantage of any special "loopholes" that could be closed as a means of reducing "tax expenditures." (Answer: Yes, they are.)
 
America, after all, is facing the largest national debt in relation to GDP that it has faced since the end of World War II, so a return to the measures deemed necessary then is surely justifiable now.
 
The president's own rhetoric about revenues certainly suggests so. Perhaps the bill could be named the "Greatest Generation Tax Fairness Act" in recognition of its history.
 
Should legislation of this sort be passed -- or even credibly threatened -- I think we can expect to see Hollywood rediscover the dangers posed by "job killing tax increases," just as pro-tax-increase Warren Buffet changed his tune once his own corporate-jet business was threatened.
 
And, given the entertainment industries' role as the Democrats' campaign finance ATM, it seems likely that the president might soon reconsider his rhetoric as well.

And that's not the only "revenue enhancement" we might employ. I note that FCC Commissioner Meredith Attwell Baker, who approved the Comcast merger, left the commission to take a lucrative job at Comcast, just as many members of the not-so-successful Obama economic team have left their government positions for lucrative jobs in private industry.
 
Obamacare drafters went to work for the health care industry at inflated salaries. And drafters of the Dodd-Frank financial bill have gone on to big-shot lobbying and consulting jobs at high salaries.
 
Because much of their value to their employers comes from their prior government service, I think that the taxpayers deserve a share of the return, say in the form of a 50 percent surtax on any earnings by political appointees in excess of their prior government salaries for the first five years after they leave office.
 
Some would say that a 75 percent tax on "revolving-door profiteers" would be more appropriate, and I'm certainly willing to entertain arguments to that effect; I'd also like to extend this to members of Congress, but I don't think Congress would ever pass that bill.
 
Democrats already understand this approach. Sen. Mark Udall, D-Colo., plans on attaching a "poison pill" to the Balanced Budget Amendment that would forbid tax cuts for people making over $1 million a year.
 
But why should Democrats be the only ones to enjoy the fun of taxing people they dislike?
 
Businesses that support Democrats have had a good deal up to now. When Democrats are in power, they get the kind of special deals that Democrats dole out to their supporters.
 
When Republicans are in power, their taxes don't go up because Republicans don't like tax increases. Well, perhaps Republicans should take Democrats seriously in their call for "shared sacrifice."
 
Such an action would, of course, run counter to the Republicans' no-new-taxes pledges, the importance of which was recently reaffirmed by Grover Norquist in the New York Times.
 
But even Norquist has allowed that in some cases loophole-closing may not be quite the same thing as a general tax increase, and perhaps he could be persuaded to make an exception, just this once, in favor of higher taxes -- for the educational value, if nothing else.
 
Because apparently Hollywood and the Democrats have a lot to learn.
 
Examiner Sunday Reflection contributor Glenn Harlan Reynolds, a law professor at the University of Tennessee, hosts "InstaVision" on PJTV.com.


Read more at the Washington Examiner: http://washingtonexaminer.com/opinion/columnists/2011/08/sunday-reflection-why-gop-should-give-obama-higher-taxes-he-wants

[Crafty_Dog]

Focus on the Economy To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 8/8/2011


Investors remain on edge and stocks are down about 2% around the world today. Combine last week’s sell-off, the intense debt ceiling debate, financial instability in Europe, the recent soft patch, and a downgrade by S&P and this fear is somewhat understandable. Short-sellers and pessimists are in their glory. And for the umpteenth time, Nouriel Roubini said that a double-dip recession is on its way.

We understand the uncertainty created by all this noise. What we don’t get is why it is so hard for economists to look at economic data. Yes, there was a “soft patch” – which we acknowledged at the time – but, no, it is not getting worse. In fact, economic data has been visibly improving.       
 
Job growth, which slowed in the soft-patch – has now begun to pick up. Private-sector jobs grew 154,000 in July, after just 80,000 in June and 99,000 in May (both of which were revised upward from even weaker readings). Average hourly earnings – cash earnings, excluding fringe benefits – rose 0.4% in July and are up 2.3% versus a year ago. Combined with a 2% increase in the number of hours worked in the past year, worker incomes are outpacing inflation.   
 
Meanwhile, high frequency data on the labor market show continued improvement. New claims for unemployment insurance fell back to 400,000 last week after peaking at 478,000 back in April.   
 
Much of the “soft patch” was due to the disasters in Japan and now that those problems are dissipating, the economic numbers have been getting better. Auto production schedules continue to show very solid growth for the third quarter. Auto sales increased 6% in July from the recent bottom in June and the replenishment of dealer inventories should lift sales further. A virtuous cycle is taking hold, with more production generating more sales, which should in turn generate even more production as dealers opt to hold more inventories.
 
Even housing appears to be at an upward inflection point. Pending home sales – contracts on existing homes – are up about 11% in the past two months, suggesting a rebound in existing home sales when that report arrives late next week.
 
