U.S. Economy 2011 Part II

The Dismal Economic Outlook For The New Year
by Paul Craig Roberts
(Foreign Policy Journal) Jobs offshoring, financial deregulation, and ten years of wars have severely damaged the US economy and the economic prospects of 90% of the American population. The signs are everywhere in front of our eyes. They are in the income distribution data, the BLS jobs data, the Census data, the poverty figures, and the high number of food stamp recipients

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31 December
Barack Obama signed a law that extends both a payroll tax- cut for employees and unemployment-insurance benefits. It was a big, and increasingly rare, political victory for the president and came after Republicans in the House of Representatives, under pressure from a vexed public, abandoned their opposition to the legislation. The “tea party” loses a fight over economic stimulus
22 December
Senate Republican McConnell tries to end tax impasse
(Reuters) – The top Senate Republican on Thursday sought to break a year-end stalemate over extending a payroll tax cut for 160 million Americans, an issue that has deeply divided his party and raised the risk of a U.S. economic downturn in 2012.
Mitch McConnell urged fellow Republicans in the House of Representatives to temporarily extend the tax break to allow time for negotiations with Democrats on a longer-term fix. Simultaneously, he called on Democratic Senate Majority Leader Harry Reid to appoint negotiators to work on a full-year deal.
19 December
Payroll tax cut extension stuck in partisan fight
(Reuters) – With a tax cut for 160 million workers set to expire in less than two weeks, Republicans and Democrats in Congress on Monday were mired in a last-ditch battle over extending it.
28 November
Slice of missing MF Global customer cash may be in Britain
(Reuters) – About $200 million in customer funds missing at MF Global may have surfaced at JP Morgan Chase in Britain, the New York Times said, citing people briefed on the matter.
During MF Global’s last days, it overdrew an account at JPMorgan, the newspaper said, citing a person close to the matter. MF Global transferred roughly $200 million in the days before the firm filed for bankruptcy, the paper reported.
CFTC to vote on funds rule opposed by MF Global
(Reuters) – The U.S. futures regulator said on Monday it will vote at its December 5 meeting on a rule that would prohibit brokerage firms known as futures commission merchants from investing customer funds, a measure that now-bankrupt MF Global had encouraged the agency to delay.
4 November
Downfall of MF Global
(FT) The failure of MF Global, with its $41bn in assets – the eighth biggest bankruptcy in US history – is modest compared with the chaotic failure of Lehman Brothers, which had a $691bn balance sheet, in 2008. Regulators and the US Treasury were happy to show that not all Wall Street firms are too big to fail and let MF Global go under.
But, coming three weeks after the Franco-Belgian bail-out of Dexia, the pan-European retail bank, it showed the renewed fragility of financial institutions exposed to the European sovereign debt crisis. MF Global’s downfall occurred because the market lost faith in the $6.3bn bet Mr Corzine had placed on the bonds of European countries including Italy and Spain.
7 October
Obama says protests born of ‘frustration’
(FT) President endorses a Democratic proposal for a so-called millionaire’s tax to pay for his $447bn jobs plan
6 October
Robert Scheer: What Do They Want? Justice
(HuffPost) How can anyone possessed of the faintest sense of social justice not thrill to the Occupy Wall Street movement now spreading throughout the country? One need not be religiously doctrinaire to recognize this as a “come to Jesus moment” when the money-changers stand exposed and the victims of their avarice are at long last offered succor. … ignore the mass media’s nitpicking and mostly derisive coverage and wonder instead why it took so long for this grass-roots movement to emerge as an alternative to the tea party, which exonerates the thieves of Wall Street. With 25 million Americans unsuccessfully looking for full-time work, 50 million experiencing mortgage foreclosure and an all-time high of 46.2 percent living in poverty, including 22 percent of all children, isn’t it logical that the faux populism of the tea party be confronted with a progressive alternative? Another view Wall Street Protests Ignore Legitimate Gripe from Caroline Baum Of Bloomberg, who suggests “Scrapping the tax code and moving to a flat tax — the simplest way to kill the lobbying industry — might seem unfair to a bunch of protesters with amorphous gripes. But with that as a goal, the new movement might get a bunch of us grown-ups off our chairs and into the street to join them.” Meanwhile, Jonathan Alter believes that Occupy Wall Street Should Scare Republicans. He differs from Ms Baum, citing “the often-articulate protesters in the park” [whose] arguments … were economic, not partisan.” He also suggests that “[the] very shapelessness [of the movement] is a huge asset (to use the Wall Street term). If “We’re the 99 percenters” catches on, and the crazies can be marginalized, then the challenge will be to move from the streets to the ballot box, as the Tea Party did in 2010.”
