Category Archives: economy

July 13, 2011 · 3:30 pm

Blaming The Messenger

I was really disappointed to see the Washington Post article today about the Appropriations Bill in Congress which would cut the Census Bureau’s budget by 25 percent. Doing so would force the agency to cut survey’s that determine the unemployment data, overall growth in the economy (GDP), and of course the constitutionally mandated census report conducted every ten years.

The article said “While the Obama administration has proposed reducing the agency’s budget from $1.15 billion to $1.02 billion, House lawmakers are considering a bill that would give the Census Bureau $885 million in 2012 — almost $300 million less. That is much deeper than the 6 percent cut being proposed for the Commerce Department, which oversees the bureau.

The Census Bureau has been criticized by some conservatives who argue its questions are intrusive. But lawmakers have said the cuts reflect economic realities, not any antagonism toward the bureau.”

I have two gripes here. The first is that these cuts do not reflect economic realities. A large amount of these surveys are conducted in person by people who the Bureau hired to knock on doors. During the recession last year thousands of people were hired to do this work which helped keep the unemployment rate below 9 percent. But more importantly, it put money in people’s pockets. If Congress doesn’t allow the agency to collect this data it will cut more money out of the economy and slow the recovery even further.

These funds are considered an actual stimulus for many people, and it’s not even extra debt the government is taking on. That’s the economic reality conservatives are refusing to believe.

What proponents of these cuts are also blind to is that this data is important. Brokers on Wall Street and businessman and women around the country look to see what the Census Bureau comes out with every month to determine their standing. It can sway them to whether to hire or lay people off. Whether it is to see what people buying, how much people are earning, or where businesses should focus their efforts to sell their products, this information has an enormous effect on the confidence of the people who, as Republicans like to say, are job creators.

There is also a more fundamental issue here. The reason why the census was written into the constitution was to see how many seats there should be in the House of Representatives. But it also tells all members of Congress who they represent and what kind of situation they are living in. It’s a starting point for serious negotiations on policy issues. Of course today these numbers are important for state legislatures so they can determine district lines.

But with the internet this data can be used for a lot of good. Not just for businesses but for non-profits who need to know where more help is needed, and who it is that needs it. Most studies are already slow and not as complete as what we get out of the Census Bureau, and more importantly we know it is an unbiased source of information which is getting harder to find. Of course without this data it becomes easier for politicians to escape the current economic reality, and allows them to blame the messenger when it does.

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.

Democracy At Work?

On Sunday, Eric Cantor announced the second round of his “You Cut” website, where people are given three options of federal programs they would like to see taken out of the budget. In general, I’m in favor of open government initiatives in hopes it gets people to pay more attention, and realize it’s not as simple as choosing which programs to cut. But Cantor goes about opening up the process entirely the wrong way.

Instead of having an honest discussion on how to balance the budget, You Cut lists three things the Majority Whip would probably like to see gone anyway, without any discussion. Besides voting which program they would like to see cut, the only other option people have is to submit another program to cut in a small box explaining why it should be eliminated. I’m also not a conspiracy theorist, but I seriously doubt those suggestions are taken seriously. As someone who just created and researched websites, small boxes indicate to people they don’t have a lot of room, and if you really want more thoughtful suggestions you want to make it clear to your viewers they can say as much as they want. Instead, there is only a biased blurb about each program and why it’s bad, and there is no room for people to discuss why one program should be cut over the other.

So let’s take a look at the options presented to us. The first is to reduce the number of federal employees by 10 percent, saving $139 billion. The first thing that stands out to me, and how you know Ryan is making the numbers up, is he doesn’t even list the number of employees that will be cut. Just because someone is retiring, doesn’t mean that their job wasn’t important. All the water treatment plants around the country need to be inspected, and if land is to be used to for new or growing businesses, their needs to be an assessment to make sure it is safe. If there are problems in the future in either of these areas, people will ask why no one was on top of the situation.

The second option is to eliminate the Economic Development Administration (EDA) within the Commerce Department. Yes, this is one of the recommendations by the Bowles-Simpson commission. One of the reasons for the EDA, and the blurb points out, was to build roads across the country that would create jobs. Well, the last time I checked the country’s infrastructure was graded a D. So instead of throwing out things we know have worked in the past, why don’t we try and use them again in a time we need more jobs?

