I put economics is [“”] for a reason. And that has to do with the fact that there was little about the first 100 days which had much to do with economics and certainly wasn’t economical. Feast your eyes on this. Yes, it’s from the GOP, but “numbers is numbers”, folks, and check out the quote attached to the chart:
Heritage also weighs in with a few trenchant observations:
In his first 100 days, President Obama will have quadrupled the budget deficit he inherited while pledging to cut it in half, which would still leave a deficit double the size it was in January 2009.
Make sure you get that – quadrupled the budget deficit within 100 days. Promised to cut budget deficit in half. Even if he does that, it will still be twice the size of the budget deficit in Jan 2009 when he made the promise. Yup, smoke and mirrors.
The President came into office promising a “net spending cut” then signed the stimulus bill, which will dump $9,400 in new debt on the average American household. Under CBO’s estimate, if some programs become permanent, this would skyrocket to $26,600 per American household.
And we are reminded that there is nothing more permanent than a temporary government program (REA anyone?).
Just to give this all a little more perspective:
In his first 100 days, President Obama proposed a budget that would dump a staggering $9.3 trillion in new debt—$68,000 per household—into the laps of American children. This is more debt than has been accumulated by all previous Presidents in American history combined.
And yeah, for the lefties that includes the “selected but not elected” George W. Bush among all the president’s combined. Or said another way, 44 is spending more than the previous 42 combined (and no I didn’t screw up, Grover Cleveland was president twice at two different times).
So while you see the informationally deprived “celebrating” the “accomplishments” of his first 100 days, don’t forget that those yet to be born aren’t going to be quite as enamored with Obama as the present spendthrifts who think he’s doing such a great job economically.
USA Today says the public sees Obama’s first 100 days as a “strong opening”.
But when you get in the number of the USA TODAY/Gallup Poll, it’s not quite as strong an opening as you might expect:
Now, 56% say he has done an “excellent” or “good” job as president vs. 20% who rate him as “poor” or “terrible.” An additional 23% say he has done “just OK.”
His excellent/good rating on national security is 53%. On the economy, it is 48%.
“He is seen as someone who was handed a large array of challenges and is dealing with them in a sensible way,” adviser David Axelrod says.
Those are lower numbers than I expected. And certainly very interesting numbers on the most pressing interest of the day – the economy. Those numbers also signal to me that this is now considered the “Obama economy” now, whether deserved or not.
As for national security, I’m not sure what rates the number – he’s really not done anything concerning national security except do a little talking about the subject. And, despite claims to the contrary, SEALs taking out three rag-bag pirates who botched a highjacking was not a victory on the national security front.
While I appreciate the fact that we’re hearing a more positive spin from the Obama administration concerning the economy, the so-called “glimmers of hope” aren’t really anything but outliers.
Worse-than-expected news on unemployment and home sales Thursday dampened optimism that a broad economic recovery might be near.
Jobs losses aren’t expected to bottom out until the middle of 2010 and the housing market hasn’t bottomed out yet either:
Meanwhile, the National Association of Realtors said sales of existing homes fell 3 percent in March to a seasonally adjusted annual rate of 4.57 million units, with February revised down to 4.71 million units. Sales had been expected to fall to an annual rate of 4.7 million units, according to Thomson Reuters.
Per the analysis, the best reading of these economic indicators is that perhaps the “free fall” is coming to an end.
“The economic downturn remains intense, but it is no longer intensifying,” said Mark Zandi, chief economist at Moody’s Economy.com. “We are still falling, but we are no longer crashing.”
So, while we may have passed what some are terming the “crisis stage”, the economy is still contracting. I’m coming to believe that we may not see any real and meaningful “glimmers of hope” until mid 2010.
Sometimes math is actually pretty easy. For example, when someone, say some MIT professors, writes a report claiming that a tax on certain businesses will raise a specific amount of revenue for the government ($366 Billion to be exact), and that revenue is divided by an estimated number of American households (117 Million), there isn’t any doubt about how much money per household that tax represents ($366 b./117 m. = $3,128.21). Unless, that is, there are politics involved. Then the math becomes Bistromathic, which allows one of the progenitors of the original numbers to declare “you’re doing it wrong!” and almost everyone will believe him. Unfortunately for them, real math operates on real facts, and thus reality is destined to intrude upon their fantasy.
