Even worse, Geithner reiterated that the U.S. "will bring our fiscal position back to a sustainable balance."
Loosely speaking, our national income is equal to what we produce in any given year-- that is, GDP (Y). GDP may be broken down into private consumption (C), private investment (I), government consumption and investment (G), and trade surplus-- exports minus imports (X-M).
If we take national savings (S) to be income which is not consumed, then S=Y-(C+G)=I+(X-M). If "we haven't saved enough" then by definition we have insufficiently invested or we have too large a trade deficit. There is no escape from the iron grip of elementary mathematics.
In turn, national savings may be private or public, where public savings is taxes minus government spending. If the private sector suddenly decides to save more-- as they did with the collapse of the housing bubble-- then the public sector must save less. That is, budget deficits must rise.
As a matter of pure accounting, there are exactly the two ways to avoid large government deficit. One is for private investment to rise. Unfortunately, unemployment is at 9.6 percent and capacity utilization is low. Businesses have no incentive to invest in more capital when they have existing capital already going to waste. The only other way to avoid increasing government deficits is to increase net exports. Econ 101 says the dollar must fall relative to other currencies in the world.
So when unemployment is high, capacity utilization is low, and devaluation is unprincipled, what is left to do to increase national savings? Declare war on algebra?
As for Geithner, he has a little more wiggle room, reportedly declaring that the fiscal consolidation will wait until the recovery strengthens. Currently, CBO projects unemployment to average 9 percent next year and finally fall below 8 percent... sometime in late 2012.
There has been a serious effort by many on the right to claim that public sector workers are overpaid. The typical way that critics make this argument is to simply compare the average wage of workers in the public sector and the private sector. This comparison does indeed show that public sector workers are paid more than private sector workers.
However, this comparison is highly misleading, as any serious analyst would quickly acknowledge. Public sector workers on average have more on-the-job experience and are far more likely to have college degrees (think teachers and nurses) than the workforce as a whole. Several analyses have compared the pay of public sector workers with their private sector counterparts and found that private sector workers actually enjoy a small pay premium. (For example, see the studies from the Center on State and Local Government Excellence, the Center for Economic and Policy Research, and the Economic Policy Institute.)
Andrew Biggs, an economist at the American Enterprise Institute, has responded to these studies by arguing that public sector workers are still overpaid, if we properly account for the cost of public sector pensions. Biggs argues that these studies failed to note that public pension funds currently have large shortfalls. This means that current contributions for pensions, which were used in the recent comparisons of public and private sector compensation mentioned above, are the inappropriate measure.
Biggs argues that an accurate analysis would include the additional contributions needed to make up the pension shortfalls. In the case of the state of California's pension funds, which have one of the largest shortfalls, Biggs calculates that factoring in the under-funding of the pension would increase a 2 percent wage premium for public sector workers to a 10 percent premium.
But, there is a serious problem with this analysis. The main reason that public pensions are under-funded is not that states have grossly underpaid for their workers pensions. Rather, the problem is that state and local pension funds got zapped by the stock market plunge and the economic crisis. If state and local pension assets had grown at just a 5.0 percent nominal rate (modest by histrical standards) from their levels at the end of 2007, they would stand at more than 3.6 trillion today, 41.3 percent above their actual level at the end of the second quarter of 2010. This would leave the pension funds close to being fully funded.
In short, pensions are facing shortfalls today because they were hit by bad luck. We can ask why the pension funds were so foolish as to not recognize the risks of investing with Wall Street. For what it is worth, some of us did try to warn them. But, this bad luck has nothing to do with the workers’ pay. It is like saying that a cancer patient is overpaid because his employer-paid health insurance plan spends lots of money on cancer treatment. The issue is not the actual payment for the specific worker’s health care. The relevant question is how much should we have reasonably expected pensions to cost the government. By this measure, the state contributions are a reasonably good estimate.
So, this boils down to yet another case of the Wall Street crew trying to use the disaster that they themselves generated to force cutbacks in the living standards of ordinary workers. File it under “what did you expect?”
The ad campaign of course is intended to promote more redistribution. It is about taking away the Social Security benefits that ordinary workers have already paid for in order to keep down the taxes paid by the Peter Peterson Wall Street banker types.
The great part of the story is that Peterson's crew claims that taking away workers' Social Security will help their children and grandchildren. That might fool a highly paid Washington pundit, but not anyone who works for a living.
