Before we proceed today, let’s take note of a couple of things.
One, President Obama has made an executive decision to freeze federal payrolls for 2 years at a savings of $5 billion over those two years. Good for him. Of course the left is outraged, disingenuously claiming this will adversely effect jobs and the economy. Hardly.
While that money won’t be available to be spent by federal employees, it won’t be borrowed either. Or, it won’t be taken from the pockets of taxpayers who can now spend it directly on creating jobs or buying goods.
"Saving" the money doesn’t make it disappear, it simply means federal employees won’t be spending it (those who earned it will) or we don’t add $5 billion to the deficits of those 2 years.
Bigger political question? Is this actually an act of triangulation? Are we seeing this as the first indicator of an administration attempting to move to the center by getting out in front of the GOP on something? Doing this before the big bi-partisan meet today between Obama and the GOP gives Obama the advantage of saying "OK, I’ve done something to reduce the deficit, what about you" (to which the GOP can say "earmarks"). Whether this is a political anomaly, just gimmickry or an actual move toward the center remain to be seen.
And two, on the GOP side, and in front of the meeting today, John Boehner and Mitch McConnell got their talking points out in an op/ed in the Washington Post. In sum they say the overwhelming message from the election says focus on jobs and the economy.
Perhaps the most important paragraph in the piece was this:
Despite what some Democrats in Congress have suggested, voters did not signal they wanted more cooperation on the Democrats’ big-government policies that most Americans oppose. On the contrary, they want both parties to work together on policies that will help create the conditions for private-sector job growth. They want us to stop the spending binge, cut the deficit and send a clear message on taxes and regulations so small businesses can start hiring again.
I think that’s mostly right. Cooperation for cooperation’s sake isn’t what is being demanded. Cooperation with a focus on jobs and the economy is. And it is also clear, as Boehner and McConnell state, that the American public wants some sort of workable plan to stop the huge deficit spending and to settle the business climate to the point that corporations and small businesses feel confident enough in it to begin hiring and expanding again. That means settling any number of outstanding issues like proposed tax increases.
Bottom line? Don’t expect much cooperation from either side on things like energy, immigration, health care and the like except at the very margins. However, there seems to be some signaling from Obama that he may be interested in more substantial cooperation when it comes to the jobs, economy and government spending/taxation. If so, it would mean that Obama has set his cap for reelection in 2012 and believes that this is the route to accomplishing that (engage the GOP, give a little here and there, do high profile things like freeze government worker pay, and hope the economy and unemployment improve fairly significantly in the next 2 years so he can claim credit).
My guess is he now realizes that his agenda items are DOA. But I also think he’s satisfied that what he has managed to get passed (ObamaCare and the like) is probably pretty safe from GOP meddling. So he’s defining the area in which he’ll work and essentially demanding the GOP cooperate. It will be difficult for the GOP to refuse that.
It is going to be interesting to watch the two sides maneuver over the next two years. In ‘94 much the same sort of situation existed. Bill Clinton was deemed irrelevant. He came roaring back via smart politics and GOP mistakes to be reelected easily.
We’ve already talked about the new narrative the left is trying to impose – the “GOP in charge” narrative, in which the GOP will be tagged with every failure of government even though Democrats still control the Senate and Executive branch. But that won’t matter if the GOP House moves aggressively to do what Boehner and McConnell outline in their op/ed. Make Democratic Senators defeat GOP House legislation. And if it manages to get through the Senate, make Obama veto it.
Obama claimed that the difference between ‘94 and ‘10 midterms was “you’ve got me”. That led to the worst “shellacking” in recent memory and much worse that ‘94. Another difference between ‘94 and ‘10 is the new media. If the GOP sticks with its guns, makes every attempt to carry out what it said is the people’s message and is thwarted by the Democrats, that story will actually be told.
It will indeed be interesting to see how the big meeting goes today. I don’t expect much in terms of substance, but if Boehner and McConnell are smart they’ll essentially relay their op/ed message to Obama and then stand back and see how he chooses to react.
For the moment, popular sentiment is on the side of the GOP. They need to retain it by actually doing something. If they don’t and the left succeeds in painting them in a negative way, 2012 could see the backlash from hell, 4 more years of Obama and possible Congressional gains by Democrats.
[ad] Empty ad slot (#1)!
