Economy

Look to the Revisions!

(wools/Flickr)
As far as April is concerned, the jobs report is disappointing ; 115,000 new jobs, just enough to keep pace with population growth. Unemployment dropped to 8.1 percent, but labor force participation also declined, which means that joblessness is lower because fewer people are searching for jobs. What’s interesting is that this runs counter to a host of other economic indicators, all of which point to a brighter picture. According to Gallup , for example, economic confidence is a four-year high, consumer spending has edged up, and small-business optimism has risen to its highest levels since the summer of 2008. Why is job growth so sluggish when the economy is looking brighter in other regards? The answer might lie with the revisions contained within the jobs report. Remember, this number isn’t particularly accurate; for almost every month of the last three years, it has been revised (usually upwards) after the fact. This time isn’t any different; according to the Bureau of Labor...

A Post-Buffett Rule Corporate Tax Reform Push? Not Likely.

Today's Balance Sheet

Although tax reform has been in the national spotlight lately—between the Obama team's April Buffett Rule push and the Republican primary candidates' proposals (remember 9-9-9?)—don't expect corporate tax reform to be a legislative priority in the near future. “From the beginning, we acknowledged that this would be a heavy lift and take time,” an official from the Treasury Department said . One of the big reasons corporate tax reform may be a long shot is the daunting policy docket shaping up for the end of the year, including dealing with the Bush tax cuts. Also, lowering the statutory tax rate to 28 percent—which Obama's proposal suggests, along with closing the many tax loopholes—would require cutting out $12 billion annually in corporate tax breaks. Add the fractious political climate in Congress, and corporate tax reform may have to stay in the campaign speech arena for a long time. The Latest Obama’s Not-So-Hot Date With Wall Street The New York Times Magazine Tax Receipts Not...

The Case for Just Giving Money to People, Part Infinity

(401K/Flickr)
In a few weeks, tens of thousands of students will graduate from college or university, and attempt to make their way in the economy. During better times, these former students would find jobs, rent apartments, and almost immediately begin to pump money into the economy. But—three years after the nadir of the economic crisis—the job market for young people is still terrible, and many have opted to live with their parents in order to save money. This, you can probably imagine, has only made the economy worse. Here’s The Washington Post : More than one in five adults between ages 25 and 34 live with their parents or in other “multi-generational” living arrangements, the highest level since the 1950s, according to the Pew Research Center. Analysts estimate that there are more than 2 million fewer occupied homes than there would have been had Americans continued moving into new homes and apartments at the rate they did before the recession. Not only are young people returning to the nest...

Austerity in the US!

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The defining feature of Republican economic policy for the short-term is immediate austerity—big spending cuts to social programs, coupled with tax increases on lower-income people, and a reduction in the size of the federal workforce. Conservatives claim that this will lead to immediate job growth and a more robust recovery. The problem, of course, is that all available evidence points to the opposite. In Europe, austerity has renewed the economic crisis—the United Kingdom, for example, is growing at a rate slower than it saw during the Great Depression. At home, austerity at the state and local level—by way of balanced budget requirements—has led to the loss of hundreds of thousands of jobs, and a significantly weaker economy. Writing for the Washington Post , Zachary A. Goldfarb gives the details : Since the beginning of his term, state and local governments have shed 611,000 employees — including 196,000 educators — according to government statistics. Unlike the recovery in...

Voting Out Austerity in Europe

The elections in France and Greece this week may lead to a reexamination of how the euro zone approaches the debt crisis.

(Sipa via AP Images)
Could this week produce a turning point in Europe’s long, Sisyphean battle against the debt-and-banking crisis that has been ravaging it for the last two-and-a-half years? This coming Sunday, France will likely vote for Francois Hollande, a pro-Keynesian Socialist, as its new president. In Greece, on the same day, parliamentary elections will produce a hammer blow to the existing two-party system and will significantly increase the strength of the anti-Europeans on the far left and the extreme right. These elections will be held in the context of a continuously worsening economic picture in the continent, which has convinced almost everyone—with the crucial exception of the Germans—that the current recipe of one-size-fits-all austerity is leading to catastrophe and needs to be modified before it causes irreparable harm. The woes of Spain and the Netherlands, which have been the focus of concern in the last few days, illustrate the depth and breadth of the eurozone’s problems, and the...

The Death and Life of Detroit

Neighborhood groups are bringing the blighted city back, one block at a time. Will City Hall stand in their way?