As anyone who ever looked at the Social Security Trustees Report or the Congressional Budget Office's projections knows, we can easily afford Social Security. What we can't afford is the endless thievery of the Peterson Wall Street crowd.
USA Today has a big, front-page story today reporting that the "number of federal workers earning $150,000 or more a year has soared tenfold in the past five years and doubled since President Obama took office."
The piece provides a lot of useful numbers, but is short on context. As written, headlined, and positioned in the paper (the biggest story in the paper today), I'm concerned that the story will be used primarily as ammunition to argue that federal workers are overpaid.
First, some of the key numbers in the piece are not adjusted for inflation. The chart accompanying the text shows the share of workers who made more than $150,000 per year in 2005 --in 2005 dollars-- and then shows the share who made more that $150,000 per year in 2010 --in 2010 dollars. Even if federal salaries had not increased at all in inflation-adjusted terms over those years, salaries would have been about 12 percent higher in 2010 than they were in 2005 (that was how much inflation there was between 2005 and 2010). This would have pushed workers who were as much as 12 percent below each of the various salary cutoffs above those cutoffs, even if there had been no increase in their after-inflation pay. This effect may or may not be important here, but it is impossible to tell from these data. At the very least, USA Today should have noted that the figure did not adjust for inflation.
The White House and Monster.com, the job search website, teamed up yesterday to launch a new initiative to save the job market. According to Monster.com, the goal is to let job seekers have a voice in the debate.
Here’s a better idea - how about providing workers who are currently employed with more employment security and a greater chance of keeping their jobs?
The U.S. is a dynamic market economy that both creates and destroys millions of jobs every month. Job growth has been anemic over this recovery because nearly as many jobs have been killed each month as have been created. According to numbers released this morning by the Labor Department, 4.2 million people were newly hired in September 2010, while 4.2 million quit, retired, or were let go by their employer. About half of these, between 1.8 and 2.6 million workers each month over the last year, are laid off or discharged by their employers – about 24 million workers a year.
In the next month we will see reports from three commissions on what we should do about the budget deficit. The remarkable aspect of these commissions is that they are composed entirely of people who were unable to see the $8 trillion housing bubble, the collapse of which wrecked the economy. In fact, the commission members think that their prominent role in driving the economy to ruin makes them especially qualified to tell the rest of us what we should do with Social Security, Medicare, and other key programs.
There is no reason that we should have affirmative action for ignorance.
Someone who could not see the onset of the biggest economic disaster in 70 years obviously has little grasp of basic economic relationships.
These are not the sort of people who should be setting economic policy.
Furthermore, the timing of these reports are an incredible insult to the American people. We have elections to decide items like the future of Social Security and Medicare. If the members of these commissions were acting in good faith they would have issued their reports three months ago with the goal of having them feature prominently in the election debate.
Instead these commissions hope to act in the darkness, pushing their agenda among inside Washington circles outside of the view of the electorate. Congress should absolutely do nothing on any of these commission reports until at least January when the new Congress takes power. Then, it can have committee hearings and have the issued aired in full public view. That is the way things work in a democracy.
This article originally appeared on POLITICO's Arena Digest.
In the early years of the past decade, two hard-line Cold Warriors, closely associated with radical Cuban exile groups in Florida, occupied strategic positions in the U.S. foreign policy machine. Otto Reich, former head of the Reagan administration’s covert propaganda operations in Central America, and Roger Noriega, co-author of the 1996 Helms-Burton Act, took turns running the State Department’s Bureau of Western Hemisphere Affairs and held other influential administration posts such as ambassador to the Organization of American States and White House Special Envoy to the Western Hemisphere.
During their years of tenure in the George W. Bush Administration, they led a zealous crusade against left-leaning governments in the region and, among other things, actively supported a short-lived coup d’Etat against Venezuelan President Hugo Chavez in 2002 and a successful coup against President Jean-Bertrand Aristide of Haiti in 2004. Ultimately, their extreme views and outrageous antics on the international stage proved to be too much of an embarrassment even for the Bush Administration, and they both eventually were relieved of their government jobs well before the end of Bush’s term.
Now, as a result of the Nov. 2 elections, another duo of a similar ilk is poised to re-set the legislative agenda on Latin America in the House of Representatives. Cuban-American representative Ileana Ros-Lehtinen is expected to replace Howard Berman as chair of the House Foreign Affairs Committee and eternally tanned Congressman Cornelius McGillicuddy IV -- otherwise known as Connie Mack -- is slated to take the reins of the Foreign Affairs Subcommittee on Western Hemisphere.