In case you’re interested a group of progressive think tanks has produced an eighty-something page deficit reduction proposal. Paul Krugman says he’ll have to study it, however:
It’s at least as responsible as any of the other plans being advanced, with a very different emphasis: more reliance on revenue, no attack on Social Security. Some of the revenue comes from indirect taxes — green taxes and fuel taxes — but the rest comes from measures that would raise taxes mainly on upper-income Americans.
I guess agreement or disagreement rests in your definition of the word “responsible”. Let me just say I disagree. A quick look at the plan (here, PDF) shows it’s pretty much the same old stuff. Cap-and-trade, raise the income cap on Social Security, tax the crap out of the “rich”, an increased fuel tax and keep at least 50% of the electorate off the tax rolls. Meantime cut the bejesus out of defense spending – one of the few actual constitutionally allowed federal government expenditures – and lay all those “savings” on health care and infrastructure.
Well here, let’s use their own 5 step plan:
1. Jobs first. Jobs and economic growth are essential to our capacity to reduce deficits, and there should be no across-the-board spending reductions until the economy fully recovers. In fact, efforts to spur job creation today will put us on a better economic path and create a solid revenue base. We believe there should be no consideration of overall spending reductions until unemployment has fallen to 6% and remained at or below that level for six months (Irons 2010a).
No “across-the-board spending reductions” until the economy fully recovers. Really? So the assumption here is in many areas of government, there is no “fat” that can be cut and thereby reduce spending? That’s just nonsense and it puts into immediate question the credibility of this report. Of course, unsurprisingly defense is not one of those areas which shouldn’t see such across the board spending cuts.
So immediately we have a “keep spending” recommendation until they deem the economy to be fully recovered (what’s that point, 5% unemployment? 3% GDP growth?) with economic predictions saying that we may not see joblessness reduced significantly by 2012. So far, unimpressed.
2. Stabilize debt. Over the long term, national debt as a share of the economy should be stabilized and eventually brought onto a downward trajectory.
Well duh. The key question here, given the “let’s keep spending” recommendation above is what constitutes the “long term”? My guess is “never”.
3. Build on economy-boosting investments. We must build and maintain initiatives that directly support long-term job and economic growth. Failing to invest adequately in these efforts – or sacrificing them to short-term deficit reduction – would be a dereliction of sound public management.
Are you snickering yet? Or are you already in the full out belly laugh mode? If you are then you spotted the code words to “keep on spending” didn’t you? So we have goal 1 – keep spending until the economy recovers and goal 3 – keep spending, er “investing” in stuff that will directly support “long-term job growth” even at the expense of deficit reduction. But, wait, goal two – stabilize that debt folks. How do you do that in light of 1 and 3?
4. Target revenue increases. Revenue increases should come primarily from those who have benefited most from the economic gains of the last few decades.
Tax the rich. Wow … that’s new. Don’t forget cap-and-trade and increased federal fuel “fees” as well.
5. No cost shifting. Debt reduction must be weighed against other economic priorities. Policies that simply shift costs from the federal government to individuals and families may improve the government’s balance sheet but would worsen the condition of many Americans, leaving the overall economy no better off.
See unfunded mandates. See ObamaCare. See any number of “target revenue increases”. See the nonsense?
Krugman goes on to say:
I’ll need to work through the proposal, but one thing it clearly does is to explode the myth that there is no alternative to the Bowles-Simpson-type regressive proposal.
What myth? Did anyone honestly believe (or say) there wasn’t an alternative? The fact that one exists doesn’t make it worth a damn though. It simply exists. Lots of “alternatives” exist for all sorts of things. The fact that they exist doesn’t make them credible or viable. And my cursory reading of this paper presents nothing new and most of which has already been rejected by much of the American public.
And my favorite:
And it’s definitely worth noting that even with the revenue measures in the progressive plan, the US would have lower overall taxation than almost any other advanced country.
You mean like Greece and Ireland, Paul? Japan?
What a ridiculous argument for paying more taxes. The problem in America, Mr. Krugman, isn’t that Americans are taxed to little – its because the politicians in our government spend too freakin’ much. There’s not much in that plan that addresses that basic problem, is there? And that’s why it’s as worthless as Krugman’s commentary.
[ad] Empty ad slot (#1)!
I‘m always cynically amused by lead sentences like this from the supposedly unbiased media.
Unemployment is set to remain higher for longer than previously thought, according to new projections from the Federal Reserve that would mean more than 10 million Americans remain jobless through the 2012 elections – even as a separate report shows corporate profits reaching their highest levels ever.
