Category Archives: America

Living In The Present And Working For The Future

Sometimes it gets easy to blame the media when polls show the American people contradicting themselves on questions. But this time only the politicians have themselves to blame. The WSJ/NBC poll found 61 percent of American’s believed the budget should be cut, while only 31 percent said they believed the President and Congress should boost the economy even if it means an increase in budget deficits.

Having always being against increased spending and raising taxes, Republicans have had it easy. It’s always a lot easier to say “read my lips, no new taxes!” or “government isn’t the solution, it’s the problem” than “I am going to raise taxes, just not yours” or “sometimes government regulation is needed, and sometimes it’s not”. Campaigns are sometimes won if the voters do not understand what you plan to do in office or what you did while in office. If they don’t agree with you that’s one thing, but if they don’t understand what you’re about that’s a whole different problem.

Economists and policy wonks alike have made arguments (Robert Reich, Fareed Zakaria, and, not that I’m on their level, but yours truly) that the problem with the economy right now isn’t the supply of things, it’s the demand for them. No matter what income bracket American’s are in the majority of their money goes toward housing, followed either by insurance or healthcare, and then food. Things like Ipads, movies, music, days at the beach, are all luxuries many American’s can’t afford or are squeezing out of their pockets. But when the economy was moving in the 1990’s these were areas that did really well.

Even though most people were not earning more money, they were confident in the future which allowed them to spend money on extra outings or stuff that allowed them to have fun with their families and friends. But now the cost of gasoline is so high in some areas that driving to work is costing families most of their weekly budgets.

What both parties do a bad job of explaining is that economies are cyclical and money has to come from somewhere. Even in times when the economy was strong, families did not earn enough to pay for health insurance on their own. So the government had to step in and create policies that made sure families were secure in the long run so they could live in the present.

When the last round of tax breaks were passed, the “extra” money people thought they had was spent on necessities like food. None of the areas that would have a bigger effect on the economy like infrastructure or food stamps were even part of the bill. That being said, the biggest items economists claimed would have a simulative effect wasn’t even an increase of 2 percent, and in some cases it wasn’t even 1. These were also short bursts of growth, it wasn’t anything that would have secured families in the long run so their kids can go to college, eat, or get to work.

But when we see video’s of the President saying government is wasting our money, of course no one is going to believe that the government can do anything right. Whether he is right or wrong, it gives the Republican’s the ammunition they need to say there is no reason for you to be taxed. President Obama also likes to remind people we are coming out of what was almost Great Depression 2.0. Well, when FDR cut stimulus funds during the middle of his depression, the American economy went into another free fall. Plus with interest rates as low as they are, and Bernanke not hinting to raise them any time soon, more money into the economy won’t do any harm. In fact, all signs point to gains.

There is also no proof that raising taxes will hurt the economy either. In fact, it was after George H. W. Bush raised taxes the economy really started to move. It shows one thing has nothing to do with the other. But if policy makers are serious about making sure America stays number one, raising taxes on the rich to secure social programs and create a stimulus is a must.

I don’t think anyone is willing to bet right now they will be making enough money to retire in the future. No one ever has, which is why pensions and Social Security were created in the first place. The federal government needs to spend more money in exchange for short term debt. If they don’t more scenes, like the ones taking place Minnesota, will be more frequent around the country. More stimulus now means more people will be working, families can buy what they need, and more revenue can be raised in order to take care of the families in the future.

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Filed under America, Budget, Congress, Economics, economy, Families, Political Economy, Politics, President Obama, taxes

Ethanol Wins

If you wanted proof of how difficult it is to get things done in Washington right now, there was a perfect example of it today. This afternoon, the Senate took a vote on whether to end subsidies for ethanol, which failed 40-59. Now, I know I just railed against Blue Dogs and the Farm Bill, but this is different.

Ethanol is made from sugar using other plants such as corn, wheat and barley. The demand for ethanol has gone up in recent years because it is not a carbon emitter and is being mixed with gasoline used in cars, which then releases less carbon dioxide into the air. The amendment was introduced by Senator Tom Coburn, representing Oklahoma, who is one of the more conservative members of the Senate. He is an ardent opponent of government waste, extreme deficit hawk, and sees the ethanol subsidies as an example of both.  In his speech before the vote today Coburn said:

But we have a way to get same amount of ethanol produced and we put into our cars without spending $3 billion between now $8 billion is what it’s averaged over the last few years. We spent $34 billion of money we didn’t have subsidizing something that’s mandated. I mean, it even goes beyond the Reagan quote, which is a government view of the economy could be summed up in a few short phrases.‘If it keeps moving, tax it. If it stops moving, subsidize it.’

Yes, ethanol is a product America has produced for decades. But as the demand for ethanol has gone up, exporting this product will lead to higher costs for consumers, as farms  won’t be able to make enough money to produce it at the rate that people need. It’s the same situation when we worry about oil during the months of summer.