The Washington Post’s Jackson Diehl has enthusiastically celebrated the ascension of these two South Florida legislators, heralding Ros-Lehtinen as a “champion of Cuban human rights” and stating triumphantly that “one big un-American loser” of the US legislative elections will be Cuban president “Raul Castro.” To see whether there is in fact cause to celebrate, let’s have a closer look at the track records of our two protagonists.
The economy added 151,000 jobs today, twice the consensus forecast. Relative to the experience since December 2007, when the recession officially got under way, that is great news. But, we have dug ourselves into a very deep hole and the potential labor force continues to grow every month as the population grows.
As Tessa Conroy and I pointed out in a CEPR report (pdf) this summer, even if the economy were to create jobs at a rate of 166,000 per month –the job creation rate in the weak expansion of the 2000s and about 10 percent faster than today’s number– we would not return to the December 2007 employment level until March 2014 and we wouldn’t return to the December 2007 unemployment rate until 2021.
The unchanged unemployment rate today — at 9.6 percent, where it has basically been since May — is a stark reminder that we need high and sustained job creation to bring the unemployment rate down.
The economy added 151,000 jobs in October, the biggest increase since May, but the employment-to-population (EPOP) ratio still fell by 0.2 percentage points to 58.3 percent, according to the latest Bureau of Labor Statistics' employment report. The pace of job growth is about 50,000 above what is needed to keep even with the growth of the labor market. However, at this rate it would take more than 15 years to make up the job shortfall from the downturn. At least the economy is moving in the right direction.
The decline in the EPOP, which is just above the 58.2 percent low reached in December of last year, was primarily due to a falloff among whites. The EPOP for white men fell by 0.4 percentage points to 67.7 percent, just 0.3 percentage points above the low hit last December. The EPOP for white women fell by 0.3 percentage points to 53.3 percent, a new low for the downturn and the lowest EPOP for white women since October of 1993. By contrast, blacks saw a modest increase in their EPOP from 51.7 percent in September to 52.4 percent in October. In the report for September, the EPOP for black men aged 20 and over had fallen 0.5 percentage points in the month and 2.6 percentage points for African-American teens.
Kevin Drumat Mother Jones posts this graph, which he rightly calls: “The Most Important Social Security Chart Ever.” As Drum writes: “What’s important is that, unlike Medicare, Social Security costs don’t go upward to infinity.They go up through about 2030, as the baby boomers retire, and then level out forever. And the long-term difference between income and outgo is only about 1.5% of GDP. This is why I keep saying that Social Security is a very manageable problem.”
Coping with the Social Security shortfall is even easier than the chart suggests. In 2030, after adjusting for inflation, average income in the United States will be almost 50 percent higher than it is today (assuming a fairly modest two percent growth in real GDP per person); even if growth is painfully slow by historical standards (say, one percent per year), average incomes will be 20 percent higher in 2030 than they are today.
So, in 2030, when the gap between Social Security costs and revenues hits 1.5 percent of GDP, we’ll have to pay that 1.5 percent out of a much larger income than we have today. Even after making up the Social Security shortfall, future Americans will still be substantially richer than we are today.
(Of course, all of this analysis is “on average.” If we continue to grow as unequally as we have for the last 30 years, the typical worker might not be much better off in 2030 than he or she is today. But dealing with inequality is a separate issue, and cutting Social Security would only make inequality worse.)
The front page of the business section of the New York Times featured this headline today: Bernanke’s Reluctance to Speak Out Rankles Some. The article states that Bernanke is "reluctant to prominently voice" his private support for more stimulus spending to support the economy. At several points, the reporter opines about Bernanke's reasons for, and success at achieving, such restraint:
What is clear is that Mr. Bernanke is intent on not embroiling the Fed in a partisan brawl, and that he believes the central bank should weigh in on fiscal policy in only the broadest terms
But Mr. Bernanke, who was confirmed to a second term in January by an uncomfortably narrow margin, has been adroit in avoiding fiscal controversy.
And he selects this quote from Bernanke's House testimony in September:
“I’m reluctant to take positions on specific tax and spending measures,” he told Representative Spencer T. Bachus of Alabama, the top Republican on the House committee that oversees the Fed. “I’m sure you can understand my position on that.”