Of course one has zippity do dah to do with the other. The reason corporate profits are reaching their highest levels ever is because corporations that have survived the recession have done so paring down to a "lean and mean" status by dropping headcount, closing unneeded facilities and cutting spending. Those workers that are still employed are what are necessary to carry the corporation forward in the financial situation and business climate we find ourselves in now. As the economy slowly picks up steam and additional headcount can be justified by additional business, it will be added. But, as we all know, employment is a lagging indicator – i.e. profits and such are going to go up before headcount goes up.
But there’s going to have to be a definite, traceable, unmistakable upward trend with a demonstrable increase in business before corporations add headcount again in the present business climate. And given what this administration and the 111th Congress have done – make war on American business – few are inclined to do that.
So? So it stands to reason that employment is down and will probably stay down until corporations and businesses see a much friendlier and stable business climate than they’re seeing now.
We haven’t been writing about the hostile climate here for our health or amusement. But as can be witnessed here, the subtle yet telling attempt to shift the blame is found in the first sentence. If only greedy corporations would simply start hiring instead of amassing profit, why everything would be peachy keen and our man in the White House wouldn’t be looking at the probability of high unemployment in 2012.
So prepare yourself to see these sorts of exercises in blame shifting at regular intervals over the next couple of years.
Even as conditions are likely to remain miserable for job seekers for years to come, an extraordinary bounce-back is underway in the nation’s corporate sector, with profits rebounding 28 percent over the past year to an all-time high in the third quarter.
Without this narrative, which the entire left and a good portion of the middle will swallow whole, the administration and Democrats haven’t an identified enemy with which to wage political war – and that, of course, is part of our problem now.
[ad] Empty ad slot (#1)!
Personally I think of Steve Benen as a bit of a lightweight when it comes to political analysis. But he can be counted on to faithfully repeat the left’s talking points, or absent that, come up with some off the wall theory (sometimes involving conspiracy) to try to explain and demonize the right. A recent wig out involves a vast conspiracy of right-wingers who want to see the economy stay sickly for political purposes. And it is all because, as he implies, the right-wingers "actively dislike the United States".
NONE DARE CALL IT SABOTAGE…. Consider a thought experiment. Imagine you actively disliked the United States, and wanted to deliberately undermine its economy. What kind of positions would you take to do the most damage?
You might start with rejecting the advice of economists and oppose any kind of stimulus investments. You’d also want to cut spending and take money out of the economy, while blocking funds to states and municipalities, forcing them to lay off more workers. You’d no doubt want to cut off stimulative unemployment benefits, and identify the single most effective jobs program of the last two years (the TANF Emergency Fund) so you could kill it.
You might then take steps to stop the Federal Reserve from trying to lower the unemployment rate. You’d also no doubt want to create massive economic uncertainty by vowing to gut the national health care system, promising to re-write the rules overseeing the financial industry, vowing re-write business regulations in general, considering a government shutdown, and even weighing the possibly of sending the United States into default.
You might want to cover your tracks a bit, and say you have an economic plan that would help — a tax policy that’s already been tried — but you’d do so knowing that such a plan has already proven not to work.
Does any of this sound familiar?
Does any of it sound familiar? In the context you’ve presented it, Mr. Benen – uh, no. It sounds contrived and fanciful – a wish a political hack would love to be true so he could use it to brand the opposition as unpatriotic and evil. Not that it being untrue will stop Mr. Benen from using such implications – this article is proof of that.
But you really have to suspend disbelief and pitch logic out the window to end up where Benen is with this particular piece. Cherry pick things that support your hare-brained thesis, give them a conspiratorial twist and bingo, you’re on your way to branding the opposition with something you’ve wanted to put on them for quite some time.
Benen then brings out some supporting fire:
Budget expert Stan Collender has predicted that Republicans perceive "economic hardship as the path to election glory." Paul Krugman noted in his column yesterday that Republicans "want the economy to stay weak as long as there’s a Democrat in the White House."
Got to love the hard hitting "Republicans "perceive" economic hardship as a path to election glory." Pure unsubstantiated speculation (unsupported by anything credible – certainly not Benen’s conspiracy theory nonsense). Always fun to see a Democratic operative speaking about “Republican perceptions”, something I’m sure he’s absolutely tuned in on.