Meanwhile, home building is showing signs of the turn. Multi-family construction, particularly apartment buildings, has been on an upward trend since late 2009 even as single-family building has languished. But single-family starts increased 9.4% in June, the largest gain for any month in two years. And, for the first time in five years, the total number of homes under construction in the US is increasing.
 
Looking ahead over the next few weeks, we think the data will affirm the rebound from the soft-patch story. Retail sales, reported this Friday, should increase by about 0.7%. Next week’s report on industrial production should show a gain of about 0.4% and the following week’s report on July durable goods new orders could be an outright boom because of orders for new planes from Boeing.
 
In other words, we have yet to see any real, data-centric, sign that the economy is falling back into recession. Nouriel is finding a receptive audience because fear levels are high, not because he has the data to back up his forecast. And even though fundamentals remain robust, the markets have moved lower based on fear. As a result, the market is once again presenting a buying opportunity. Stocks were cheap two weeks ago, and even cheaper today.

[G M]

We'll be in a post-apocalyptic Mad Max scenario and Wesbury will be pointing out how a 0.2% drop in cannibalism means things are turning around.

[Crafty_Dog]

By ANDY KESSLER
Now that the debt-ceiling gyrations are over, the Obama administration is "pivoting" to its biggest problem—jobs. Unemployment ticked down to 9.1% in July, but the real unemployment rate, including discouraged workers, is still 16.1%. The stock market is not pleased. Why? Because the president's calls for "patent reform" and an "infrastructure bank" won't move the needle. It's time to go big or be sent home.

Can we agree that throwing money at the problem doesn't work? The 2009-10 stimulus package wasted more than $800 billion. The Federal Reserve's frantic quantitative easing, QE1 and QE2, printed money and bought mortgage paper on the street, helping banks and financial institutions recapitalize, but it hardly created jobs—not lasting ones anyway. Sadly, the economy grew at a subpar 1.3% rate in the second quarter instead of the typical 5% rocket out of a recession. What's missing is not capital, it's opportunity.

As Otter famously said in "Animal House," this situation "absolutely requires a really futile and stupid gesture be done on somebody's part." Well, at least a gesture that might appear stupid and futile but in reality kick-starts whole new industries and massive job growth. And all it will take is the stroke of a pen. Here are some instant job creators:

• Free spectrum. AT&T is trying to buy T-Mobile to get hold of valuable spectrum for wireless. But there's loads of spectrum lying around that is not being used. Try this: Tune into channel 37 on your TV. Static? Bingo. Put this spectrum in the hands of entrepreneurs and you'll create a million new jobs, not to mention new devices and apps not thought possible in our bandwidth-starved world—phones that work in elevators and subways, remote auto and medical diagnostics, real-time ads on smart phones and other devices ("Hey, your friends ate here last week!"), and that's just in the first six months.

But how? Either allow spectrum to be sold by current owners, typically broadcasters inefficiently using this spectrum, or implement a "use it or lose" it rule. The Federal Communications Commission can declare that if a swath of spectrum is not being used for a real application, then they will open it up to the public, the same way that Wi-Fi is open to all—anyone can use it as long as they don't interfere with others. (AT&T and Verizon will fight this, but so what?)

This is also true of government-owned spectrum. If an entrepreneur can prove far greater potential usage, it should revert to the public. Chips are available today that can be tuned to virtually any new spectrum. Apps can be written in weeks. Venture capitalists and Wall Street would gladly provide access to capital. So what are we waiting for? Start making those "Free the Spectrum!" T-shirts.

• Disease diagnostics. Have the Department of Health and Human Services declare that Medicare will pay for any diagnostic test or device that can be proven to save money over five years—for example, detecting a cancer at Stage I when it's cheaper to treat versus at Stage IV, when it is expensive and often fatal. Some will prove worthy, others won't. But it's a self-correcting process—if a test or device doesn't save money, then reimbursements stop. That will help focus entrepreneurs' efforts, and the resulting innovation will both save money and create private-sector jobs.

• End the mail monopoly. The U.S. Postal Service, which posted a net loss of $3.1 billion in the third quarter alone (there is only so much junk mail and Hallmark cards to deliver anymore), is finally starting to rationalize small post offices, recently putting 4,000 of them on a list for possible closing. Accelerate this task by ending the USPS monopoly on first- and third-class mail. Entrepreneurs will jump into action. Online bill payment will become ubiquitous. UPS and FedEx and a host of new companies will create more productive forms of delivery. The Postal Service won't end, it will just slowly fade away.

• Frack this. The revolution in natural-gas extraction, driven by hydraulic fracturing, or "fracking" of America's huge shale deposits, has boosted shale gas to 25% of America's gas supplies from 1% in 2001. But environmentalists are pushing to close down this booming industry due to concerns over contamination of water supplies. Here's a solution: Declare all hydraulic fracturing legal with the caveat that drillers put up a bond equal to the potential cleanup cost of environmental damage. This will force large players to consolidate what is mostly a "wildcat" market. The big guys will be much more careful in their extraction techniques, knowing mistakes cause huge losses.

