Economy

Turning the Cliff into a Launch Pad

One part of the dreaded fiscal cliff actually presents an opportunity that could be good politics and good economics. The temporary two-point cut in the payroll tax expires January 1 (along with the Bush tax cuts). The $1.2 billion sequester also kicks in. Deficit hawks of both parties have been saying that it’s irresponsible to extend the payroll tax cut, while defenders of Social Security like the American Association of Retired Persons (AARP) are opposed to an extension for fear of diverting revenue from the Social Security trust fundsand adding ammo to the crusade for cutting back the system’s benefits. But there is a nice opportunity here to turn a lemon into lemonade. The economy is hardly robust enough to inflict a two-point tax increase on working people. For two-income households, that’s a four-point increase. That means, say, a $2,400 tax hike on a $60,000 family income. Nobody is going to remember that this was temporary; they will simply experience it as a tax increase on...

Mitt Romney's Question Mark Economy

(Jamelle Bouie/The American Prospect)
As we close in on Election Day, the questions about what Mitt Romney would do if elected grow even larger. Rarely before in American history has a candidate for president campaigned on such a blank slate. Yet, paradoxically, not a day goes by that we don’t hear Romney, or some other exponent of the GOP, claim that businesses aren’t creating more jobs because they’re uncertain about the future. And the source of that uncertainty, they say, is President Obama — especially his Affordable Care Act (Obamacare) and the Dodd-Frank Act, and uncertainties surrounding Obama’s plan to raise taxes on the wealthy. In fact, Romney has created far more uncertainty. He offers a virtual question mark of an economy For example, Romney says if elected he’ll repeal Obamacare and replace it with something else. He promises he’ll provide health coverage to people with pre-existing medical problems but he doesn’t give a hint how he’d manage it. Insurance companies won’t pay the higher costs of insuring...

(Fiscal) Cliffs Notes

(Flickr/Matthew Wilkinson)
The most bizarre thing about the deficit and the campaign is the fact that the risk of a fiscal cliff—which everyone agrees will crash the economy—is being used to justify a slightly smaller fiscal cliff. There are several players here, so the arguments are worth sorting out. Herewith, some Cliffs Notes: What is the fiscal cliff? It comes in three parts. On January 1, the Bush tax cuts expire. This means that in the first pay period of the new year, more taxes are taken out of everyone’s withholding. Second, the temporary two-point cuts in payroll taxes expire too, so everyone’s Social Security and Medicare taxes go up as well. Third, the dreaded “sequester” of automatic budget cuts, the toxic fruit of the Republican blockade of a normal budget deal back in 2011, kick in. Oh, and extended unemployment benefits expire, too. What would all this fiscal tightening do to the recovery? It would create a new recession, according to the Congressional Budget Office (CBO), Fed Chairman Ben...

How January's Fiscal Cliff Turns into a Gentle Hill by February

Regardless of what happens on Election Day, at the beginning of next year more than $600 billion in tax increases and spending cuts automatically go into effect. That’s equivalent to about 5 percent of the entire U.S. economy—more than the projected growth of the whole gross domestic product next year. The problem is, if we fall off this fiscal cliff, we plunge into recession. That’s because the cliff withdraws too much demand from the economy too quickly, at a time when unemployment is still likely to be high. The Congressional Budget Office projects real economic growth will drop at an annual rate of 2.9 percent in the first half of 2013, and unemployment will rise to 9.1 percent by the end of next year. As Spain and Great Britain have demonstrated, launching fiscal austerity at a time when a nation’s economic capacity is substantially underutilized causes the economy to contract. This makes the debt even larger in proportion to the size of the economy. Rather than reassure global...

Color-Blinded

(AP/Pablo Martinez Monsivais)
(AP/Pablo Martinez Monsivais) Imagine a college whose orchestra was missing a bassoon player, or whose football team was down a running back. It would go without saying that this school could admit an applicant who plays the bassoon over a candidate who plays the French horn, even if that French horn player had slightly higher grades, or that its admissions officers could give preference to a high school’s star running back over its equally talented defensive lineman. The entire university community benefits from a full orchestra or a football team with a complete offensive lineup, and college admissions officers routinely take similar considerations into account when they think about how to build an incoming freshman class. Nine years ago, in its landmark Grutter v. Bollinger decision, the Supreme Court recognized that race is just like an orchestra. Contrary to the common view that affirmative action is a zero-sum game—in which each seat given to a minority must be taken from a...