30 September
Bank of America Adds Monthly Debit Card Fee, Risking Public Ire
(PBS) Bank of America announced Thursday it will tack on a new $5 monthly fee for customers who use a debit card to make purchases. Jeffrey Brown leads a debate about the new fees and what they mean for banks and consumers with David Lazarus of The Los Angeles Times and Richard Hunt of The Consumer Bankers Association.
29 September
J. Bradford DeLong: A Free Lunch for America
(Project Syndicate) The US government can currently borrow for 30 years at a real (inflation-adjusted) interest rate of 1% per year. Suppose that the US government were to borrow an extra $500 billion over the next two years and spend it on infrastructure – even unproductively, on projects for which the social rate of return is a measly 25% per year. Suppose that – as seems to be the case – the simple Keynesian government-expenditure multiplier on this spending is only two.
In that case, the $500 billion of extra federal infrastructure spending over the next two years would produce $1 trillion of extra output of goods and services, generate approximately seven million person-years of extra employment, and push down the unemployment rate by two percentage points in each of those years. And, with tighter labor-force attachment on the part of those who have jobs, the unemployment rate thereafter would likely be about 0.1 percentage points lower in the indefinite future.
28 September
Laurence Kotlikoff: Five Prescriptions to Heal Economic Ills
Desperate times call for creative measures. We’re in desperate times, but we’ve had little creative thinking from the Obama administration on how to fix the economy.
According to Ron Suskind’s new book, “Confidence Men,” Lawrence Summers, formerly the president’s chief economist, was concerned more with controlling than developing policy. No surprise. Hiring Summers was a huge mistake. But he’s gone, and the current economics team is free to think outside of Summers’s narrow, politically calculated box. …
1. Stop paying interest on bank reserves.
2. Get workers to invest in jobs.
3. Compel corporate America to invest.
4. Get prices and wages unstuck.
5. Achieve fiscal sustainability
26 September
Here is where Obama and Reagan part ways
(Ottawa Citizen) Kenneth Rogoff, former chief economist at the International Monetary Fund and professor of economics at Harvard University, argues that the recession of 2008-’09, and the next dip (if there is one), is an economic retraction caused by the implosion of a financial bubble. That’s the sort of thing that may happen only once in a lifetime. And it’s nastier than any ordinary recession, however severe.
Reinhart and Rogoff showed that following a severe financial crisis, it typically takes the economy four years just to get back to where it was prior to the catastrophe. Based on that work, Rogoff said early in the crisis that the end of the recession would be followed by years of very weak growth in the United States and elsewhere. That and much else has played out as Rogoff expected.
If Rogoff is right, there is essentially no hope of a swift economic rebound like the one that lifted Ronald Reagan from ignominy to glory. And without that, there will be no landslide re-election for Barack Obama (although squeaking back into office is still possible given the weakness of the Republican alternatives).
23 September
Congress delays budget fight until Monday
(Reuters) – The Congress set the stage for another last-minute budget showdown as lawmakers delayed action on a broad spending bill until Monday, shortly before disaster relief funds will run out completely.
This time, the brinkmanship threatens to disrupt assistance to victims of floods, wildfires and other natural disasters in one of the most extreme years for weather in U.S. history.
21 September
Jeffrey Sachs: Grim Realities in the Obama Budget Plan
(HuffPost) President Obama is defending a basic principle of budget fairness against the wretched selfishness of the Republican candidates. The Republican anti-tax position is so stark and greedy that Obama will win the political debate and probably the polls next year. He deserves our support for facing down the extreme right. … Obama may be leaning against the right-wing juggernaut, but he is not changing its direction, only slightly blunting its force.
20 September
Obama Buffett Rule Comments: Are Rich Actually Taxed At Higher Rate Than Middle Class?
(HuffPost) Treasury Secretary Timothy Geithner was pressed at a White House briefing on the number of millionaires who pay taxes at a lower rate than middle-income families. He demurred, saying that people who make most of their money in wages pay taxes at a higher rate, while those who get most of their income from investments pay at lower rates.
“So it really depends on what is your profession, where’s the source of your income, what’s the specific circumstances you face, and the averages won’t really capture that,” Geithner said.
Paul Krugman: Notes on Class Warfare
I’ll be saying much more on this. But for now, partly as a note to myself, some notes on the actual class war that has taken place over the past 30 years — namely class warfare for the rich against the middle class.
1. Major tax cuts for high-income Americans, much larger as a percentage of income than for the middle class; CBO data here.