• Government platform. The hardest thing to do is interact with the government—the Department of Motor Vehicles being the most painful example. I have yet to see any government agency with an up-to-date user interface. But this is easy to change.

In the technology world, companies view themselves as platforms for others to build on, and they publish what they call application programming interfaces (APIs) so others can easily tap their ecosystem. All government agencies should be required to publish their own APIs by the end of the year. What will happen next is a sea of programmers will emerge to write iPhone apps and other code to integrate government functions into our everyday lives. And yes, this will eventually get rid of entire layers of inefficient government workers, but new companies nowhere near the Beltway will proliferate with virtual connections to the government.

• Rental society. Create a six-month foreclosure amnesty, i.e., initiate foreclosure proceedings on your underwater mortgage, and it doesn't show up on your permanent record. Foreclosure then becomes an individual's choice, not something mired in government red tape or stuck in a bank's back office. This would lead to millions of homes and condos hitting the market at fire-sale prices. This is exactly the price discovery that the finance sector both dreads and needs to move forward. Within weeks, we'd see the rise of Web-based rental agencies and real-estate auctions.

I understand the politics against all these opportunities and doubt any administration has the political will to enable so much change so quickly. But any one of these ideas, while a futile gesture on the surface, would sound like a starting gun for entrepreneurs and get them off to the races. They don't need money—they need somewhere to invest their sweat equity. And that's the only true job creator.

Mr. Kessler, a former hedge-fund manager, is the author most recently of "Eat People" (Portfolio, 2011).

[Crafty_Dog]

http://www.newsmax.com/Headline/laffer-obama-reaganomics-gop/2011/08/10/id/406893?s=al&promo_code=CCF6-1

[DougMacG]

While the talk on the forum and around the country might be about a Republican contest to try to change direction, the reality in the U.S. is that we are currently on an economic course of largely copying the European economic model and abandoning the American one.  In that light, we should also check in with their results:

Euro Zone Second Quarter GDP Growth Slows to 0.2 Percent
Published: Tuesday, 16 Aug 2011 By: Reuters
     
The Eurostat agency estimated gross domestic product (GDP) for the 17-country euro zone increased 0.2 percent in the three months to end-June from the previous quarter, compared with economists' forecasts of growth of 0.3 percent.
http://www.cnbc.com/id/44154906

That was sharply off the rate of 0.8 percent in the first three months of the year.

[Crafty_Dog]

The man has not flinched in his call.

==============================

Data Watch

--------------------------------------------------------------------------------
Industrial production surged 0.9% in July, blowing away the consensus expected gain of 0.4% To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 8/16/2011


Industrial production surged 0.9% in July, blowing away the consensus expected gain of 0.4%. Including revisions to prior months, production rose 1.2%. Output is up 3.7% in the past year.

Manufacturing, which excludes mining/utilities, was up 0.7% in July, but down 0.2% including revisions to previous months. Auto production rose 5.2% in July. Non-auto manufacturing increased 0.2%. Auto production is down 0.2% versus a year ago while non-auto manufacturing has risen 4.0%.
 
The production of high-tech equipment fell 0.1% in July but is up 8.3% versus a year ago.
 
Overall capacity utilization rose to 77.5% in July from 76.9% in June. Manufacturing capacity use increased to 75.0% in July from 74.6% in June.
 
Implications: As of July, the soft patch in manufacturing had ended. Industrial production surged 0.9% in July, the largest monthly gain this year. The July jump was fueled by a 5.2% expansion in auto production.  This monthly increase – at an 83% annualized rate - suggests that the supply-chain disruptions coming from Japan have ended.  We expect more increases like this in the next few months.  Excluding autos, manufacturing production increased 0.2% in June, and is up 4% versus a year ago.  Corporate profits and cash on the balance sheets of non-financial companies are at record highs.  Meanwhile, companies can fully expense these purchases for tax purposes through year-end.  This suggests business equipment purchases and production should rise as the second half of 2011 unfolds.  Today’s report also showed that capacity utilization hit its highest level since August 2008, coming in at 77.5. As it did in 2010, the industrial sector has reasserted its leadership of the recovery.  The rise in overall, nation-wide production during July suggests that the weakness reported by the Empire State manufacturing index (which fell to -7.7 in August from -3.8 in July) is unlikely to continue.  We believe that purchasing managers surveys have become less reliable.  They seem to be influenced more by emotion and uncertainty than they have in the past.