Perhaps the reporter doesn't remember Bernanke's infamous "Willie Sutton" Senate testimony in December 2009? Picked up by outlets as varied as the Huffington Post and the Wall Street Journal, Bernanke very clearly inserted himself in fiscal contoversy by taking a specific position on spending. John Judis at the New Republic posted the relevant statement:
MR. BERNANKE: And on the spending side again, you know, Willie Sutton robbed banks "because that's where the money is," as he put it. The money in this case is in entitlements. Those are the programs which are growing. At the rate we're going in about 15 years the entire federal budget will be entitlements and interest and there won't be any money left over for defense or any of the other activities. So clearly we're facing a very difficult structural problem in that we have an aging society and rising health care costs, and the government has very substantial obligations.
I'm not in any way advocating unfair treatment of the elderly who have, you know, have worked all their lives and certainly deserve our support and help, but if there are ways to restructure or strengthen these programs that reduce costs, I think that's extraordinarily important for us to try to achieve.
It seems the New York Times either doesn't have the fact-checking ability to find the Bernanke's "Willie Sutton" testimony, or it chose to ignore it in order to promote the myth of Bernanke's wise restraint from tax and spending debates. Either way, I'm disappointed in my hometown paper (and the Newspaper of Record).
While inventories grew at a $115.9 billion annual rate in the third quarter — the highest increase since the first quarter of 1998 — the latest Bureau of Economic Analysis report suggests a picture of an economy that may be skirting zero growth in the next two quarters. Final demand growth, which excludes fluctuations in inventories, was just 0.6 percent in the third quarter. It has averaged just 1.0 percent in the five quarters since the recession officially ended in the second quarter of 2009. It's unlikely the rate of inventory accumulation will accelerate even more in future quarters.
A major contributor to growth in the third quarter was consumption, which grew at a 2.6 percent annual rate and added 1.79 percentage points to GDP growth. Housing and utilities added 0.42 percentage points to growth, almost one-fourth of the contribution from consumption. This is likely due to utilities, since an unusually hot summer resulted in a larger household demand for energy.
House prices have resumed their decline following the end of the first-time homebuyers tax credit, dropping 0.2 percent in August, according to Case-Shiller 20-City Index. The drop was led by a decline in the prices of homes in the bottom tier of the Case-Shiller index, and prices for homes in the bottom third of the housing market fell for all cities listed in the index. For several cities, the drop was quite sharp. In Tampa, prices in the bottom tier fell 3.1 percent, and in Washington — which has a relatively strong market overall — they fell 2.2 percent.
This is exactly what should have been expected given the end of the first-time buyers tax credit. The credit had a disproportionate effect on homes at the bottom end of the market, both because first-time buyers were more likely to be buying relatively low-cost homes and also because the credit is a larger share of the sale price of lower-cost homes.
In the midst of a particularly busy and nail-biting election season, 30 congressional Democrats have taken time to focus on an issue that isn’t on anyone’s campaign agenda: the appalling state of democracy and human rights in Honduras. In a letter sent to Secretary of State Hillary Clinton on Oct. 19, California representative Sam Farr and 29 of his House colleagues urged the Obama Administration to reverse its current policy towards Honduran president Porfirio Lobo, elected late last year in a controversial vote held five months after a military coup d’Etat that shook the entire region.
The letter describes a few of the recent killings of opposition activists and journalists –largely unreported in the U.S. media – that are part of the latest wave of politically motivated attacks that have taken place since last year’s coup. Citing a “distinct pattern of political violence” in Honduras, the letter calls for the suspension of U.S. aid to Honduras, particularly police and military aid, until the Lobo government “distances itself from individuals involved in the June 28, 2009, military coup and adequately addresses the ongoing human and political rights violations.”
In addition, the 30 representatives – who include notable human rights advocate Jim McGovern, Black Caucus chair Barbara Lee, and Progressive Caucus Co-Chairs Raul Grijalva and Lynn Woolsey – ask the administration to “refrain from supporting the immediate re-entry of Honduras in the Organization of American States.”
For Wall Street’s big banks and the people who run them, the economic crisis is over. While Main Street struggles and the unemployment rate remains close to 10 percent, bank profits are back to pre-crisis levels, and the salaries and bonuses of executives at the nation’s top domestic banks are again at near-record highs. This week, with the agreement of top U.S. bank regulators, JPMorgan Chase and Citigroup announced plans to let shareholders in on the party. The banks are set to increase dividends or buy back shares of their own stock to boost share prices.
