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.
Aaron Carroll at The Incidental Economist has posted this very scary graph: Health care spending as a share of GDP in the OECD
Click for Larger Image, Source: The Incidental Economist analysis of OECD data.
Back in the late 1970s, US health-care costs as a share of GDP looked a lot like those of the rest of the world’s rich democracies. At about 8 percent of GDP, US health-care expenditures were at the high-end, but still very much in the pack. Since then, health-care costs have crept up everywhere, but the United States has broken away away from the rest. We now spend about 16 percent of (a much larger) GDP.
In and of itself, spending more on health care is not a bad thing. But, we spend a lot more money and still manage to leave about 15 percent of our population with no health insurance and another important chunk with inadequate insurance (annual limits, life-time limits, treatment exclusions, poor coverage for preventive care) or conditional coverage (lose your job –say, because you’re sick– and you lose your coverage). All of the other rich countries on the list (Chile, Mexico, and Turkey are the exceptions, but not so rich) provide universal coverage. And it isn’t like we have dramatically better health outcomes –either compared to 30 years ago or to the other rich countries in the graph.
Interestingly, we are the only rich country that finances a majority of health-care in the private sector. The rest finance health care expenditures through universal government programs. In some countries, such as the United Kingdom, the government also directly provides care; but, in most, the government finances the care, which is then delivered primarily by the private sector, much like the US Medicare system. (Interestingly, since 1970, Medicare costs have increased one-third less than those of private insurers.)
The unemployment rate held at 9.6 percent in September, despite a loss of 95,000 jobs — 77,000 of which were temporary Census positions. Including downward revisions in payroll employment for July and August, there are 110,000 fewer jobs than reported one month ago. While the overall unemployment rate did not change, the employment-to-population ratio (EPOP) of different populations were not similarly affected. White adults saw relatively little change in their EPOPs (-0.1 percentage points for men, 0.1 percentage points for women), but the EPOP for black men age 20 and older fell 0.5 percentage points and 2.6 percentage points for black teens.
The change in EPOP for black teens is particularly striking since only 16.2 percent were employed as recently as May. Ten years ago, 29.5 percent of black teens were employed compared with 11.7 percent in September. The overal EPOP in September was unchanged at 58.5 percent.
Neil Irwin posted a great set of graphs yesterday on the US “output gap” (the difference between the amount of goods and services the economy is actually producing and what the economy could be producing if it were operating at full capacity). He uses a nice interface to build a fairly complicated final image, starting from a simple line graph of the estimated “potential output” at full capacity:
Source: Neil Irwin. (click for larger image)
then adding the actual level of output:
Source: Neil Irwin. (click for larger image)
and, eventually, the actual and potential output through 2020, under different growth scenarios:
Source: Neil Irwin. (click for larger image)
One thing I like about the graphs is that they are high-tech, output-focused analogs of the series of employment-focused graphs that Tessa Conroy and I produced in the summer (earlier blog post here, full paper in pdf format here). Tessa and I also used a series of increasingly complicated graphs to build up to our punchline (which was, like Irwin, that anything short of very robust and sustained growth, starting soon, spells long-term trouble for the labor market). Irwin also makes excellent use of short text descriptions of key features in each graph, something that we didn’t do in our paper.
It was striking at the DC conference on America's Fiscal Choices that liberal economist Paul Krugman and conservative economist Martin Feldstein agreed the country urgently needs a really big stimulus – three times the size of the 2009 stimulus – to fill a $1 trillion dollar GDP gap.
Paul Krugman said he expects rising unemployment over the next few months, and not much improvement in 2011. Asked when the economy would return to full employment, he responded that – absent some very big event – the “maximum likelihood estimate” for a return to full employment was “never.” To improve the jobs situation, Krugman wants policy makers to “do everything you can,” including a big monetary and fiscal stimulus to get private investment going.
That is what the young George Washington would have told his father if he had been an economist. If anyone ever doubted that the economics profession is chock full of a bunch of shameless incompetents, the current situation proves them wrong.
We are sitting in the middle of the worst economic disaster in 70 years entirely because the economists in positions of responsibility (e.g. Alan Greenspan, Ben Bernanke, the Bush Administration economists, the Congressional Budget Office economists, and the vast majority of professional prognosticators cited in the media) could not see an $8 trillion housing bubble.
This is worth repeating a few hundred thousand times. Tens of millions of people are facing the loss of their jobs and/or their homes because bozos with Ph.Ds in economics could not do their job. And none of the bozos got fired for their incompetence. Most are still making 6 or 7 figure salaries.
CEPR senior economist John Schmitt testified on Thursday in front of the Congressional Out of Poverty Caucus on "An Emergency Response to the Crisis of Poverty in America: Understanding the Crisis and Refocusing the Fight." In his testimony, (see his full statement here) John pointed out that:
[E]ven before the Great Recession, the poverty rate was high by historical standards... at the peak of the last business cycle in 2007, one in eight people in this country had an income that we would have considered to be poor a half a century ago. Over the last thirty years, even as the economy grew by almost 70 percent per person, the share of the population that we judge to be poor has actually increased....
But even if we could restore – overnight – the economy to where it was in 2007, poverty would still be unacceptably high. Fortunately, we already know how to lower poverty dramatically. In the 1960s, in less than a decade, we cut poverty by almost half. The keys were economic institutions that linked workers wages and benefits to overall economic growth, and the expansion of the social safety net...
Economic analysts from the White House, to the non-partisan Congressional Budget Office, to former John McCain adviser Mark Zandi all tell us that the February 2009 stimulus package has created millions of jobs. Without those measures, poverty would have increased even more than it did in 2009. But, we now know that the stimulus program put forth in early 2009 was just not big enough. The single most important step we could take to combat poverty in 2011 is to implement a large -scale stimulus and jobs program today.