[DougMacG]

"Euro GDP ... increased 0.2 percent" - Q2 2011

Flashback: "...Europe is actually the opposite of what conservatives claim: Europe is an economic success, and that success shows that social democracy works." - Paul Krugman, Jan. 10, 2010

[prentice crawford]

  By Peter J Reilly | Forbes – Mon, Aug 15, 2011tweet20Share6EmailPrintRelated Content
The Real Reason Warren Buffett's Taxes are Low

Warren Buffett was in the New York Times today bragging about his low effective tax rate and saying how he would like to be paying more.   Fellow Forbes contributor Tim Worstall weighed in quibbling about Mr. Buffet not factoring in the corporate taxes on Berkshire Hathaway's earnings.  I'm just a simple CPA, whose firm won't even let him sign audit reports anymore. (That's true of all tax partners here by the way.  I don't take it personally).  I don't want to quibble with a quibble but apparently economists have a hard time figuring out the incidence of the corporate income tax (i.e. who is really paying it), so I think we can let go of that piece of the analysis.

Still Mr. Buffet is not sharing the real reason that he doesn't pay much in the way of income tax relative to his great fortune.  The secret is hidden in plain sight.  Mr. Worstall alludes to it when he mentions that Berkshire Hathaway does not in fact pay dividends.  Mr. Buffet's secret which you can find blasted all over the Internet is one of his famous quotations:

Our favorite holding period is forever

You only pay income taxes at any rate on realized appreciation.  An investment with a holding period of forever incurs a capital gains tax of 0%, while all along the holder can be getting wealthy from appreciation.  That's the real reason Mr. Buffet does not pay a lot of income taxes.

http://news.yahoo.com/real-reason-warren-buffetts-taxes-low-171220991.html

                             P.C.

[DougMacG]

"Our favorite holding period is forever
You only pay income taxes at any rate on realized appreciation.  An investment with a holding period of forever incurs a capital gains tax of 0%"

Thank you PC, excellent points.  It is actually that tax rate being too high that causes tax revenue to be unrealized.
--------------------
Winston Churchill on tax cuts:
The hon. Gentleman spoke about the relation of the rate of Income Tax to unemployment.  He said, “How foolish it is to imagine that by reducing Income Tax you improve employment.”  The fact, however, is that the country with the highest rate of direct taxation is also the country with the highest unemployment.  That is the fact.  It may be a coincidence.  But when the Income Tax was reduced by 1 shilling and then by 6d., there was a great improvement.  When the Income Tax was 6 shillings in the Pound there were over 2-1/4 million persons unemployed.  Now that the Income Tax has been reduced to 4 shillings 6d. in the Pound that figure has fallen to 1-1/4 million people unemployed.
http://www.powerlineblog.com/archives/2011/08/churchill-and-the-welfare-state.php

[JDN]

Taxing Warren Buffett

Republican critics are seemingly oblivious that, in many ways, his tax ideas mirror those of Ronald Reagan.

August 18, 2011  L.A. Times

Investors might hang on Warren Buffett's every word when it comes to financial advice, but Republicans are less than enthusiastic about the Oracle of Omaha's opinions on taxation. After the billionaire chairman of investment firm Berkshire Hathaway wrote an op-ed in the New York Times complaining that the mega-rich are undertaxed in comparison to the middle class, conservatives urged him to voluntarily send more of his own money to the Internal Revenue Service and leave others alone. Not only are they willfully missing Buffett's point, they're seemingly oblivious to the fact that in many ways his tax ideas mirror those of Ronald Reagan.

Hard to believe as it may seem, it has been a quarter of a century since the last comprehensive overhaul of the U.S. tax code. Under the Tax Reform Act of 1986, which was signed by President Reagan, the number of tax brackets was reduced, loopholes were closed, the top tax rate was lowered and capital gains were taxed at the same rate as ordinary income. Yet in the years since, Congress has steadily drilled loopholes back into the code while lowering the tax burden for wealthy people who make money through investments rather than labor. That was the source of Buffett's complaint.

"The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes," Buffett wrote. "It's a different story for the middle class; typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot."

[DougMacG]

Studies at the L.A. Times show that putting the words Ronald Reagan in the title increase readership significantly regardless of the lack of a connection demonstrated in the text.

a) Reagan lowered the top rate from 70% to 28%.  What similar proposal does Buffet have for our time?

b) The 'payroll tax' is code for your social security (insurance) account, and Medicare.  Premiums are capped because benefits are capped.  Does Buffet accept then that if one person pays in 100 times more each year than the cap today his 'benefits' would also grow to be 100 times higher.  If not, it becomes a generic, means tested, on-budget welfare program (as it should be) ready for the chopping block.  Sure tax it all the way up, but then slash the payouts and reduce the tax rate to something that won't kill off investment,  production and employment any further, maybe 3% across the board instead of 15.3%, and more than offset by larger cuts simultaneously in the other reforms.  Reagan didn't show any interest in restructuring social security in spite of the false editorial title.

c) "...lowering the tax burden for wealthy people who make money through investments rather than labor"

Dividends are earned with after-tax investment capital and are already quadruple taxed.  To simplify that is to deceive.  How can a corp pay out dividends on earnings without first declaring earnings and pay a federal and state corporate tax on that, plus the next 15%.  So what he calls 15% is, in our state, 35% + 10% + 15% +8% = 68% combined quadruple tax on the  return on investment dollars. that were already taxed as ordinary income.  Want to go higher and see if the economy grows??  You are better off in Communist China, and that's where much of those investment dollars went.