Certainly the state of the economy has worked to the detriment of the Democrats, but concluding a continuing poor economy is of value to the Republicans completely misses the message of the midterm election. And as Benen demonstrates, as does Krugman for that matter, he missed the message too. Not that anyone should be surprised. The Democratic Congress missed it as well (see lame duck legislative priorities) as did the President.
Benen also turns to Matt Yglesias, a truly objective source, to give his batty theory some legs:
…I know that tangible improvements in the economy are key to Obama’s re-election chances. And Douglas Hibbs knows that it’s key. And senior administration officials know that its key. So is it so unreasonable to think that Mitch McConnell and John Boehner may also know that it’s key? That rank and file Republicans know that it’s key? McConnell has clarified that his key goal in the Senate is to cause Barack Obama to lose in 2012 which if McConnell understands the situation correctly means doing everything in his power to reduce economic growth. Boehner has distanced himself from this theory, but many members of his caucus may agree with McConnell.
Which is just to say that specifically the White House needs to be prepared not just for rough political tactics from the opposition (what else is new?) but for a true worst case scenario of deliberate economic sabotage.
Then it time for the cherry on top – liberal commenter Jonathan Chait:
Establishing motive is always very hard to prove. What’s more, the notion of deliberate sabotage presumes a conscious awareness that doesn’t square with human psychology as I understand it. People are extraordinarily deft at making their principles — not just their stated principles, but their actual principles — comport with their interests. The old Upton Sinclair quote — "It is difficult to make a man understand something when his salary depends upon him not understanding it" — has a lot of wisdom to it.
I don’t think many Republicans are actually trying to stop legislation that might help the economy recover because they know that a slow economy is their best route to regaining power. I think that when they’re in power, consequences like an economic slowdown or a collapsing industry seem very dire, and policies to prevent this are going to sound compelling. When you’re out of power, arguments against such policies are going to sound more compelling.
Really? Or is it, as has been the case with most of the legislation the 111th Congress has passed or attempted to pass, just abysmally bad law? Occam’s razor, Mr. Chait. Sometimes a cigar is just a cigar. In the case of the legislation passed by the latest Congress, sometimes crap is just crap.
But back on point, does anyone see what’s going on here? It is "victimhood" time on the left. They will still control the Presidency and the Senate next year, but they’re already setting up the "Republicans are evil and are really in control of the government, so whatever happens isn’t our fault" meme. Benen seems to realize that the current Congress and President have done an awful job with the economy. In fact, other than quickly throwing a few trillion dollars we don’t have at it (and which has seemingly had no measurable positive effect) they’ve ignored it for their ideological agenda items. And, because of that, and the obvious probability that the economy will not be in the shape necessary to give the President and Democrats a leg up in 2012, it is time to start switching the narrative and project the blame on the usual suspects.
And what better way to do that than to start yelling conspiracy theory (well sorta, kinda) and cobbling together disparate facts and fanciful rhetoric into dubious implications for a new narrative?
Premise: The Republicans are evil, only interested in regaining power (one assumes to finally destroy the nation) and will do whatever it takes to secure that power, to include sabotaging the economy. Why? Because they “actively dislike the United States”.
This from a group of people that actively worked for eight long years to sabotage (no conjecture here, the record stands on its own) a Republican Presidency and flat had tantrums if you ever questioned their patriotism or motivation.
But, as they say, that was then and this is now. And now, of course, it’s “different”.
[ad] Empty ad slot (#1)!
Here you have a lame duck Congress dominated by Democrats and a president who admits his party was “shellacked” in the midterm elections with a chance to partially redeem themselves and focus on the people’s priority – jobs and the economy – and what do they do?
Or to put it another way, they’ve chosen to double down and push their political agenda vs. heeding the message sent by American voters on November 2nd and pushing that aside to give jobs and the economy the priority.
Pure arrogance. But an indication of the fact that the administration has absolutely no real intention of “triangulating” anything or “pivoting” in any direction. The supposed “pragmatic” president shows his true ideologue colors.
This should be something the GOP captures and preserves in amber for 2012. This is precisely the worst thing Democrats could do, but apparently they simply can’t help themselves. And that shouldn’t surprise anyone. Harry Reid still presides over the Senate and what comes to the floor there and House Democrats just reelected the liberal leadership that cost them over 60 seats in the midterms.
But hey, it’s their party, their strategy and their arrogance.