(Flickr/Sascha Frank)
A shivering knot of college students stands outside Motor City Java House as John George unlocks the front door. It’s 15 degrees in Detroit on a February morning, and fresh snow covers the Old Redford business district. Cold weather doesn’t stanch the flow of volunteers coming to the city’s northwest corner: They show up every Saturday, arriving in shifts, ready to swing sledgehammers and twist crowbars. George’s wife, Alicia Marion, has learned to expect this traffic since she opened the coffeehouse in 2010. She puts on an apron and starts brewing. George is a brash, baseball cap–wearing jokester of a man, single-minded in his mission and impatient with bureaucracies. He runs a nonprofit called Motor City Blight Busters, which both demolishes and rehabilitates abandoned houses and has helped stage the comeback of this commercial strip. He was born a mile away in Brightmoor, the adjacent neighborhood of single-family houses built for the workers arriving en masse in the 1920s. At 53,...

Consumer Screwgie of the Day

The scene of the crime.
There are a lot of things companies do to fool consumers, some more meaningful than others. They pack items in large boxes to make them look bigger, they offer questionable claims about their products' effectiveness, they weave absurd tales about how your life will be changed if you buy their thing. Navigating your way through that thicket of baloney is part of being a smart consumer, and to a degree we accept it as part of the price of having free commercial speech. Short of outright fraud or practices that do substantial harm to consumers, we understand that people who are selling things can say almost anything they want, and we accept that being a consumer means that manufacturers and retailers are going to try to fool you. In the immortal words of Morty Seinfeld, "Cheap fabric and dim lighting. That's how you move merchandise." But there are some kinds of deception that are beyond the pale. It's one thing to sell you something that might not be up to your expectations; perhaps...

We Won't Destroy Society If We Raise Taxes on the Rich

(401K/Flickr)
Over at the Center on Budget and Policy Priorities, Chye-Ching Huang has written a massive review of the evidence and literature on the relationship between taxes on high-income earners and their effects on economic growth. Her key findings are surprisingly straightforward, and important for how we approach current debates over tax reform and economic policy: Taxable income and revenue. Opponents of raising the taxes that high-income households face often point to findings that high-income taxpayers respond to tax-rate increases by reporting less income to the Internal Revenue Service (IRS) as evidence that high marginal tax rates impose significant costs on the economy. However, an important study by tax economists Joel Slemrod and Alan Auerbach found that such reductions in reported income largely reflect timing and other tax avoidance strategies that taxpayers adopt to minimize their taxable income, not changes in real work, savings, and investment behavior. While such strategies...

iPhones Bring in the Cashmoney

Today's Balance Sheet

While the global economy is still on shaky terrain, Apple is having a good 2012. In the first quarter, the tech behemoth sold 35 million iPhones—an 88 percent increase from last year, representing 59.7 percent of Apple's overall sales—and 11.8 million iPads. These sales nearly doubled Apple's profits, and sent Apple's stocks up 7 percent , up $40.55 to $600.83 yesterday. Demand for the newest model of the iPad has led to shortages, and the product remains the company's fastest-growing one—since the first iPad hit the market in 2010, they've sold 67 million. It took the company 24 years to sell a comparable number of Macintosh computers. The company's cash reserves, now totaling $110 billion, could fill 50 Olympic-sized swimming pools with dollar bills, as The Atlantic 's Alexis Madrigal points out. “It is mind-boggling that we could do this well," Chief Executive Tim Cook said in a Wall Street analyst conference call. The Latest EU braces for battle over 2013 budget The Financial...

Social Security and Medicare Don't Look So Hot

Today's Balance Sheet

Social Security will run out of funds in 2033—sooner than forecast last year—according to a new government report. Medicare's hospital insurance fund will be gone by 2024. Together, the programs account for 35 percent of all federal spending, and if the trust funds—which are made up of the difference between the payroll taxes paid toward the programs and the benefits doled out—were depleted, benefits would be automatically cut by 25 percent. Social Security's disability insurance faces the soonest expiration—it is now scheduled to run out of money in 2016, two years earlier than projected last year. “By almost any objective measure, the financial health of the Social Security system has entered a concerning decline," the two public trustees of the programs said yesterday in a statement. These two programs have been resistent to a legislative overhaul thanks to their longstanding popularity, but the next generation to hit 65 might see far fewer benefits if the current system isn't fine...