Long term capital gains are also being taxed at the state level as ORDINARY INCOME.  15% is bullshit because you are taxed on the nominal gain when by definition (long term) it includes a significant inflationary component.  Why does a smart man like that need to deceive and inflame class warfare in order to make a cheap, political point?  Because the point on its merits falls on its face.

d) Missing in the broken logic string is that after Reagan, under a Democratic President, we lowered the capital gains rate and the economy boomed, revenues surges and the budget balanced.  A move in the opposite direction is based on class envy, not revenue collections.  That the lower incomes are being punished is BS under the same logic.  The lower half of workers pay zero in federal income tax and they are the ones who cling to the broken social security Ponzi scheme and will rely the heaviest on Medicare.  The absence of honesty is glaring.

e) News to L.A.Time editorialists: We no longer compete in a 1980s global economy.  Republicans have tried to drop all the obsession with Reagan and his policies and circumstances from 30 years ago.  People who opposed his policies might consider the same.

f) "After the billionaire chairman of investment firm Berkshire Hathaway wrote an op-ed in the New York Times complaining that the mega-rich are undertaxed in comparison to the middle class, conservatives urged him to voluntarily send more of his own money to the Internal Revenue Service"

Did he?  I think not.  He still wants someone else to pay.  BTW, it is conservatives who want to reform the code.  What reform other than tax rate increases on job creators has the LA Times supported?  Just curious.
-----------------------
Arthur Laffer just might understand Reagan's thinking a little better than the leftists who opposed him at every turn.  Laffer suggests:

Obama Must Use Reaganomics to Save Economy,  Wednesday, 10 Aug 2011

The only way President Barack Obama can solve the nation’s economic woes is to adopt “common-sense” Reaganomics, the policy’s architect Arthur Laffer claims in an exclusive Newsmax interview.

Laffer said the White House called him in the spring and asked him to speak to Obama’s former Council of Economic Advisors’ chairman Austen Goolsbee – and he had told him exactly the same thing.

“Reaganomics would fix any economy that’s in the doldrums,” Laffer said. “It’s not a magic sauce, it’s common sense.

“You’ve got to get rid of all federal taxes in the extreme and replace them with a low-rate flat tax on business net sales, and on personal unadjusted gross income. That’s number one.

“Number two, you have to have spending restraint. Government spending causes unemployment, it does not cure unemployment.

“Number three, you need sound money. Ben Bernanke is running the least sound monetary policy I’ve ever heard of," Laffer said.

“Number four you need regulations, but you don’t need those regulations to go beyond the purpose at hand and create collateral damage. The regulatory policies are really way off here.

“And lastly you need free trade," Laffer said. "Foreigners produce some things better than we do and we produce some things better than foreigners. It would be foolish in the extreme if we didn’t sell them those things we produce better than they do in exchange for those things they produce better than we do.”

In the interview the veteran economist said Standard & Poor’s was quite right in downgrading the U.S. credit rating – in fact it should have done so far earlier.

The agency had no choice and if the other agencies, Moody’s and Fitch, don’t do the same they won’t be doing their jobs, said Laffer, who gave his name to the Laffer Curve which demonstrates that the maximum amount of government revenue does not come at the point of maximum taxes.

“If you had a company that had revenues of $2½ million and expenses of $4 million, with no change in sight, $1½ million in losses each year as far as the eye can see and it had already borrowed $10 million, what would you rate that company? I surely wouldn’t rate it AAA.

“That is the U.S. situation today," Laffer said. "Taxes are about $2½ trillion, government spending is about $4 trillion and we have about $10 trillion in net national debt. I don’t see that as being a AAA country.

“If the S&P and the others were doing their jobs correctly, they should have downgraded a long time ago.”

Laffer said he has no doubt the country will win its top rating back, but only when economic policies are completely turned around. He said President Barack Obama’s administration’s only economic plan seemed to be to expand government ownership of the means of production.

“They have nationalized the health care industry pretty extensively. They’ve done that with home building as well. They’ve tried it with the auto industry as well. So they have moved very, very deliberatively and purposefully toward extending the government ownership of the means of production.

“That to me, if you read the tealeaves, is what they are doing. It is not what they are saying they are doing, but that is what they actually are doing.

“People don’t work to pay taxes, people work to get what they can after taxes. It’s that very private incentive that motivates them to work. If you pay people not to work and tax them if they do work, don’t be surprised if you find a lot of people not working.”

Laffer said the current economic woes started to form under President George W. Bush but have been made worse by Obama’s policies.

“There’s a wedge driven between wages paid and wages received and that wedge is the tax/government spending wedge,” he said.

“That wedge has grown dramatically in the last 4 ½ years…under W and a Republican administration and…under Obama. Bipartisan ignorance has led us to this very disastrously desolate state.”
http://www.newsmax.com/Headline/laffer-obama-reaganomics-gop/2011/08/10/id/406893?s=al&promo_code=CCF6-1

[JDN]

This is for you Doug.... 