The GOP’s job is to record and remind in 2012.
[ad] Empty ad slot (#1)!
In the Financial Times today, Martin Wolf comes out swinging (free registration required) against those who are afraid the Fed’s Quantitative Easing programs carry a danger of sparking serious inflation.
The essence of the contemporary monetary system is creation of money, out of nothing, by private banks’ often foolish lending. Why is such privatisation of a public function right and proper, but action by the central bank, to meet pressing public need, a road to catastrophe? When banks will not lend and the broad money supply is barely growing, that is just what it should be doing (see chart).
The hysterics then add that it is impossible to shrink the Fed’s balance sheet fast enough to prevent excessive monetary expansion. That is also nonsense. If the economy took off, nothing would be easier. Indeed, the Fed explained precisely what it would do in its monetary report to Congress last July. If the worst came to the worst, it could just raise reserve requirements. Since many of its critics believe in 100 per cent reserve banking, why should they object to a move in that direction?
Now turn to the argument that the Fed is deliberately weakening the dollar. Any moderately aware person knows that the Fed’s mandate does not include the external value of the dollar. Those governments that have piled up an extra $6,800bn in foreign reserves since January 2000, much of it in dollars, are consenting adults. Not only did no one ask China, the foremost example, to add the huge sum of $2,400bn to its reserves, but many strongly asked it not to do so.
Everything he says is correct, but that’s not really any help, because the implications are pretty severe, even if he’s completely right.
First, let’s assume the Fed can, via repos or changes in reserve requirements, sterilize the increase in the money supply. The problem then becomes when does the Fed do this sterilization. let’s go back to 1981-1982. When the Fed was looking at monetary aggregates in the wake of the 1981 recession, they saw the money supply growing far faster than their target. At the time, the Fed’s primary tool was securities sales and purchases to control the rate of growth in the money supply directly, while letting the markets set interest rates. (Today, the fed primarily uses changes in the Discount Rate and Federal Funds target rate to run monetary policy.)
When the Fed saw those big increases in money supply, they immediately moved to sterilize the increases, to keep inflation in check. Sadly, the lack of velocity in the money supply, i.e., its actual rate of use in transactions, was near zero. as a result, the Fed’s tightening threw the economy into another recession, with unemployment rising to 11%. The policy may have been correct, but the timing was wrong.
So, what guarantee do we have that the Fed will perform sterilization at precisely the right time? If they move too early, the economy shuts down, a la 1982. Too late, and inflation takes off. Then the Fed would really have to tighten, which would probably result in another recession to wring out the extra inflation.
The trouble with the Fed is that monetary policy moves take 6-18 months to fully percolate through the economy. And they make these decisions based on economic data gathered in previous months. It’s like driving down the street by looking only at the rear-view mirror.
That makes proper timing by the Fed…hard.
Perhaps the Fed will operate as if run by infinitely wise solons, who know precisely when to sterilize their quantitative easing, either through repo operations, or raising the banks’ reserve requirements appropriately.
If it doesn’t, however, we’re looking at either another steep recession, or a bout of serious inflation, follwed by another serious recession to tame the inflation.
Oh, and even if the Fed is that good, it doesn’t address the problem of how the Chinese will react to any increased currency risk they face by holding dollar-denominated securities if the value of the dollar falls in the FOREX. As Mr. Wolf admits, the Fed’s mandate has nothing to do with the foreign exchange value of the dollar. So, maybe, the Chinese will decide to sell as much of their holdings in Treasuries as they can. That implies a serious decline in treasury prices, and a concommittant rise in bond yields, i.e., interest rates. Aaaand, we’re back to a possibility of a steep recession again Especially if they do it while the Fed is already in the middle of money supply sterilization operations.
So, I guess the question is, “How much to you trust in the ability of the Federal Reserve to do exactly the right thing, at exactly the right time?” And, “How much do you trust the Chinese to go along with all this?”
The chairs of the Obama Debt Commission – charged with putting a blueprint together to reduce the deficit and put the government’s finances on sound footing – have released their preliminary recommendations. And their recommendations are, as most who have monitored this situation should know, harsh. Of course they must be – because the government has spent itself into a position where harsh and drastic measures are both necessary and called for.
