Economy

Not a Great Deal for Asia

The Trans-Pacific Partnership could end up hurting the broader economic interests of both the U.S. and smaller Asian nations.

(Flickr/images_of_money)
The Trans-Pacific Partnership is best understood as President Barack Obama’s extension of the Bush-era doctrine of “competitive liberalization.” Frustrated with pushback at the World Trade Organization by nations like China, Brazil, India, and South Africa, the United States seeks a coalition of the willing to import a commercial framework that rewards private firms at the expense of the common good. That policy regime is ailing in the U.S. and gets worse when exported. The Trans-Pacific Partnership (TPP) certainly isn’t about raising standards of living. The most ambitious estimates of the gains from the TPP suggest that participating nations will gain a mere one-tenth of 1 percent of the gross domestic product. Sixty percent of the projected gains go to Vietnam and the United States, and the other 20 percent goes to Malaysia—largely because the U.S. already has trade pacts with the other proposed big players in the TPP. However, the proposed deal is far from popular in Asia. In...

Banks Holding Up to the Downturn Stress

Today's Balance Sheet: The next round of bank stress tests finish up this week.

The Federal Reserve is scheduled to release the results of the latest bank stress tests this Thursday, which are expected to signal healthy balance sheets—a marked difference from the 2009 round of stress tests, and another indicator that our slowly recovering economy has been on an even sunnier upswing the past few months. The previous round of stress tests—which ended last March—weren't released to the public. The purpose of the stress tests is to see how well financial institutions could survive an economic downturn worse than the one that followed the Lehman collapse, with 13 percent unemployment and 50 percent stock market decline. If banks don't fare well under the stress test, they might have to raise billions of dollars in order to get on safer ground. “Everybody wants to avoid headlines,”Oppenheimer analyst Chris Kotowski told The New York Times . “People are angry at the banks, and both the banks and the regulators just want to do something to show we’re working our way back...

February Jobs Numbers: +227,000

Today's Balance Sheet: Job numbers keep on keeping on. 

The unemployment rate remained at 8.3 percent after a gain of 227,000 jobs this February, according to the monthly report released by the U.S. Bureau of Labor Statistics this morning. This marks the third month in a row where the economy gained more than 200,000 jobs, a streak we haven't seen since early 2011. The best news in the report was a substantial upward revision from December and Janaury's jobs numbers—61,000 more jobs were added during those months than originally thought. The economy isn't adding enough jobs to improve at a rapid pace, but three months of steady growth shows we're heading in the right direction. After the report's release, Craig Dismuke, chief economic strategist at Vining Sparks, told Reuters , "This is a healthy number. It confirms that the labor market is gradually improving. I also liked the revisions. All in all, it's really a positive report." The Latest Consumers Shape Up Their Finances The Wall Street Journal Obama unveils new foreclosure measures...

Tea Party Sharpens Its Budget Scissors

Today's Balance Sheet: Time for Congress to get feisty again. 

Perhaps afraid of tarnishing their hard-earned obstructionist cred, congressional Republicans look like they're heating up for another big fight over the budget. Tea Party legislators are pushing a plan that would cap agency appropriations at almost $20 billion below the $1.047 trillion limit agreed to last August as part of the Budget Control Act. This cap is already substantial and will force cuts or freeze spending in many government agencies—imagining Congress trying to agree on where to shave off an additional $20 billion the federal budget is headache-inducing. But with the government continuing to run $1 trillion-plus deficits, fiscal conservatives are hungry for an opportunity to take a symbolic stand. House Budget Committee Republicans are meeting today to discuss their options for the 2013 budget, and Republican House Appropriations chairman Hal Rogers is still committed to the agreed target and may be able to force the more intractable elements of his party to acquiesce...

We Want Our Money Back

Good-governance groups are fighting back against companies that take state subsidies and then head out of town.

(Flickr/401K)
One can understand why North Carolinians hold a grudge against Dell Computers. In 2009, the company shuttered its Winston-Salem plant, laid off 900 people, and made off with $6 million in state subsidies and incentives. Most states and cities will do almost anything to induce companies to set up shop within their borders—or to keep them there. It seems no tax incentive is too plush, no subsidy too bountiful. Businesses, in turn, will make grand claims about the jobs and other benefits they bring to a community. But what happens if they renege on the deal and pack up or simply don't live up to their promises? Too often, the answer has been "nothing." States and municipalities are left scrambling to explain why they spent the taxpayers’ money and got nothing in return. Fortunately, this is starting to change. Good-governance groups are putting forth a simple message for businesses that do not deliver on their promises: We want our money back. Nonplussed by lax subsidy standards,...