I told my wife tonight that CA is now at 12% unemployment, the second worst in the the U.S. behind Nevada.

All she said was, "Of course!   Unemployment compensation pays really well here."  She said, "I have acquaintances making good money just staying
home doing nothing.  Why should they work?"  And then she gave me some examples.  She finished with, "You (America) have a crazy system; you reward people who don't work."  Rather strange she thought.

It does make some sense.

[Crafty_Dog]

Refresh our memory JDN please, from where is your wife?

[JDN]

Refresh our memory JDN please, from where is your wife?

Japan.  Although she is now an American citizen.

Japanese have their faults, but in general, they have pride in their work and they work hard.

[DougMacG]

JDN, You have a very smart wife. 

This is a chart of Calif. unemployment, please take a look:
http://data.dancingengineer.com/labormarket/CA/?graph=unemployment_rate&in=California

As with other social democracies, the rate of unemployment tends to be higher than freer states, about 3 points currently above the national average, but the trend lines look remarkably familiar and predictable:

Calif. unemployment hit some of its worst levels in the time after Paul Volcker tightened money and while congress was passing, but weakening, delaying and phasing in the Reagan tax rate cuts.  Those two policy changes were supposed to be simultaneous.

Jan 1, 1983 when the Reagan tax cuts fully kicked in across the country - Calif. unemployment heads down continuously for the rest of the decade.

In 1990-1991 when Bush-I broke his read my lips pledge - unemployment headed back up.

In 1993 that recession ends but growth sputters, and unemployment barely heads down and then back up.  When the capital gains rates were slashed, the recovery picked up steam and continued robustly until 2001.  Unemployment worsened until the bush tax cut fully kicked in - 2003.  Then Calif. had the same 50 months of job growth as the rest of the nation, ending exactly with the election of the Pelosi-Reid-Obama-Biden-HRC majority congress who promised to let the tax rate cuts expire.  At that exact point, Calif unemployment heads steeply up until roughly the certainty of a Republican House taking over, and with divided government and policy direction stalled, unemployment has stayed relatively constant at these very high levels - waiting for an economic change of direction.

Can anybody else read a different explanation into these numbers and unnecessary human costs?

3 points of California unemployment is about mis-management and botched incentives inside the state and the other 9% is about incompetent, counter-productive economic management nationwide.

The only thing strange about the unemployment problem is that we know how to fix it and yet we don't do it.

[G M]

http://blogs.the-american-interest.com/wrm/2011/08/19/feeding-the-masses-on-unicorn-ribs/

August 19, 2011


Feeding The Masses On Unicorn Ribs

 Walter Russell Mead




Besides healing the planet and returning the rising seas to their natural beds, then-Senator Obama promised that his administration would create beautiful green jobs: well paid, stable, abundant jobs, unionized, with full benefits and making the earth healthier and the American people richer. As President, he stayed on message: even after the truther-enabling “green jobs czar” Van Jones left the administration, green jobs have been one of the President’s signature policies for putting the American people back to work.
 
Obama promised to create 5 million green jobs within ten years. Investors’ Business Daily has a list of that plan’s successes so far.
 
- On his recent jobs tour Obama stopped at a Johnson Controls plant in southern Michigan, which received $300 million in green grants and plans to create a whopping total of 150 jobs, at a cost of $2 million per position.
 
- Evergreen Solar Inc., which received unknown amounts of green stimulus funds on the hope that it would create “between 90 and 100 jobs” two years ago, filed for bankruptcy this week, $485.6 million in debt. Their Massachusetts plant once employed 800 people; in March it was replaced with a factory in Wuhan, China.
 
- Green Vehicles, an electric car “maker” in Salinas, California, took $500,000 from the city and almost $200,000 from the state but has failed to produce even one car.
 
- And as reported earlier on this site, Seattle was one of a handful of cities that received $20 million in federal grants as part of Retrofit Ramp-Up, a program designed to refit houses with more energy efficient materials. Unfortunately, as KOMO4 of Seattle reports, after more than a year “only three homes had been retrofitted and just 14 new jobs have emerged from the program.”
 
I’ve posted about this failing strategy before; it’s nice to see (h/t Instapundit) that the New York Times has also figured it out that the administration’s green jobs initiative is an embarrassing mess.
 
As the paper of record reports,
 

Federal and state efforts to stimulate creation of green jobs have largely failed, government records show. Two years after it was awarded $186 million in federal stimulus money to weatherize drafty homes, California has spent only a little over half that sum and has so far created the equivalent of just 538 full-time jobs in the last quarter…
 
The Economic Development Department in California reports that $59 million in state, federal and private money dedicated to green jobs training and apprenticeship has led to only 719 job placements — the equivalent of an $82,000 subsidy for each one.
 