2. Decline in real minimum wage.
3. Union-busting, aided and abetted by federal policy.
4. Financial deregulation, which has fed inequality because very high incomes come disproportionately from that sector.
And now shrieks of outrage over the prospect of even a slight reversal of these trends.
19 September
Obama offers stark choice to Republicans
(FT) President says conservative lawmakers must choose between higher taxes on the wealthy or gutting the education and health systems (WaPost) Obama proposes new taxes on wealthy for half of debt plan
This Time He Really Means It
Obama has been angry before, but he’s never been able to stay angry. Will his latest economic plan be any different?
(Slate) The grand bargain is back—and it’s angry. President Obama put forward his long-term, $3.6 trillion deficit-reduction plan Monday, and it is patterned on the agreement he nearly reached last summer with his former golfing buddy John Boehner. But this time there was more punch to the plan. The president called for $1.5 trillion in revenue increases, which is $1.5 trillion more than Republicans want. Obama offered the GOP less on Medicare reductions than he had flirted with last summer, too.
Obama Embraces ‘Buffett Rule’
(The Daily Beast) The Republicans are crying ‘class warfare,’ but the president is pledging to fight for Warren Buffett’s proposal that millionaires should pay higher taxes—and he just might win.
12 September
Obama Jobs Plan: Federal Aid For States Splits Democrats, Republicans
President Barack Obama’s latest jobs plan calls for $130 billion in aid to state and local governments, providing either a welcome infusion of cash for those struggling with budget gaps, government layoffs and crumbling roads or merely a temporary patch for budget holes that are likely to remain long after the federal money runs out.
The perspective of governors and state lawmakers varies but often follows political affiliation, with Democrats generally praising Obama’s plan and Republicans remaining skeptical. Obama Sending Jobs Bill To Congress
9 September
Shields, Brooks on Obama’s Jobs Speech, Perry’s Debate Debut
(PBS Newshour) … you have got to be aware of is, we are in serious peril of a double-dip in recession. And so all these are in favor of what he said. The doubts I have, one is, will he pay for it? And he sort of was ambiguous about how aggressive he was going to be in doing that.
Good Reads: World reaction to Obama’s jobs speech
For Britain’s Guardian and Economist, Obama’s jobs speech was all about partisan politics. For France’s Le Monde, it was about the use of rhetoric and statecraft in guiding a powerful nation through difficult times. For the China Daily, it was all about Joe Biden.
Paul Krugman: At this point, leading Republicans are basically against anything that might help the unemployed. Yes, Mr. Romney has issued a glossy, well-produced “jobs plan,” but it might best be described as 59 bullet points with nothing there — and certainly nothing to justify his assertion, bordering on megalomania, that he would create no fewer than 11 million jobs in four years. (NYT via Slate)
The good news in all this is that by going bigger and bolder than expected, Mr. Obama may finally have set the stage for a political debate about job creation. For, in the end, nothing will be done until the American people demand action.
Obama’s Jobs Gamble: He dares the Republicans to thwart his $447 billion proposal. Can he possibly win?
(Slate) The question of the speech is the question of the Obama presidency. How much can he realistically achieve in an office that is constrained by the Constitution, the opposition and a public that is angry, scared, and sending mixed signals. Is Obama doing the best anyone could, or is he playing a bad hand badly? His speech was an attempt to show that he’s trying to break through the limits in every way he can.
President Obama is the first president to use the word “tweet” in an address to a joint session of Congress. And his message Thursday night was tidy enough to fit in 140 characters: @barackobama Hey @HouseGOP pass my plan or else–BO. The more than 4,000 words the president spoke contained details of his American Jobs Act, a $447 billion program aimed at giving the economy a jolt. Obama promised a continuation and expansion of the payroll tax cut that would give $1,500 a year to working people, tax breaks for hiring veterans and the long-term unemployed, and major investment in infrastructure to rebuild schools and roads, among other measures. Obama said he would pay for it all and made it clear that if Congressional Republicans didn’t pass it quickly, he would blame them. If it didn’t pass at all, he would blame them in the general election.
Kelly McParland: Professor Obama takes a turn as Rocky Balboa
Professor Barack Obama, the cerebral academic with the big theories on government, gave the impression Thursday night that he’s learned a big lesson: Congress isn’t his friend.
You could see it in the feisty approach to the speech he delivered to a joint sitting of Congress. He was more like the old Obama, the campaigning Obama, than the mysterious stranger who has been impersonating him in the White House the past year or so.
“You should pass this jobs bill,” he told them right off the bat. Then he kept saying it, the way he used to say “Yes we can”, back when he maybe still believed it. You have to figure he doesn’t believe it any more — the “yes we can” part, I mean — not after two years of face time with a Congress like the one he’s stuck with.