The Cost of Financial Favoritism

If Republicans and Democrats can't find common ground on giving assistance to small banks and Community Development Financial Institutions, they aren't liable to agree on anything.

(Flickr/Images_of_Money)
A merica’s knack for invention and risk-taking has long been a source of competitive advantage. Entrepreneurs depend not just on ingenuity and nerve but also on capital and credit, which come, or don’t, from a variety of sources, including their own savings, venture capital, as well as loans from banks and other institutions. Until recently, our deep and varied capital markets have complemented America’s entrepreneurial zeal. Investment bankers could help innovators sell shares to the public. Silicon Valley’s technical genius got a huge lift from venture capitalists. However, the extreme financial engineering that ultimately led to the collapse of 2008 has whipsawed America’s entrepreneurs. At first, financial innovation produced a credit boom. But as regulatory and lending standards dropped far below prudent levels and banks became more leveraged, the financial excesses produced first a bubble, then a bust. Bankers and their regulators belatedly turned risk averse, producing a credit...

Freelance Nation

Progressives need to make government work better by helping out entrepreneurs and the self-employed.

(Flickr/wili_hybrid)
The other day, on a Manhattan sidewalk, I ran into a former colleague and asked her what she was doing these days. She shrugged: “I’m in limbo.” When I looked her up later to connect online, her LinkedIn profile listed her as CEO of her own consulting firm. That didn’t sound like limbo to me, until I saw the fine print: “self-employed, myself only.” Scrolling through the rest of my contacts, I noticed that quite a few people in my professional orbit had titles like “president” or “founder” or “principal.” Some of these people, I know, are doing quite well; others are barely making it. These days, being your own boss can mean any number of things: running a thriving business with employees and profits, landing steady gigs as a consultant, working the same job you used to have but with no benefits, or prettified unemployment and a life in limbo. Even government statisticians are hazy about Americans without traditional jobs. The U.S. Department of Labor reports that about 15 million...

Too Small to Bail?

An interview with Sheila Bair.

(Flickr/Civil Rights)
As chair of the Federal Deposit Insurance Corporation ( FDIC ) until last July, Sheila Bair played the role of loyal opposition to the strategy pursued by Treasury Secretary Timothy Geithner of propping up the biggest banks and deferring the issue of systemic reform. Bair argued for helping smaller banks and small businesses as well as breaking up huge banks that were deemed “too big to fail.” Now based at the Pew Charitable Trusts, Bair spoke with Prospect co-editor Robert Kuttner. How are community banks faring in the financial crisis? Not enough people recognize that community banks actually weathered this crisis pretty well and that the risks they had taken were much lower than those of the larger institutions. Fewer than 5 percent have failed, and when they do fail, the FDIC follows a strategy of marketing them to other community banks with ties to the same service area. During my tenure at the FDIC, over 90 percent of the community banks that failed were bought by other...

Economists Project Eight Percent Unemployment by Election Day

(The White House/Flickr)
As far as political news is concerned, I would rate this as considerably more important than the minutae of what happens in the Republican primary elections today: The economists think the unemployment rate will fall from its current 8.3 percent to 8 percent by Election Day. That’s better than their 8.4 percent estimate when surveyed in late December. By the end of 2013, they predict unemployment will drop to 7.4 percent, down from their earlier estimate of 7.8 percent, according to the AP Economy Survey. The U.S. economy has been improving steadily for months. Industrial output jumped in January after surging in December by the most in five years. Auto sales are booming. Consumer confidence has reached its highest point in a year. Even the housing market is showing signs of turning around. That’s from a recently released survey of economists from the Associated Press. As it stands, it wouldn’t take much for the economy to reach 8 percent unemployment by November; according to this...

Europe Teeters on the Edge

Today's Balance Sheet: The times are good for one percenters.

This week's a big one for the future of Europe, as Germany debates supporting the fiscal pact agreed to in Brussels on March 2 and investors sign onto a Greek bond swap that could write off half of the country's €177 billion debt. The success of the fiscal pact—which demands that the 25 signatory countries write balanced budget "golden rules" into their constitutions—could hinge on whether the opposition party's demands for more stimulus measures and less austerity, are met in Germany. "We need an initiative for more growth and we should get the money from financial markets," Sigmar Gabriel, chairman of the opposition Social Democrats party, said. Chancellor Angela Merkel's cabinet plans to meet and discuss the pact tomorrow. The Latest In China, Sobering Signs of Slower Growth The New York Times You Hear That? It's Quiet...Too Quiet The Wall Street Journal Even Senior Citizens Have Student Debt Wonkblog The Lone Tweeter of Deutsche Bank Bloomberg Businessweek Chart of the Day  2010...