The belief that green jobs would drive a new era of American prosperity was — like the large majority of green policy chat — intellectually incoherent.  The goods that drive renewable energy industries, like so much else in this world, are far cheaper to construct in Asia. As the NYT piece describes, SolFocus, a widely-celebrated solar power company based, only has 90 employees at their San Jose headquarters. The solar panels are assembled in China.  Whether a product is an ordinary t-shirt or an admirable piece of world saving green technology like a wind turbine has zilch, zero, nada influence on the mind of the manufacturer trying to decide where it should be made.
 
There are perhaps some green jobs that would be exceptions; we could eliminate all forms of welfare and food stamps and offer the unemployed minimum wage jobs pedaling stationary bicycles hooked up to electric generators, solving our budget, poverty, obesity and energy independence problems all at once — but these are not the jobs either the President or his supporters have in mind.
 
It’s understandable and even forgivable that a political candidate would talk about green jobs on the hustings, especially when the Democratic Party is divided between job hungry blue collar workers and fastidious greens who break out in hives in the presence of coal.  What worries me isn’t that the President’s team advised him to make a few speeches on this subject; if a candidate can’t throw chum to the base now and then what’s the point of having elections?  What worries me is that they didn’t understand that making something this bogus a central plank of his actual governing plan on an issue as vital as jobs would have serious costs down the road.
 
Many liberals want green jobs to exist so badly that they don’t fully grasp how otherworldly and ineffectual this advocacy makes the President look to unemployed meat packers and truck drivers.
 
Let me put it this way.  A GOP candidate might feel a need to please creationist voters and say a few nice things about intelligent design.  That is politics as usual; it gins up the base and drive the opposition insane with fury and rage.  No harm, really, and no foul.
 
But if that same politician then proposed to base federal health policy on a hunt for the historical Garden of Eden so that we could replace Medicare by feeding old people on fruit from the Tree of Life, he would have gone from quackery-as-usual to raving incompetence.  True, the Tree of Life approach polls well in GOP focus groups: no cuts to Medicare benefits, massive tax savings, no death panels, Biblical values on display. Its only flaw is that there won’t be any magic free fruit that lets us live forever, and sooner or later people will notice that and be unhappy.
 



Cranach: The Garden of Eden (Wikimedia)
 
Green jobs are the Democratic equivalent of Tree of Life Medicare; they scratch every itch of every important segment of the base and if they actually existed they would be an excellent policy choice.  But since they are no more available to solve our jobs problem than the Tree of Life stands ready to make health care affordable, a green jobs policy boils down to a promise to feed the masses on tasty unicorn ribs from the Great Invisible Unicorn Herd that only the greens can see.
 
Here in particular Senator Obama as he then was would have benefited from a less gushing, more skeptical press.  If his first couple of speeches on this topic had been met with the incredulous and even mocking response they deserved, he probably would not have married himself so publicly to so vain and so empty a cause.
 
The cost is not simply the stimulus funds wasted on “investments” that don’t produce any jobs.  It’s not just the opportunity cost as more practical and reasonable job creation agendas were shoved aside to make room for the unicorn hunt.  It’s the credibility cost.  The President cannot successfully make the case for stimulus so many of his supporters would like him to make when the opposition can cite figures like $2 million a job, or point to jobs shipped overseas and companies shut down.  Worse, the failed unicorn barbecue undermines the President’s ability to convince the American people that he knows how to create jobs.  Thirty months of poor job numbers while the White House was off chasing unicorns and hyping green jobs as a national strategy means that the administration has forfeited public confidence on the jobs issue.  That is no small handicap in times like the present.
 
The green jobs fiasco is not the only failure sapping the President’s credibility as an economic policy maker.  The administration was clearly caught off guard by the weakness in the economy this year, and only belatedly discovered how poorly constructed its stimulus really was.  Not even administration spokespersons attempt to defend its housing policy when it comes to topics like mortgage relief.
 
A quick return to economic growth would put all these concerns in the background, but on the more probable assumption that the economy will still be struggling well into if not all the way through 2012, the White House needs to figure out how to change course — and how to communicate that change of course to a country that has come dangerously close to tuning out the President when he talks about jobs.

[DougMacG]

First this, from the previous post:
"...$20 million in federal grants...after more than a year only three homes had been retrofitted and just 14 new jobs have emerged from the program.”

I wonder how many homes would have been updated privately in that if the government didn't take half your money and make you spend more than 6 months of your year working an tax and regulation compliance instead of tending to your own home, blowing in insulation and sealing up leaky windows.
----------------
Stephen Moore, WSJ today
Obamanonics vs. Reaganomics
One program for recovery worked, and the other hasn't.

If you really want to light the fuse of a liberal Democrat, compare Barack Obama's economic performance after 30 months in office with that of Ronald Reagan. It's not at all flattering for Mr. Obama.

The two presidents have a lot in common. Both inherited an American economy in collapse. And both applied daring, expensive remedies. Mr. Reagan passed the biggest tax cut ever, combined with an agenda of deregulation, monetary restraint and spending controls. Mr. Obama, of course, has given us a $1 trillion spending stimulus.