“You should pass this bill,” he repeated. As in, now, right away. No more dicking around, no more phony crises over whether or not the U.S. is willing to pay its bills, no more pretending it’s better to default on its obligations than to spend money on stuff like health care. His attitude said: Americans are fed and everyone knows it. They don’t have much respect for either of the two parties, or for the job performance of many of the people who were sitting in the audience, passing judgment on him. Here’s a bill that includes many programs backed by Republicans, introduced in Republican states, or proposed by Republican legislators. It’s paid for (not really), and it might convince a few people in America and abroad that Washington hasn’t totally seized up.
It was like, OK, you don’t want to be my friend, fine. Here’s my plan. You don’t like it, explain it to the folks back home. “The question is whether, in the face of an ongoing national crisis, we can stop the political circus and actually do something to help the economy,” he said, pointedly.
President Obama’s jobs speech to Congress – as it happened
(The Guardian) President Obama called on Congress to pass a $447bn package of tax cuts and spending to get America back to work
A choice of medicines: A dismal employment picture precipitates competing remedies from the president and his challengers. But will any of them work?
(The Economist) Could Mr Romney, or any Republican, succeed where Mr Obama has failed? Many of their ideas, properly implemented, would boost long-run potential, but not address the reason why the recovery has struggled to gain a foothold: banks and households are still whittling down their pre-crisis debt, thus sapping demand and almost guaranteeing years of low growth.
Republicans believe the principal barrier to new hiring is uncertainty related to Mr Obama’s new laws and regulations. They have a point: regulations usually raise costs and make ventures that might have been profitable less so. Asked their single biggest problem, 16% of small businesses cited “government requirements and red tape”, according to the National Federation of Independent Business. Mr Obama seems to have taken their criticism to heart; on September 2nd he postponed a costly rule on ozone emissions. Yet Republicans almost certainly overstate the importance of uncertainty. The same survey found that the leading problem most often cited by small businesses, at 23%, was poor sales. Postponing rules perpetuates uncertainty; but businesses often prefer such uncertainty to the certain costs of immediate compliance.
6 September
In Jobs Data, ‘Surprises’ Mean Bad News
(Fivethirtyeight blog) Friday’s jobs report was suggestive of an economy at stall speed. The United States neither added or subtracted jobs in August, according to the initial estimates from government’s establishment survey. The numbers hadn’t been good before, but this was the first time in ten months that the payrolls figure had failed to be positive.
The report contrasted with the expectations of economists surveyed by organizations like Bloomberg and Reuters, who had forecast about 64,000 jobs to be added. In the shorthand of financial journalists, the result was deemed to be “unexpected.”
… With the larger sample size, we can now say almost without question that the jobs creation estimates put forward by economists have been biased upward. Negative surprises have been about twice as common as positive ones over the past 12 years.
What’s interesting is that this pattern is fairly persistent across time: the study covers portions of three expansions and two recessions, and the optimism bias is present in all five periods. If anything, it’s gotten a little bit milder recently: economists were especially flummoxed when the jobs engine of the 1990s began to screech to a halt at the start of the 2000s.
2 September
Shields, Brooks on ‘High Bar’ for Obama’s Jobs Speech, Funding Disaster Relief
Syndicated columnist Mark Shields and New York Times columnist David Brooks weigh in on the week’s top political news, including the bleak August jobs report, what President Obama needs to say in his prime-time speech on job creation and who should foot the bill for relief efforts after disasters such as Hurricane Irene.
Can America’s Jobless Fill American Jobs?
(Newshour) With the U.S. unemployment rate stuck around 9 percent, economics correspondent Paul Solman explores whether widespread joblessness is simply the result of a weak economy or if a broader shift toward higher-skill work is occurring that could leave many Americans behind even when the economy recovers.
Analysis: Mix of measures more likely in Obama jobs plan
(Reuters) – Poor U.S. jobs figures on Friday put President Barack Obama on the spot to create a viable jobs plan in a speech to Congress next week that may help determine whether he wins re-election or not.
With no jobs created in August, Obama is under pressure to lay out a bold, long-term strategy to invest in measures that would jump-start economic growth. A successful approach would give him a 2012 campaign platform against Republicans, who accuse him of being a job killer.

22 August
Jeffrey Sachs: CEO Follies
(Huffington Post) There may be no group of people in the world more out of touch with U.S. ground reality than super-rich CEOs of major U.S. companies railing against Warren Buffett’s suggestion that the rich should pay higher taxes. The Wall Street Journal today brings a somewhat surprising case in point (“My Response to Buffett and Obama,” by Harvey Golub, August 22, 2011). Former American Express CEO Harvey Golub, generally respected among his peers, lets loose an ill-informed screed that shows the cocoon in which many of these CEOs live their lives.