The banks argue that they’ve repaid their debt to Uncle Sam and should be allowed to get back to business as usual – which, as usual, means enriching themselves. But they forget that the financial crisis cost Americans far more in lost jobs and income than the price of the taxpayer bailout. The country still faces $730 billion in lost output in 2010 as a result of the economic crisis. It’s time to get serious about reining in the big banks and other large financial institutions. Raising their taxes would be a start.
Congress and President Obama should be pushing for regulators to impose a foreclosure moratorium until they can be sure that a system is in place that ensures that rules are being obeyed and the law is being followed. Clearly such a system does not exist today.
This is not a radical step. Bank of America, JP Morgan, and Ally Financial all announced moratoriums because they recognized that their internal systems were not working. There is no reason to believe that other servicers are doing any better.
Government regulators must take an active role in supervising this process. The idea that we should "trust the banks" at this point is too silly to be taken seriously.
We need to know that banks are following the proper procedures. That if they move to foreclose that they in fact have the right house, that the mortgage debt is actually owed, that no penalties or fees have been illegally tacked on, and that all the paper work has been done properly.
We have had enough liar liens. The banks should have to follow the rules like everyone else. A moratorium on drilling to make sure that it was being done safely was the right move after the BP oil spill. We need a similar moratorium to ensure that foreclosures are also being done safely and by the law.
This article originally appeared on POLITICO's blog, The Arena.
An estimated 3.5 million homes will be lost by the end of 2012, on top of 6.2 million already lost... Attorneys general in all 50 states have pledged a coordinated investigation into chaotic foreclosure practices by some of the nation’s largest banks. The Department of Justice is also looking into what happened, while some lawmakers are now calling for a nationwide moratorium on all foreclosures until the legal questions are settled. The Obama administration is insisting such a broad delay would hurt the economy.
Several of the largest lenders, including Bank of America and JP Morgan, thought they had to slam on the brakes to make sure the foreclosure process is being dealt with correctly. If they are concerned, the rest of us should be, too...
It is hard to find a good argument against a moratorium. The claim that it would be a disaster for the housing market is utter nonsense. Real-estate experts have been talking for the last two years about the huge "shadow inventory" of foreclosed homes that banks have held off the market. If the pipeline of newly foreclosed homes were temporarily stopped, they would just sell out of this shadow inventory.
Although the potential for chaos in the housing market and on bank balance sheets is rightly feared, there's an opportunity here, too... Here are four ideas kicking around the community of experts who follow the housing market...
Right-to-rent: Under a right-to-rent program, foreclosed homeowners would have the option of renting their home at fair-market value for five years. This means less disruption for them and fewer vacant properties blighting communities. Fannie Mae has been attempting a variant of this, but on a very small scale.
We should expand the program, particularly in areas where the housing market is extremely depressed. "It's got to be better than just throwing people out onto the street," says Dean Baker, the director of the Center for Economic and Policy Research. "The bank would be getting rent. They could sell the property, though it might have a tenant for five years. But given the situation these people are in, it's a bare minimum the government could do."
Even as the Consumer Price Index rose 0.1 percent in September, the price of used cars actually fell 0.7 percent — the first time it has experienced such a fall since leading up to the beginning of the cash-for-clunkers program last summer. While it's only a single month of data, the drop might signal the end of the tight supply of used cars resulting from the program, which removed nearly 700,000 used vehicles from service. The acceleration and deceleration in prices resulting from cash for clunkers can be seen in this Graphic Economics post. Even with the rapid rise in prices over the last 17 months (19.2 percent), the price of used cars remains 9.5 percent below the 2001 peak.
Over the last three months, overall prices have grown at a 2.7 percent annualized rate. The core CPI remained unchanged over the month and has now grown at a 0.7 percent annualized rate since June. Major price categories have seen decelerating prices over the last three months, including housing and transportation, but inflation in recreation, education and communication, and other goods have also fallen in recent months.
There is so much that is troubling and wrong with Harvard economist Greg Mankiw’s op-ed in Sunday’s New York Times that it is hard to know where to start. His piece warns that if the Bush tax cuts for those who earn more than $250,000 a year –as he does– are allowed to expire later this year, then he will work less.
To make his point, Mankiw compares what will happen if he earns an extra $1,000 (for writing an article such as his New York Times column) and invests the proceeds at an 8 percent real rate of return for 30 years, under two different circumstances. In the first case, he lives in a world where no one pays any taxes on anything. In the second case, we have the tax structure that will be in place after the Bush income tax cuts on top earners sunset and health-care reform related tax increases kick in.