By the end of the summer of Reagan's third year in office, the economy was soaring. The GDP growth rate was 5% and racing toward 7%, even 8% growth. In 1983 and '84 output was growing so fast the biggest worry was that the economy would "overheat." In the summer of 2011 we have an economy limping along at barely 1% growth and by some indications headed toward a "double-dip" recession. By the end of Reagan's first term, it was Morning in America. Today there is gloomy talk of America in its twilight.

My purpose here is not more Reagan idolatry, but to point out an incontrovertible truth: One program for recovery worked, and the other hasn't.

The Reagan philosophy was to incentivize production—i.e., the "supply side" of the economy—by lowering restraints on business expansion and investment. This was done by slashing marginal income tax rates, eliminating regulatory high hurdles, and reining in inflation with a tighter monetary policy.

The Keynesians in the early 1980s assured us that the Reagan expansion would not and could not happen. Rapid growth with new jobs and falling rates of inflation (to 4% in 1983 from 13% in 1980) is an impossibility in Keynesian textbooks. If you increase demand, prices go up. If you increase supply—as Reagan did—prices go down.

The Godfather of the neo-Keynesians, Paul Samuelson, was the lead critic of the supposed follies of Reaganomics. He wrote in a 1980 Newsweek column that to slay the inflation monster would take "five to ten years of austerity," with unemployment of 8% or 9% and real output of "barely 1 or 2 percent." Reaganomics was routinely ridiculed in the media, especially in the 1982 recession. That was the year MIT economist Lester Thurow famously said, "The engines of economic growth have shut down here and across the globe, and they are likely to stay that way for years to come."

The economy would soon take flight for more than 80 consecutive months...

Robert Reich, now at the University of California, Berkeley, explained that "The recession of 1981-82 was so severe that the bounce back has been vigorous." Paul Krugman wrote in 2004 that the Reagan boom was really nothing special because: "You see, rapid growth is normal when an economy is bouncing back from a deep slump."

Mr. Krugman was, for once, at least partly right. How could Reagan not look good after four years of Jimmy Carter's economic malpractice?

Fast-forward to today. Mr. Obama is running deficits of $1.3 trillion, or 8%-9% of GDP. If the Reagan deficits powered the '80s expansion, the Obama deficits—twice as large—should have the U.S. sprinting at Olympic speed.

In any case, what Reagan inherited was arguably a more severe financial crisis than what was dropped in Mr. Obama's lap. You don't believe it? From 1967 to 1982 stocks lost two-thirds of their value relative to inflation, according to a new report from Laffer Associates. That mass liquidation of wealth was a first-rate financial calamity. And tell me that 20% mortgage interest rates, as we saw in the 1970s, aren't indicative of a monetary-policy meltdown.

There is something that is genuinely different this time. It isn't the nature of the crisis Mr. Obama inherited, but the nature of his policy prescriptions. Reagan applied tax cuts and other policies that, yes, took the deficit to unchartered peacetime highs.

But that borrowing financed a remarkable and prolonged economic expansion and a victory against the Evil Empire in the Cold War. What exactly have Mr. Obama's deficits gotten us?

[ccp]

From Doug's link from cognitive dissonance of the left moved here:

****No, Paul Krugman, WWII Did Not End The Great Depression
   
“There are three kinds of lies: lies, damned lies, and statistics.” – Benjamin Disraeli

It’s a recurring fantasy for left wing academics fascinated by central planning that in cyclical downturns government should act decisively on a scale equivalent to war. Nobel Prize recipient Paul Krugman exemplifies this intellectual longing to steer our lives.

Krugman effortlessly slides into a war footing espousing intervention comparable to America’s crusade against Hitler, who, take note, centrally planned an economy himself:

“World War II is the great natural experiment in the effects of large increases in government spending, and as such has always served as an important positive example for those of us who favor an activist approach to a depressed economy.”

After WWII until its glaring failures manifest in the Seventies, Keynesianism inundated economic thought. Paul Samuelson’s textbooks became mainstays across the academy. Samuelson championed mathematical analysis, which transformed macroeconomics into a pseudo science spawning waves of budding planners infatuated with statistics.

From this basis the myth prevails that WWII finally overcame the Great Depression. History has revised Hoover, easily the most meddlesome peacetime president before FDR, into a laissez-faire reactionary. The New Deal – a disastrous example of everything not to do during downturns became beneficial, only it supposedly wasn’t aggressive enough.

Hoover tinkered with the economy throughout his term. The Smoot-Hawley Act of 1929 launched the trade war many believe precipitated the stock-market crash and the Depression. Then, fearing falling prices, he signed Norris-LaGuardia, Davis-Bacon and other acts, formed business cartels and farming associations all striving to arrest falling prices. Hoover also authored massive public works as he increased federal spending by 50%.

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Bill Flax