That, in a nutshell, is basically how the argument over costs of the Obama Administration’s cap and trade policy has unfolded. MIT’s John Reilly co-authored the original study, Republicans used the numbers to derive a cost per taxpayer, Reilly balked, and the media/leftosphere went into paroxysms of outrage about how the GOP were all a bunch of liars. But that was just the main course. For dessert, there will be crow (my emphasis):
During a lengthy email exchange last week with THE WEEKLY STANDARD, MIT professor John Reilly admitted that his original estimate of cap and trade’s cost was inaccurate. The annual cost would be “$800 per household”, he wrote. “I made a boneheaded mistake in an excel spread sheet. I have sent a new letter to Republicans correcting my error (and to others).”
While $800 is significantly more than Reilly’s original estimate of $215 (not to mention more than Obama’s middle-class tax cut), it turns out that Reilly is still low-balling the cost of cap and trade by using some fuzzy logic. In reality, cap and trade could cost the average household more than $3,900 per year.
The $800 paid annually per household is merely the “cost to the economy [that] involves all those actions people have to take to reduce their use of fossil fuels or find ways to use them without releasing [Green House Gases],” Reilly wrote. “So that might involve spending money on insulating your home, or buying a more expensive hybrid vehicle to drive, or electric utilities substituting gas (or wind, nuclear, or solar) instead of coal in power generation, or industry investing in more efficient motors or production processes, etc. with all of these things ending up reflected in the costs of good and services in the economy.”
In other words, Reilly estimates that “the amount of tax collected” through companies would equal $3,128 per household–and “Those costs do get passed to consumers and income earners in one way or another”–but those costs have “nothing to do with the real cost” to the economy. Reilly assumes that the $3,128 will be “returned” to each household. Without that assumption, Reilly wrote, “the cost would then be the Republican estimate [$3,128] plus the cost I estimate [$800].”
In Reilly’s view, the $3,128 taken through taxes will be “returned” to each household whether or not the government cuts a $3,128 rebate check to each household.
In short, Reilly’s claim of “you’re doing it wrong!” amounts to parsing of direct vs. indirect costs. Yes, the cap and trade taxes will be passed onto the consumers in some way, but those aren’t the “real costs” to the economy. Only those direct expenditures made necessary by the policy (the “but for” costs) are “real costs.” As long as the federal government provides a benefit to the taxpayers with the cap and trade taxes, then those higher utility bills are a wash:
In Reilly’s view, the $3,128 taken through taxes will be “returned” to each household whether or not the government cuts a $3,128 rebate check to each household.
He wrote in an email:
It is not really a matter of returning it or not, no matter what happens this revenue gets recycled into the economy some way. In that regard, whether the money is specifically returned to households with a check that says “your share of GHG auction revenue”, used to cut someone’s taxes, used to pay for some government services that provide benefit to the public, or simply used to offset the deficit (therefore meaning lower Government debt and lower taxes sometime in the future when that debt comes due) is largely irrelevant in the calculation of the “average” household. Each of those ways of using the revenue has different implications for specific households but the “average” affect is still the same. […] The only way that money does not get recycled to the “average” household is if it is spent on something that provides no useful service for anyone–that it is true government waste.
He added later: “I am simply saying that once [the tax funds are] collected they are not worthless, they have value.”
Essentially, Reilly is making the pernicious claim that a dollar in the taxpayer’s hand is the same as one in the government treasury. But we all know that’s not true, including (I’ll bet) Mr. Reilly.
No matter how efficient the government is, it will never be able to take $X from me and return exactly $X of benefit. Indeed, at least some portion of that $X will be needed just to support the system of taking the money and providing the benefit. Already the taxpayer is at a loss.
Moreover, there is an implicit assumption in Reilly’s explanation that, in exchange for this de facto tax, the government benefits provided would be returned in proportion to their costs. But that would defy all historical precedence when it comes to the federal government which, once the money is received, tends to dole it back out to suit its own purposes. As Merv aptly states:
I really doubt the government will return any cost of cap and trade dollar for dollar. If they did it would be just an expensive money swap. To the extent the government does return any money you can bet that it will be based on conduct they want from people and not unconditionally. They will be imposing their choices on American families and their lifestyles.