Expect those that compose much of that government, at least on the left, find such austerity “unacceptable” in the words of Nancy Pelosi (whose PAYGO has been so instrumental in preventing this situation from being worse /sarc). Before we get into the recommendations, let’s get one thing clear:
Those changes and others, none of which would take effect before 2012 to avoid undermining the tepid economic recovery, would erase nearly $4 trillion from projected deficits through 2020, the proposal says, and stabilize the accumulated debt.
That’s $4 trillion from a projected $10+ trillion in projected deficit spending over the next 8 years. So we’re still talking about years of deficit spending. And not one dollar will come off the debt – it will only “stabilize” it.
The point is that if doing what is necessary to cut the deficit spending of the next 10 years by 40% is “unacceptable”, imagine what any solution given to tackle the debt will be. Paul Krugman calls the recommendations “unserious”.
Really? Is there anyone out there who doesn’t understand that there is absolutely nothing “unserious” about the problems we face or the fact that to solve them drastic spending cuts are necessary? Krugman is apparently incensed that the recommendations involve 75% spending cuts and 25% tax increases (the tax increases are essentially the elimination of deductions, the lowering of taxes across the board and the broadening of the tax base).
But how in the world do you stop deficit spending if you don’t drastically cut spending itself?
The commission chairs recommend cuts or changes is all areas – entitlements, defense, non-discretionary spending, discretionary spending. Some thing sure not to please anyone. For instance, they recommend raising the retirement age on Social Security for future retirees, as well as cutting benefit increases. In defense, their goal is 100 billion in cuts. As I’ve said before, defense cuts can be made and should. Just so it is fat and not muscle that goes.
The plan is harsh medicine for the minority that believe that government is the answer to everything. And, as you’ll see (just watch) they will fight these recommendations tooth and nail. Republicans, on the other hand, have reacted cautiously. I’m not sure why. They’ve talked about cuts in spending and simplifying the tax code for years. Here’s a commission talking about both and recommending they be done.
Politics, fingers in the wind, and ideology begin to emerge. What the chairmen have done is taken the discussion from a nebulous “we’d like to see spending cuts” to “put up or shut up” with specific recommendations.
It is going to be instructive to see how both parties and the president react. It is the latter, in particular, I’m interested in watching:
Mr. Obama created the commission last February in the hope it would provide political cover for bold action against deficits in 2011. His stance now, in the wake of his party’s drubbing, will go a long way toward telling whether he tacks to the political center — by embracing such proposals — or shifts to the left and leaves them on a shelf.
Anyone – who votes for “leaves them on the shelf?”
[ad] Empty ad slot (#1)!
The reactions to the Federal Reserve’s announcement that they would embark on a new, $600 billion round of quantitative easing is raising reactions from all around the world.
Unbridled printing of dollars is the biggest risk to the global economy, an adviser to the Chinese central bank said in comments published on Thursday, a day after the Federal Reserve unveiled a new round of monetary easing.
German Economy Minister Rainer Bruederle said on Thursday he was concerned at U.S. efforts to stimulate growth by injecting liquidity into its struggling economy.
“I view that not without concern,” Bruederle said, adding that a variety of measures were needed to solve the problem and it was not enough to pump in liquidity alone…
Bruederle also said there was some truth to the criticism that the United States was influencing the dollar’s exchange rate with monetary policy and voiced concern about increased protectionism in different forms around the world.
Brazilian officials from the president down have slammed the Federal Reserve’s decision to depress US interest rates by buying billions of dollars of government bonds, warning that it could lead to retaliatory measures.
“It’s no use throwing dollars out of a helicopter,” Guido Mantega, the finance minister, said on Thursday. “The only result is to devalue the dollar to achieve greater competitiveness on international markets.”
Brazil, especially, seems to be treating this as a currency devaluation war, and, according to the Financial Times, really doesn’t like that.
But the worries go far beyond trade and protectionism issues brought about by fears of devaluation. It’s the domestic inflationary effects which have many–including me–worried:
Federal Reserve policies have put the US dollar the risk of crashing, which will hammer consumers through higher prices, strategist Axel Merk told CNBC…
“So we will have a cost-push inflation. We’re going to get inflation but not where Bernanke wants to have it. We’re not going to get wages to go up. We’ll get the price at the gas pump to go up instead.”
We’re right on a path towards high inflation and slow economic growth, otherwise known as “stagflation”. Except that there’s a lot more monetary expansion this time than we experienced in the 1970s. Maybe we’ll have to coin a new term, like “hyperstagflation”.