21 August
Wall Street Aristocracy Got $1.2 Trillion in Secret Fed Loans
(Bloomberg) Citigroup Inc. (C) and Bank of America Corp. (BAC) were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits.
By 2008, the housing market’s collapse forced those companies to take more than six times as much, $669 billion, in emergency loans from the U.S. Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret.
12 July
Republican offers new U.S. debt proposal
But fix would be tied to future spending cuts
(CBC) Senate minority leader Mitch McConnell suggested giving President Barack Obama sweeping new power to, in effect, unilaterally increase the nation’s debt limit to avoid a first-ever default on U.S. obligations.
McConnell’s offer would allow the president to demand up to $2.4-trillion in new borrowing authority by the summer of next year in three separate submissions. However, Obama would also be required to simultaneously propose spending cuts of greater size.
11 July
Barack Obama tells Republicans: It’s time to eat your peas over debt
Barack Obama warned Republican leaders that they risked tipping the world back into a recession and throwing “millions of more people out of work” unless they could reach a deal with him on increasing the US’s debt –
Driven off the Road by M.B.A.s
(TIME) … [Bob Lutz’s] new book, Car Guys vs. Bean Counters: The Battle for the Soul of American Business, has a message worth hearing. To get the U.S. economy growing again, Lutz says, we need to fire the M.B.A.s and let engineers run the show.
The auto industry is actually a terrific proxy for a trend toward short-term, myopically balance-sheet-driven management that has infected American business.
8 July
Brooks on Debt Deal Reality
In his weekly appearance on PBS Newshour, David Brooks was surprisingly optimistic about the possibility of a deal on the debt ceiling. ” I think they [Boehner and Obama] have made significant progress in private. … I have to say, for those of us who have been waiting for the leaders of the two parties to have serious negotiations about big things, that is happening now. And, overall, I think it’s excellent news.” [Update: However, Bloomberg reports that Boehner Backs Away From $4 Trillion Deficit Reduction Accord — House Speaker John Boehner said he will pursue a smaller deficit reduction accord than the one that President Barack Obama is seeking because the White House won’t approve a bigger deal without tax increases.]
Tax the Rich. Problem Solved
(Common Dreams) Credible economists and lawmakers on both sides generally agree that raising the debt ceiling is an essential part of governing, and that a large deficit can pose a danger to economic security. But if Speaker Boehner genuinely cares about deficit reduction, he need only look to ending his own party’s policies and shifting the tax burden. Swearing allegiance to Grover Norquist’s no-new-taxes pledge, the GOP will only allow room for $4 trillion in cuts, arguing this is a spending problem, not a revenue problem. However, their budget would collect exactly $4 trillion less over the next decade through even more tax cuts for corporations and the wealthy. We would like someone to verify these numbers Although the writer is not a recognized pundit, and his illustration of the issue is somewhat convoluted, his basic argument makes sense.
5 July
Financial Reform: Republicans Fight To Dilute Wall Street Regulations
President Barack Obama’s financial overhaul law is nearly a year old. For congressional Republicans, the fight to weaken it is just starting.
(HuffPost) Wary of trying to repeal the entire statute and being portrayed as Wall Street’s protectors – banks rank among the country’s least popular institutions – GOP lawmakers are trying to nibble away at the behemoth measure. It’s a crusade they’re waging despite lacking the White House and Senate control they need to prevail.
Days ago, one Republican-run House committee approved bills diluting parts of the law requiring reports on corporate salaries and exempting some investment advisers from registering with the Securities and Exchange Commission. Another House panel voted to slice $200 million from Obama’s $1.4 billion budget request for the SEC, which has a major enforcement role.
Meanwhile, Senate Republicans are continuing a procedural blockade that has helped prevent Obama from putting Elizabeth Warren or anyone else in charge of the Consumer Financial Protection Bureau, which opens its doors in two weeks.
1 July
The Minnesota shutdown, the NBA and the death of compromise
As of 12:01 this morning, the Minnesota government shut down with Democratic Gov. Mark Dayton and Republican legislators unable to find common ground on a budget.
The Minnesota morass comes amid a broader national fight over budget priorities with President Obama and Congressional Republicans both ramping up the rhetoric this week even as the Aug. 2 deadline to raise the debt limit draws ever closer.
… While lockouts, strikes and shutdowns – in politics and sports – are nothing new, this spate of recent developments suggest that something in our culture is changing. In short, compromise has become a bad word. Grand bargains are no longer seen as grand. Lonely stands – whether principled or political – are prized.