To be fair, Reilly tacitly acknowledges this fact when he explains what use of his numbers would be acceptable to him:
“If the Republicans were to focus on that revenue, and their message was to rally the public to make sure all this money was returned in a check to each household rather than spent on other public services then I would have no problem with their use of our number.”
The fact is, cap and trade is going to cost taxpayers significantly more than the measly $13/week tax cut that the Democrats and the left are so excited about. While the $3,900 cost cited by John McCormack above is an accurate accounting of what Reilly’s study portends, even that is probably an unrealistically low estimate. Consider how the same policy has affected Europe:
Europe’s experiment with cap and trade has turned into a bureaucratic mess that has failed to live up to its initial expectations. A report by the GAO reveals that the supply of carbon permits has exceeded the demand causing allowance prices to fall substantially. This policy failure has caused the European economy to suffer and expectations to reduce CO2 emissions have been lowered.
Additionally, Europe’s cap and trade experiment has led to decreased employment opportunities and higher energy prices across the continent. In France manufacturers have packed up and left for Morocco. In the Netherlands factories are forced to close early to meet emissions standards. In Germany energy prices have risen 5% each year sparking widespread outrage. All across Europe evidence shows that cap and trade has hurt the economy. If the United States implements a European style cap and trade system, estimates show that it could wipe out between 1.2-1.8 million American jobs by 2020.
So the 95% of you who received a “tax cut” from Obama had better start saving that extra money up. You’re going to need every penny to service the debt required to pay for your costs of cap and trade.
A level of economic government intrusion is now being contemplated like none we’ve ever seen before. If you didn’t understand the one of the main purposes of the tea parties, perhaps this will help.
But what Obama rarely says about ending the “cycle of bubble and bust” is this: he’s prepared to intervene to make sure that kind of red-hot growth doesn’t occur.
And he’s willing to do it with added government regulation if needed to prevent any one sector of the economy from getting out of balance – the way the dot-com boom did in the 1990s and the real-estate market did earlier this decade.
According to Austan Goolsbee, a key Obama economic adviser, the president plans to focus on stopping bubbles along with preventing busts. And in an interview with POLITICO, Goolsbee said the administration will be on the lookout for new bubbles, like the tech stocks or housing prices.
If new threats are spotted, he said Obama would use “regulatory oversight to prevent guys who want to make a quick buck from doing real harm to the economy. . .That is what it means to get out of the bubble and bust cycle.”
In other words, government would decide what is or isn’t a “bubble” and move to stop what it determines is a bubble. As CATO points out, one man’s expansion might be another’s “bubble”. Are you comfortable with government calling that shot?
And government would also arbitrarily decide who was or wasn’t entitled to profit from that market – it would be the final determiner of who was or wasn’t making a “quick buck” from the growth.
Any idea what that would do to any market in which the government stepped in to slow down?
Yeah, nothing could go wrong that that idea, could it?
Bottom line: you have a governing elite picking winners and losers.
Thankfully, it isn’t quite as easy as you might imagine to do what Goolsbee and Obama would like to do.
…[T]here’s not much an administration can do in practical terms to burst a developing bubble. The best way to cool things down is raising interest rates, which is the purview of the Federal Reserve. Another option would be for regulators to order banks to curtail lending to buyers of certain kinds of assets.
The lesson here, of course isn’t necessary the plan itself, but the fact that those in a position of power are contemplating this seriously. Those aren’t the plans of a moderate, and certainly not those of a capitalist. They’re the plans of a group who apparently believes that complex economies can indeed be controlled and manipulated successfully from above.
Amazing hubris. Even more amazing arrogance. Most importantly, incredibly dangerous economic thinking.
Much of the left, Steve Benen serving as a perfect example, are missing an essential point about the tea parties planned around the country. They aren’t about the level of taxation now. Instead, those attending them understand that with the massive spending undertaken by the federal government and the massive amounts of currency pumped into the system by the Federal Reserve, taxes aren’t going to remain anywhere near where they are now, no matter what politicians promise.
Benen uses a recent Gallup poll which says people are mostly happy with the tax rates they now have in an attempt to portray the protesters as being out of touch and out of step with the mainstream:
The latest survey from Gallup shows these assumptions don’t seem to apply right now: “A new Gallup Poll finds 48% of Americans saying the amount of federal income taxes they pay is ‘about right,’ with 46% saying ‘too high’ — one of the most positive assessments Gallup has measured since 1956. Typically, a majority of Americans say their taxes are too high, and relatively few say their taxes are too low.”