Export demand for ethanol is projected this year at $900 million bushels, already up $170 million more than originally thought. The price of ethanol recently rose 7 cents, which is the highest it has been since 2008. But it is still used for growing a variety of foods such as maize, potatoes, wheat, sugar-cane, and fruits. When dealing with a lack of funding and having to fight mother nature, it’s hard for farmers to create ethanol and still grow food.

But proponents say using ethanol for fuel will eventually allow America to be energy independent. But right now, while the ethanol industry produces 40 percent of the nation’s corn crop but less than 10 percent of the fuel supply.

Coburn’s amendment would have raised an additional $2.4 billion in tax revenue this year, and we all know we could use the money. But that doesn’t mean his amendment should have passed. While America is a leader, it is not the only country producing ethanol. The country’s farmers would have been at a disadvantage if the subsidies were gone, having to sell their products at a higher rate than their competitors.

Also, remember that list of food mentioned earlier? All of those items would have cost more to grow, leading to higher prices at your local supermarket. Then considering how much chocolate I eat, I would be filing for bankruptcy by the end of the year. Food prices around the world have been steadily rising, along with the population, and without these subsidies those prices will rise even faster. And when we remind ourselves that long term deficits are in the trillions, $3billion is not going to cause that much of a dent.

This wasn’t even part of the Farm Bill, it was introduced as an amendment to the Public Works and Economic Development Act, originally passed in 1965 to create jobs and grow the economy. Without the subsidies it would be hard for farms to make any money right now. It’s also one of the items Eric Cantor wants to eliminate altogether.

Now with all that being said, I decided to write this because it was finally a good example of a serious policy recommendation being proposed. We haven’t seen a lot of them recently, and Senator Coburn should be applauded for trying to do something productive.

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Filed under America, Clean Energy, Congress, Ethanol, Farming, Tom Coburn

Place Your Bets (carefully)!

What probably should have been bigger news than has been reported is the Consumer Price Index (CPI). It’s fascinating! Really! Just hear me out. The CPI comes out every month from the Bureau of Labor Statistics. It is a short term indicator on how strong or weak the economy is. The Federal Government puts out household surveys around America asking them what they bought in the past month, compares it to last month, and sees which prices rose and which ones fell. Economists need this information to determine the inflation rate, and people on Wall Street need it so they know what areas of the economy to bet on.

When the Obama administration enacted a new stimulus package in the form of tax breaks, I wrote a post explaining why stimulative was too strong of a word. The reality was that Americans were going to use the tax breaks on the basic items that they have to pay for like rent/mortgage, health care, and food. Spending is a major part of America’s economy, especially since we are not building as much as we used to. While the tax cuts will help the overall economy because people will be spending money, the important thing is people won’t feel they have to choose between the items they need to live. Last month the CPI rose 0.5 percent, and the three main areas where people put their money was on energy (to heat their homes), food (to put in their stomachs), and health care (so they won’t get the flu).

When stock brokers look to make money, they look to invest in areas of the economy they think people will be spending their money. Some of these areas are obvious. As the weather gets colder people are going to heat their homes. Since the employment rate fell more people could afford to buy health insurance, and while people always bought food, the reason why the amount of money people spent on it went up is because the price of food went up. But sometimes it’s not so obvious, and looking at a short history of the CPI you can see why.

The chart above shows the average change that the CPI occurred every year from 2000-2010. What sticks out to me here is how volatile it is. From 2002 to 2003 there was a full percent increase, and in real monetary terms we are talking about hundreds of millions of dollars. The highest point, probably not coincidentally, was in 2008, before the financial crisis in 2009, where the CPI turned negative. While the CPI isn’t the only analysis Wall Street looks at, it is an important one. The figures they see here are what give them the confidence to bet with people’s money. But as you can see, because the consumer market is so volatile, it is hard to guess which areas of the economy will be earning money.

Now people may argue the turn of the century is an unfair time to use because the economy wasn’t strong. So let’s take a look back when America turned to Nirvana, the 90’s.

 

Today, the stock market ended on the highest note in the past two years. That tells me people who look at this data feel confident that the economy is going in the right direction. Otherwise, they wouldn’t be so willing to invest so much money, in any area. Markets went up because they saw overall manufacturing go up, which means there is a high demand for products and more people will be spending money. Now, it’s just matter of figuring out where.

What gets me is how some conservatives argue that the better the Wall Street is doing, the better America does. That simply isn’t true. If you are lucky enough to have the money to buy stocks right now, yes, you are doing well. But millions of American’s don’t and are choosing to keep a roof over their families, get their family food, or give them health insurance. Fortunately last month, according to this CPI, most families were able to do all three.

The truth is some people are better than others determining which stocks are worth your money. Anyone who tells you they know exactly what will happen in the future is lying. There were people who knew the financial crisis was coming, but even those people couldn’t say when. As the market has been fluctuating since Washington bailed it out, it is important to remember to learn the game before you play, to do your homework and then place your bets carefully.

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Filed under America, Consumer Price Index, CPI, Economics, economy, Obama, President Obama, Wall Street