Show Me The Money: Correction

Last week, I launched a series simultaneously attacking and hijacking the quadrennial question: Are you better off than you were four years ago? For the first one, I reported on how women are doing economically compared to four years ago. But one of my sentences confused readers—apparently because I myself was confused. For my correction, let me simply quote what Heidi Hartmann of IWPR, one of the labor economists I cited, wrote me: I do have a little trouble with this sentence though because I’m not sure what you were trying to get at. If I said something like this I was not very accurate: Elderly women have fared a little better, because older people who live on Social Security haven’t lost much. They weren’t as affected by the drop in housing prices or the evaporation of pensions, since they hadn’t had jobs to begin with. It might be better to phrase it slightly differently: Elderly women have fared a little better, because older people who live on Social Security haven’t lost...

Romney's Tax Plan Still Makes No Sense

For my part, the most incredible exchange of the first presidential debate came in the first 20 minutes, when President Obama hit Mitt Romney on his tax plan—which would implement across-the-board cuts to marginal rates—and the Republican nominee responded by denying its existence . Romney insisted that his plan would not cut upper-income taxes ( it calls for a 20 percent reduction ) and, in fact, would end breaks for upper-income taxpayers (he has yet to give any detail on this score). The Tax Policy Center, on the other hand, found that there was no way for Romney to accomplish his goals—tax cuts, fewer loopholes, revenue neutrality—without significant tax increases on some group of taxpayers. The Romney campaign has repeatedly dismissed the study. Today, the co-director of the Tax Policy Center, William Gale, offers a response : Suppose Governor Romney said that he wants to drive a car from Boston to Los Angeles in 15 hours. And suppose some analysts employed tools of arithmetic to...

Obama: Giving Away Social Security

(AP/Rex Features)
Here is Mitt Romney’s proposal to cut Social Security benefits, from the Romney campaign website : First, for future generations of seniors, Mitt believes that the retirement age should be slowly increased to account for increases in longevity. Second, for future generations of seniors, Mitt believes that benefits should continue to grow but that the growth rate should be lower for those with higher incomes. In other words, cuts in benefits. In the first debate, I was waiting for President Obama to go to town on this. Instead, Obama had this to say: LEHRER: "Mr. President. Do you see a major difference between the two of you on Social Security?" OBAMA: "You know, I suspect that, on Social Security, we’ve got a somewhat similar position. Social Security is structurally sound. It’s going to have to be tweaked the way it was by Ronald Reagan and Speaker — Democratic Speaker Tip O’Neill." He’s got a similar position to Mitt Romney’s? On Social Security? Does this man just want to hand the...

Smaller Deficits Are Bad News

A new report from the Congressional Budget Office shows that the deficit has declined by $200 billion, bringing it to where it was when Obama took office. Here’s the key passage: The federal government’s fiscal year 2012 has come to a close, and CBO estimates that the federal budget deficit for the year was about $1.1 trillion, approximately $200 billion lower than the shortfall recorded in 2011. The 2012 deficit was equal to 7.0 percent of gross domestic product, CBO estimates, down from 8.7 percent in 2011, 9.0 percent in 2010, and 10.1 percent in 2009, but greater than in any other year since 1947. CBO’s deficit estimate is based on data from the Daily Treasury Statements; the Treasury Department will report the actual deficit for fiscal year 2012 later this month. There’s an excellent chance that President Obama will tout this in upcoming speeches and campaign events. But that doesn't mean it's a good thing—a large portion of this is almost certainly the result of a conservative...

Full Employment Is the Best Social Program

The optimistic debate about what could happen in the United States after the unemployment rate goes down

AP Photo
The unemployment rate’s drop to 7.8 percent, reported last week, marked the first time since 2009 that the rate was below 8 percent. It’s fitting that this occurred shortly after someone who predicted the rate couldn’t get below 8 percent changed his mind. Until a year ago, president of the Minneapolis Federal Reserve Narayana Kocherlakota had argued that there may be a new normal unemployment rate of 8.7 percent, and that adjusting the rate at which banks borrow money would do little to help. Now he argues that the Fed should commit to keeping rates low until unemployment is declines—a position in line with those hawkish about our unemployment crisis. Kocherlakota’s arguments were popular among the right, with conservatives like David Brooks name-checking him in his national column. But they also found support from a surprising ally: former President Bill Clinton. Clinton went on David Letterman's show and NPR in 2010, quoting Kocherlakota to argue that we were “coming out of a...