Is It Springtime for the Economy?

Today's Balance Sheet: Wages are on the slow and steady rise.

Wages and salaries rose in January by 0.4 percent—up 5 percent from last year—but that extra money has yet to leave consumers' pockets and get back into the economy. Other good economic news was released yesterday, too: Filings for unemployment benefits are at a four-year low. Usually, when wages rise, consumer confidence also goes up, giving the economy a big boost. That hasn't happened yet this time. The Commerce Department said that wages might not be growing enough to push spending, or extenuating factors like rising gas prices may be at play. The Latest A Firewall Full of Holes The Economist AT&T Ends All-You-Can-Eat The Wall Street Journal Where the Jobs Are, the Training May Not Be The New York Times How NBA Fans Cost Their Teams at the Free-Throw Line Bloomberg Businessweek Chart of the Day  A new analysis from the Tax Policy Center shows that Romney's new tax plan is even more regressive than his old one. Unless the details, which have yet to be released, enumerate many...

Geithner's Latest Alibi

(AP Photo/Marco Ugarte)
Treasury Secretary Tim Geithner, chiding Wall Street for trying to undermine enforcement of the Dodd-Frank financial-reform bill, is trying to rewrite history. He would have us believe that regulators lacked the power to prevent the financial collapse. In fact, they had plenty of power. The problem was that Geithner and company were in industry’s pocket, and didn’t use the power they had. Writing in today's Wall Street Journal , in an op-ed piece titled “Financial Crisis Amnesia,” Geithner contends : Regulators did not have the authority they needed….A large shadow banking system had developed without meaningful regulation, using trillions of dollars of short-term debt to fund inherently risky financial activity. The derivatives market grew to over $600 trillion, with little transparency or oversight. Household debt rose….with a large portion of those loans originated with little or no supervision and poor consumer protections. Jesus wept! The amnesia is Geithner’s. Take these in turn...

You Can Eat Whatever You Want

(NCReedplayer/Flickr)
Mark Bittman is apparently a fan of Republican state senator Ronda Storms, who wants to prevent food stamp recipients from buying junk food: When she introduced a bill to prevent people in Florida from spending food stamps on unhealthy items like candy, chips and soda, she broke ranks: few of her party have taken on Big Food. […] Yet she makes sense. “It’s just bad public policy to allow unfettered access to all kinds of food,” she told me over the phone. “Why should we cut all of these programs and continue to pay for people to use food stamps to buy potato chips, Oreos and Mountain Dew? The goal is to feed good food to hungry people.” Bittman goes on to make the argument against added sugar, and describe the nutritional worthlessness of foods that contain it. But that’s not the issue. Whether or not certain foods contain bad things is secondary to the question of whether we should direct the spending habits of people who receive government assistance. I’m not sure that we should...

McMansions on the Cheap

Today's Balance Sheet: Housing prices dropped to 2002 levels in December. 

Although the past few months have brough economic data that hints at recovery, one important statistic hasn't improved: housing prices. The Standard & Poors/Case-Shiller index of property values report of 20 U.S. cities released yesterday shows that national housing prices have dropped to their lowest levels since 2002. “It is hard to get entirely enthusiastic about the recovery when housing prices are still falling,” said Mark Zandi, the chief economist at Moody’s Analytics. In December, the index decreased by 4 percent from a year earlier, and Detroit was the only city to see an increase from 2010. The biggest reasons housing prices continue to drop despite the tax credits and bank incentives offered by the Obama administration are oversupply and expected foreclosures. However, home resales are climbing —up 2 percent in January—and this may be a sign that housing values could rebound soon. As Karl E. Case, a co-creator of the index, points out , “There are some bright spots."...

A German History Lesson

Yesterday, the German Parliament relented and agreed to let the Greek debt restructuring go forward, but only the price of crushing austerity for the Greek economy. This is a widespread attitude in Germany, where aid to the Greeks is unpopular. The other day, Jörg Krämer, chief economist for Commerzbank in Frankfurt, said of the Greeks, “If you live beyond your means, then you can repair your balance sheet only if your consumption goes down.” But the Germans might take a moment and reflect on their own history. In the aftermath of World War II, the Allies, remembering the disastrous consequences of German reparations after the First World War, did not insist on their pound of flesh. The entire Nazi public debt, amounting to over 600 percent of German GDP, was written off. The pre-existing unpaid debt from the Weimar period was written down to a fraction of its original cost. Claims on old debt were strictly segregated from German reconstruction funds. The German Federal Republic...

Pages