The same poll found that 61% of Americans believe the income taxes they paid this year are “fair.”
This certainly isn’t the kind of public opinion landscape Republicans were hoping for. In order for conservative talking points on the economy to be effective, Americans have to believe the current tax rates are never “about right” and anything but “fair.” Broad satisfaction with taxes leaves Republicans with very little else to say.
I beg to differ (and it isn’t just “Republicans” involved in these protests). What it says is the Bush era taxes, the ones which resulted from a tax cut, are considered “fair”. That would mean, then, than any increase in taxes would be considered something other than “fair”. And anyone with enough intelligence to make toast should realize that the spending orgy we’ve seen in the last few months is something that will have to be “paid for” either through taxation or inflation (or both).
So when Benen says the following, he whiffs completely:
Indeed, the semi-official slogan of the Tea Baggers’ events tomorrow is “T.E.A.: Taxed Enough Already.” It was hard enough to make this argument shortly after the president signed the largest middle-class tax cut in history; it’s even harder in light of poll results like these.
“Taxed Enough Already” mirrors the poll. But unlike Bennen, who attempts to pawn off the “95% of Americans will receive tax cuts” nonsense as the reason for the satisfaction, the people showing up seem to understand the economics of the situation better than he does. Someone is going to have to pay for all this fiscal profligacy, and the protesters know exactly who those people are.
Thus the protests.
UPDATE: Benen still doesn’t get it. Referencing this post, he says:
I see. So, at some point in the future (we don’t know when), some politicians (we don’t know who) might find it necessary to raise taxes. Whose taxes would be raised? It’s too soon to say. How much would taxes go up? No one knows.
It helps, if you’re going to write about this stuff, if you keep up with what’s been going on. As we pointed out in another post on the Obama budget, you don’t even have to guess “how much” or whether or not it might be “necessary”, the budget answers those questions:
Against a baseline that assumes current law tax policy is extended, S. Con. Res. 13 raises taxes by $361 billion and allows for $1.3 trillion in additional tax increases. In addition their budget paves the way for additional tax increases from a proposed cap-and-trade tax in reconciliation.
And (making the point as to how the 1.3 trillion is raised):
Deficit Neutral Reserve Funds:
The Democrat budget includes 15 “reserve funds,” which essentially “phantom spending” policy statements that allow the majority to say that they would like to fund a certain initiative. The deficit neutral requirement associated with the reserve funds typically require that taxes be raised in order to pay for the new policy initiative. If all reserve funds were to be fully enacted, total spending would increase by $1.3 trillion, financed by tax increases or spending decreases.
Maybe Benen finds that acceptable, but obviously those protesting don’t.
He concludes with:
With this in mind, I can only conclude that the Tea Parties are the most forward-thinking political events in the history of the country.
Another whiff – all you have to do is read the budget proposal that was passed by Congress, Mr. Benen. It outlines the size and scope of those future taxes fairly specifically.
You have read it haven’t you?
After skillfully managing the bailout of GM and throwing billions of dollars in taxpayer money at it, our man Timmy (Geithner) has told GM to prepare for bankruptcy:
General Motors Corp. is believed to be preparing to file for bankruptcy by June 1 after being directed to plan for a filing by the U.S. Treasury Department, according to a report Sunday in the New York Times.
The Times, quoting unidentified sources, said the Treasury Department has directed officials at General Motors to lay the groundwork for a “surgical” bankruptcy filing that could last as short as a few weeks for portions of the company. Those portions would be the “good” parts of the company, and the “less desirable” parts of the company would remain in court for much longer and possibly be liquidated, according to the Times.
One has to wonder who gets to determine what the “good” parts are, but that said, if the following is true, it won’t be GM’s present “health care obligations”.
The parts of GM that may get bogged down in a lengthy court restructuring or liquidation include the “unwanted brands, factories and health care obligations,” sources said in the report.
That should fire up the UAW. The union won’t be the only one who isn’t going to be happy with an attempt to rush through a GM bankruptcy.