The last item on the website is about the Department of Energy’s Weather Assistance Program (WAP). Cantor, without posting any links, says that “The program generated headlines for significant instances of waste, fraud, and abuse, including paying for shoddy and ineffective workmanship and payment for work not actually done.” But it doesn’t discuss news outlets in Mississippi telling its viewers about the program and how it can help them. Or in the winter when Chuck Schumer touts how this program is keeping residents in upstate New York warm. The truth is this program helps millions of people around the country stay cool in the summer and warm in the winter. By cutting it, Eric Cantor is telling all the people who apply to these grants, they should figure out how to pay for their energy bills themselves.

Obviously, as we have seen in recent events, there are ways politicians should and should not interact with their constituents. But the efforts people are taking to make the internet a platform where the government can interact with its people work long and hard hours figuring out ways to do so effectively. You Cut doesn’t accomplish any of the criteria those people are looking to accomplish. If Eric Cantor is serious about wanting to create a smart budget, he needs to figure out a better way to do it.

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Filed under Budget, budget ceiling, Congress, debt, economy, Eric Cantor, Government 2.0, Politics, Republicans

February 2, 2011 · 1:08 am

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.

Tax Cuts Don’t Stimulate The Economy

I hate leaving things for the last minute. Having something hanging over my head just bothers me to no end it always get to the point where I can’t sleep until it’s done. The political problem for the tax cuts was that the White House waited until the last minute to deal with it, but probably for the right reasons. President Obama has had major legislative victories which will help a lot of people. Making sure women are paid equally, allowing students to stay on their parents insurance after college, and expanding scholarship opportunities to pay for college, just to name a few. As we’ve all seen those victories didn’t just come over night, and unfortunately for Mr. Obama, there was still one last thing he had to get done.

The latest round of tax cuts which will soon be passed by the Senate is being sold so that it will help everybody, the middle class, working class, and of course the rich. The Center for American Progress is defending the tax cuts and claim it will create 2.2 million jobs. What their analysis assumes though is that businesses will spend money and there will be a demand for their products. But if you look at recent experiences, you should know there is no guarantee that businesses will spend more money just because they have it. In these uncertain times, they are more likely to keep it in case the economy goes even more down hill, just like the banks are doing since they received the bailout money. The business cuts aren’t even targeted anywhere which proves there is no strong demand for anything right now. Otherwise, policies could be enacted to create more of a demand to help a strong area grow even more, which could help overall growth. That absence is just more proof the economy is really up in the air.

The Center got these numbers from the Congressional Budget Office (CBO) and used their numbers to create their analysis. The CBO however, assumes that the tax cuts will be offset by increasing taxes later so we won’t have to worry about deflation. And it does not even take into account that Social Security taxes are being lowered.

But then there are some analyses I just don’t get at all. The Heritage Foundation argues that only tax cuts can stimulate the economy. They try and differentiate between “Disposable Personal Income” and “Personal Spending.” Now if you’re a middle income family earning $150,000 a year, you have enough to go out to dinner, a movie, and keep up with your mortgage payments. But this family is not going to spend money on anything extravagant. They will not be buying a new house, car, or plan a expensive vacation in this time of uncertainty. So when they receive a tax cut, they will not be spending in the areas where it MIGHT help the businesses feel a demand for their products. And if you are working class family, you are more worried about feeding your children and keeping a roof over your head, and that’s where they will spend the money. Again, not creating a huge demand for anything, and not beneficial to helping the economy. Families don’t think of their money as “disposable” or “personal,” and neither should economists.

Instead, programs should have been created to help families cope with the new economic realities. The best part of the package was getting unemployment benefits extended for a year. For middle class families though, there should have been money spent to pay for their children’s college, or help lower their payments if the banks unexpectedly raised the interest rates. But if you don’t believe me, you can listen to President Reagan’s former budget director David Stockman, who helped invent trickle down economics.

The problem with both of these analyses is that they argue broadly about policies that need to be looked at in a more specific design. As I’ve argued in the past, current economic models do not allow economists to take into account what really matters to families. The tax cuts families receive will be spent on areas that will ensure the families stability. President Obama could have made a strong argument to raise taxes on the wealthy to ensure programs like Social Security and Medicare stay intact. Many people rely on these programs, especially the baby boomers. Who, by the way, will be retiring soon and who will vote in 2012. But by waiting this long to deal with the Bush tax cuts he had no time. The consequences, politically and economically, would have been worse if he allowed everyone’s taxes to be raised. He had to let high income earners taxes stay low. It was a classic no win scenario.

All in all, no harm was done, but unfortunately not a lot of good was done either. So lesson learned, don’t wait for the last minute to get your ducks in a row.

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Filed under Economics, economy, lame duck, President Obama, stimulus, tax cuts, taxes