The Politics of the Jobs Report

The White House is breathing easier this morning. The Bureau of Labor Statistics reports the unemployment rate dropped to 7.8 percent—the first time it’s been under 8 percent in 43 months. In political terms, headlines are everything—and most major media are leading with the drop in the unemployment rate. Look more closely, though, and the picture is murkier. According to the separate payroll survey undertaken by the BLS, just 114,000 new jobs were added in September. At least 125,000 are needed per month just to keep up with population growth. Yet August’s job number was revised upward to 142,000, and July’s to 181,000. In other words, we’re still crawling out of the deep crater we fell into in 2008 and 2009. The percent of the working-age population now working or actively looking for work is higher than it was, but still near a thirty-year low. But at least we’re crawling out. Romney says we’re not doing well enough, and he’s right. But the prescriptions he’s offering—more tax cuts...

We're All Values Voters

(AP Photo/Pablo Martinez Monsivais)
As recently as last month’s convention, Democrats were getting their narrative back. They were uniformly praised for their message discipline and for laying out an inspiring vision for the country, reflected in a string of rousing speeches that told a story and signaled (instead of concealed) their values. After last night’s debate, Dems risk falling back into the lost decades when the party could offer only a grab bag of policy goodies to its fragile coalition instead of a coherent governing philosophy. If Barack Obama’s debate performance is any indication, they seem poised to forget a key lesson from the last three elections: We’re all “values voters.” Yes, we in the commentariat always clamor for more specifics. But policies mean little if they’re not communicated as part of a larger narrative that speaks to voters’ values. I don’t mean gay marriage and abortion, per se, but the belated understanding by Dems (decades after the GOP) that voters make choices based on whether a...

Those Unemployment Numbers

President Obama gets a lift from a relatively positive employment report for September. The nation gained 114,000 jobs, and the unemployment rate declined to 7.8 percent, the lowest since Obama took office. Earlier disappointing figures were revised upwards, by 40,000 for July and 45,000 for August. All this gives Obama some bragging rights, and heads off what would have been a withering attack had the news been bad. But Obama makes a mistake by emphasizing what the progress the economy is making. Median household incomes are down, young people face rough going as they enter the job market, and the elderly have dwindling pension coverage and almost no returns on their savings in a zero interest rate environment. It would be much better to emphasize the mess that he inherited from the Republicans, the fact that every effort he has made to produce a stronger recovery has been blocked by the opposition, and the dismal 30-year trend of worsening inequality and rising insecurity. The...

Are Women Better Off than We Were Four Years Ago?

(Flickr/Lekere)
Last week I confessed that I don’t like presidential election season. I don’t like the trivialized reportage, the horse-race-ification of serious subjects, and the narrowed vision that settles in on policy folks during these months. I especially don’t like the question “Are you better off now than you were four years ago?” This suggests two things to which I object: first, that the president is in charge of how well-off I am, when all of us know that American politics and global economics are far more complex. Second, that “better off” or “worse off” can be reduced to my current income and immediate financial prospects, even if those were dependent on the president. So I’m going to hijack that question for my own purposes and ask: Are women better off than we were four years ago—not just financially, and not just in ways affected by President Barack Obama’s administration, but overall? Episode one: Show me the money. Despite the fact that I dislike the reduction of life to finances,...

CFPB Catches American Express Breaking the Law

American Express customers will receive $85 million in refunds for deceptive practices

(Flickr/Images_of_Money)
After a slow start, the Consumer Financial Protection Bureau (CFPB) is beginning to live up to consumer advocates' hopes and Wall Street's fears. On Monday, the new federal regulator announced a steep penalty and fine against American Express for ripping off their customers. Three subsidiaries of the credit-card company will have to refund $85 million to around 250,000 customers. As a result of the investigation—conducted by the CFPB, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board (FRB), the Office of the Comptroller of the Currency (OCC), and the Utah Department of Financial Institutions—American Express was fined an additional $27.5 million that will be divvied up between the various regulators' coffers. Investigators found that American Express deceived customers at a number of steps, starting from the initial sale of a credit card. Customers were told they would receive extra points, totaling $300, by signing up for a "Blue Sky" credit card, but the...

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