A report in the Wall Street Journal on Sunday said that any attempt at a “quick” bankruptcy for GM could face legal challenges from bondholders of the company.
As they have every right to do — but it certainly isn’t going to make the bankruptcy either surgical or short. My guess is the bondholders are realizing that pirates aren’t only to be found off the coast of Somalia.
The big Econo-boys are weighing in on the state of the economy, and providing a consensus opinion on the coming economic recovery. According to the Wall Street Journal:
Economists in the latest Wall Street Journal forecasting survey expect the recession to end in September, though most say it won’t be until the second half of 2010 that the economy recovers enough to bring down unemployment.
Gross domestic product was predicted to contract in the first and second quarters of this year by 5.0% and 1.8%, respectively, on a seasonally adjusted annualized rate. A return to growth — a modest 0.4% — isn’t expected until the third quarter. In the fourth quarter of 2008, the most recent period for which data are available, the economy contracted 6.3%.
The outlook for employment isn’t quite as good, though.
Just 12% of the economists expect the unemployment rate to fall some time this year. More than a third of respondents expect the jobless rate to peak in the first half of 2010, while about half don’t see unemployment declining until the second half of 2010. By December of this year, the economists on average expect the unemployment rate to reach 9.5%, up from the 8.5% reported for March. They do see the rate of decline slowing, forecasting 2.6 million job losses in the next 12 months, compared with the 4.8 million jobs lost in the previous period.
I’m a bit more negative on the above. As of today, weekly initial unemployment claims are still at 650,000 per week. If that keeps up, we’ll continue to see 0.5% increases in unemployment on a monthly basis. We might be at 9% by next month, nevermind December.
I’m also concerned about the implications of the rabid expansion of the monetary base over the last 7 months, during which it essentially doubled. If that impacts signifigantly on inflation by the end of the year, then we’ll be between a rock and a hard place with a weak economy, and signifigant inflation. Any Fed moves to contract the monetary base will crater the economy, in much the same way that Paul Volcker’s Fed did in causing the back to back recession of 1981-1982.
There are still treacherous shoals to navigate for the economy before I begin to get bullish on economic growth again.
Bob Shrum, perhaps best known for his masterful performance in shepherding John Kerry’s presidential race to…uh…it’s…conclusion, now sounds off about economic myths.
One of the most stubborn [myths] is what [John] Kennedy denounced at Yale—the notion that deficits are always evil and the balanced budget an inherent public good. This myth is now constantly exploited by do-nothing opponents of Obama’s recovery plan. On Sunday, George Stephanopoulos read a viewer’s complaint to Treasury Secretary Tim Geithner: “How do you justify printing money out of thin air?” Isn’t the inevitable consequence “hyperinflation?” Geithner calmly rebuked the cliché by pointing to the Federal Reserve’s capacity to counter inflation by raising interest rates once the economy is back on track.
Well, he’s cartainly right about that. The Fed can always just raise interest rates. It’s what Paul Volcker did as Fed Chairman in the late 70s and early 80s. If by “back on track” he means that we can have an unemployment rate of 12%, as we did in 1982, and a Fed Funds rate of 14%, then, I guess he’d be right. It certainly got rid of inflation.
After all, cutting spending now would accelerate, not reverse, the downturn, and trigger a spiral of declining federal revenues that could leave budget balancing out of reach no matter how deeply we cut.
And raising short-term interest rates by the Fed at some point in the future would…not?
This is elementary economics.
I certainly wouldn’t contradict that.
In reality, Roosevelt increased spending overall by 40 percent from 1933 to 1934, and the deficit by nearly a third. In the first five years of the New Deal, the gross domestic product rose more than 40 percent. The New Deal faltered not when FDR disdained conservative advice on deficits, but only when he briefly followed it. After Roosevelt drastically cut the deficit in his 1937 budget, the economy promptly tanked. When FDR reversed course, the economy turned around.
In reality, Roosevelt also increased tax rate; the top tax rate climbing from 63% to 79%. No doubt his conservative critics encouraged that, too. In other words, Roosevelt both decreased spending and increased taxes. In addition, there were new Social Security taxes in 1936 and 1937. And a new corporate tax on undistributed earnings went into effect in 1937, too. If only we had some way to know what effect tax increases have on economic growth!
Oh, and the Fed doubled reserve requirements on banks from 1936 to 1937.