Oh, and in case you were wondering, it begins like this.
This is one of those cases where the headline numbers and claims of new jobs are so totally out of step with reality, that it’s hard to believe how badly the banner numbers reverse the actual employment situation. In fact, I’d argue that this month highlights perfectly why the Bureau of Labor Statistics needs to thoroughly revise the way the Employment Situation is reported.
To understand why, let’s look at the “A” Tables of the Employment Situation report. Take a careful look at the “Employed” line in the table. Last month, there were (in thousands) 139,391 persons employed. This month, there were (in thousands) 139,061 employed. So, non-farm payrolls may have increased by 151,000 jobs, but there are 330,000 fewer employed Americans than there were last month.
The total civilian, non-institutional adult population, in thousands, was 238,530 this month. With the historical long-term trend rate of labor force participation of 66.2%, that means the actual size of the labor force should be 157,907. With only 139,061 persons actually employed, the real unemployment rate is actually 13.6%, up from 13.2% last month, and from 12.8% in May.
The current labor force participation rate of 64.5 is the lowest since November of 1984.
Essentially, the employment situation worsened last month, rather than getting better. The only reason it looks better is because so many people are just dropping out of the labor force. When they do so, they magically disappear from the official banner statistics.
What is actually happening is that job growth is not keeping up with population growth, so every month, real employment is declining. It’s nice to see that employers have added 151,000 payroll jobs, but that simply isn’t a rate that keeps pace with job force growth. To give you an idea of how this is working, since Oct 09, the civilian non-institutional adult population has increased by 1,980 thousand people, while at the same time, the number of employed has risen by 819 thousand. That means that there is a deficit of 1,161 thousand jobs that has built up over the last year.
The banner statistics of payroll jobs and unemployment rate are increasingly out of step with the true employment situation.
An incredible election night by any measure. The obvious question that pundits will be concentrating on is “what does it mean”?
Well I think there is consensus on both sides that it doesn’t mean that the voters love Republicans. Even establishment Republicans are acknowledging that fact. And Marco Rubio made that clear in his acceptance speech where he called this a “second chance” not an embrace of the GOP.
So that leaves us with a number of other options to consider. What needs to be kept in mind is this is the third consecutive wave election and in each case the party holding the White House suffered losses. That’s unprecedented. And this particular midterm is the largest shift of seats since 1936 (update: House numbers now have a projected 242 seats on the GOP side, a net of +64 – historic or as one Democrat strategist said, a defeat for Democrats of “biblical proportion”). So one meme that isn’t going to fly is this election is “no big deal”. Democrats got spanked and got spanked hard. They have a lot of work to do to win back voters.
Another thing that seems to be a developing narrative is that this is a repudiation of the Obama agenda. I think that’s true to an extent. The biggest driver of the dissatisfaction with Democrats is the health care law as indicated by polls. And they are certainly mad about the deficit spending. But as Charles Krauthammer said last night, “this isn’t a failure of communication by the Democrats, this is a failure of policy”. So it would seem that at least part of the vote was a repudiation of the president despite claims by some on the left that its only about the economy.
That said, part of it is also about the economy. Historically the party in power doesn’t do well in a down economy. So that too must be factored in to the formula. While much of that is beyond government’s control, that which it could impact was perceived as poorly done. Very poorly done. That exacerbated the loss. And, with the focus on health care reform, most Americans thought that the legislative priorities were wrong as well. Voters have historically turned to the GOP to handle economic matters. But this is still no mandate for the GOP.
Finally voter anger hasn’t gone anywhere, it’s just taking a breather. Again, watch the direction of the country polls over the coming two years. It’s an interesting set up in DC now. Democrats actually would have been better off if the Senate had gone to the Republicans. They still control it and the Presidency and that leaves the onus on them as we head toward 2012. It also gives the GOP a free hand to pass whatever it wants in the House, regardless of where it goes, if anywhere, and make the case that they tried to reform what the people wanted reformed and Democrats (in the Senate and the President) stood in their way (reverse the “obstructionists” claim).
I think, after last night, that 2012 is definitely in play. It will be interesting to see how both parties react. I’m eagerly awaiting the Obama presser at 1 pm today when we’ll hear the first reaction from the President. But as always with him, judge him by his actions, not his words. His words have become empty rhetoric that many times doesn’t support what he ends up doing.
[ad] Empty ad slot (#1)!