I wonder–pure speculation of course–if significant tax increases and contractions in the money supply might have, in some mysterious way, contributed to the economic downturn of 1937-1938.
Sadly, we may never know.
In 1933, FDR blew up a London economic summit that sought to set fixed currency exchange rates, a virtual return to the gold standard that would have hobbled his economic strategy.
In other words, FDR was a unilateralist cowboy who intentionally flaunted international consensus for his own political ends, and, incidentally, reversed course a year later.
There was a lot more stuff going on in 1933-1940 than simply government spending. Not that you’d know it from reading Mr. Shrum’s amusing little article.
Some relatively good news and some bad news. The good news has to do with “cap-and-tax” as the WSJ article cited refers to “cap-and-trade”:
Tennessee Republican Lamar Alexander called it “the biggest vote of the year” so far, and he’s right. This means Majority Leader Harry Reid can’t jam cap and tax through as part of this year’s budget resolution with a bare majority of 50 Senators. More broadly, it’s a signal that California and East Coast Democrats won’t be able to sock it to coal and manufacturing-heavy Midwestern states without a fight. Senators voting in favor of the 60-vote rule included liberals from Wisconsin, Michigan and West Virginia. Now look for Team Obama to attempt to impose cap and tax the non-democratic way, via regulation that hits business and local governments with such heavy costs that they beg Congress for a less-harmful version.
I say relatively good news because the author is right – if the Obama administration can’t get it through Congress, there’s little doubt they’ll look for an administrative way to impose cap-and-trade through the executive branch. One route may be through the EPA.
Of course, there is always the distinct possibility that one of the Democratic Senators who is presently against limiting the filibuster will be pressured into changing his mind. And then there are always the RINOs.
But the possibliity remains that the cap-and-trade economy killer may be defeated in Congress, or at least delayed for a while. If passed, you could rest assured we’d not be seeing an economic recovery anytime soon.
However, cap-and-trade isn’t the only problem on the horizon. The health care push will be coming up soon as well, now that Congress has passed the Obama budget blueprint with no Republican support.
The most important remaining fight this year is over health care. Democrats seem intent on trying to plow that monumental change through with only 50 votes, even as they negotiate to bring along some Republicans. We hope these Republicans understand that a new health-care “public option” — a form of Medicare for all Americans — guarantees that the 17% of GDP represented by the health-care industry will be entirely government-run within a few years. This is precisely Mr. Obama’s long-term goal, though he doesn’t want to say it publicly.
It is a back-door means of claiming the reforms are “market” oriented while setting up the system to be quietly shifted to government control. And this at a time when more and more doctors are leaving the Medicare system because of low payment.
In the case of health care, the use of “reconciliation” appears to be a possiblity. That means, as an exception to the rule which now requires 60 votes for cloture on all measures of law, the Senate could require a mere majority (51 votes) to pass this monstrosity and see the government devour another 17% of GDP.
The game plan is fairly evident. Grace-Marie Turner, president of the Galen Institute, said in an interview:
“We really have a pretty good idea of the outline of the plan they are going to be proposing,” she said. They’ll want to “require everyone to have health insurance and require all employers to pay.”
Since some companies and individuals may not be able to afford that, the taxpayers will be told they are making up the difference, she warned.
The real danger, she suggested, is that with a government-run program, private insurance soon will start disappearing.
“If you expand access to government programs, more and more will drop private coverage,” she said. “A lot of this is going to be, I fear, replacing the private coverage with taxpayer supported coverage.”
That will just raise the costs even higher, and be the first step to what she expects eventually will be “a monopoly player.”
Routed through the government bureaucracy, the same inefficiencies that every government run health care service will emerge. And as with any system in which unlimited demand meets finite supply, some sort of rationing will take place. Since government will be the monopoly player, as Turner calls it, that rationing won’t be by price, as it now works, but instead by denial of service:
Already, she said, $1.1 billion is being allocated for “comparative effectiveness studies.”
That will be “what treatments are good and bad, what’s going to be available to us or not. That’s the first step toward rationing,” she said.
That $600 billion dollar “downpayment”, as Obama calls it, will eventually morph into a deficit of trillions. Why? Because the promise is low-cost universal health care. And there is no such animal that is worth a tinker’s dam.