The Joys of Recession

(Flickr/jima)
The Social Security Trustees have just projected that the date by which the system will no longer be able to meet all of its payouts has been moved up three years from 2036 to 2033. This has prompted the usual clucking about the need for drastic benefit cuts of partial privatization right now. What nobody seems to have noticed is that the primary reason for the pessimistic forecast is the lousy economy, particularly the high unemployment and depressed wages. Social Security is of course financed by payroll taxes. There’s no better way to put the system into the red than to have a recession and to have 93 percent of the gains to go to the top one percent (whose payroll taxes are capped). In the late 1990s, when we had full employment, in one three-year period Social Security’s Year of Reckoning was set back by eight years, from 2029 to 2037. Full employment would solve all the system’s problems. And if wages rose with productivity growth, as they did until the late 1970s, Social...

The Case of the Vanishing Middle Class

Timothy Noah's The Great Divergence deftly explores the roots and resurgence of American inequality.

D id Timothy Noah catch a wave or anticipate one? In 2010, Noah, a longtime public-policy reporter now at The New Republic , wrote a ten-part series in Slate about American economic inequality. This was at a time when the most discussed issue in U.S. politics was how much government Tea Partiers aimed to slash and how quickly we must balance the budget—even in the face of the worst downturn in eight decades. Then, about a year after the Slate series, Occupy Wall Street and its proxies around the country seemingly awakened the nation to the vast disparity of wealth between the top 1 percent and the rest of us. This was just in time for The Great Divergence , Noah’s expanded book on the subject, to refer to the movement in an introduction. On the other hand, important ideas may lie dormant for ages, unacknowledged beyond a few specialists—and then, suddenly, they pervade “the air around us,” as an old professor of mine used to say. So it is with the issue of inequality, whose current...

France Reacts Against Austerity

François Hollande and Nicolas Sarkozy will face off in a May 6 runoff election after the Socialist challenger won 28.6 percent of the vote in the first round of the French presidential elections yesterday. Sarkozy, who won 27.1 percent of the vote, was hoping a victory would give his campaign momentum, but being tied to the policies of the euro crisis will not help him—especially since Hollande is framing his challenge as a “ reaction against austerity ." Sarkozy is suffering presidential ratings lower than any seen since the 1950s. If Hollande wins, he would attempt to chart French economic policy away from the austere status quo set by European Union leaders, and Paul Krugman thinks a change of thinking might be just the risky prescription the still wavering European economy needs: "An Hollande victory would shake things up, and offer at least the possibility of something better." The Latest Geithner to Europe: Take Strong Action on Debt Crisis The Wall Street Journal Bridging the...

The Man the Banks Fear Most

Wall Street's gone largely unpunished for its role in 
wrecking the economy—until New York Attorney General 
Eric Schneiderman came along.

Steven Moors
Steve Moors I n February 2011, one month after he’d been sworn in as New York state’s attorney general, Eric Schneiderman sat down with the staff attorney who’d been delegated to track the negotiations that the 50 state attorneys general and the Obama administration were conducting with five of the country’s biggest banks. A few months earlier, the story had broken that the banks had been “robo-signing” thousands of notices foreclosing on homes. Instead of assessing how far behind in their payments the homeowners had fallen or seeking to modify the terms of their mortgages, the banks had employed junior staffers, some hired right off the street, to sign hundreds of foreclosure documents daily, though the banks’ title to many of the properties was uncertain. Even when the banks’ claims to ownership were clear, robo-signing violated numerous state laws requiring due diligence before a bank can foreclose on a home. The scandal had prompted a number of banks—Bank of America most...

A New Kind of Gold Standard?

(Flickr/tao_zhyn)
In the latest issue of the magazine, I have a piece examining a strange and growing trend in some conservative circles—pushing states to adopt alternative currencies to the federal dollar. The basic concern is one you've probably heard from Ron Paul: The Federal Reserve can't be trusted, the national debt is out of control, so the U.S. dollar, backed only by faith in the government, may become worthless. (The story outlines some of the more obvious economic problems with this theory.) To deal with the concern, problem-solving state lawmakers have started introducing bills to create a second currency, one of gold and silver. Sounds like a fringe concept right? Well, not entirely. In the 2011-2012 legislative cycle, 17 states saw some form of the legislation introduced, either implmenting a second currency or at least prompting a study of one. The famous (and failed) "doomsday bill" in Wyoming included one such study. Utah already passed its version last year, so you can now start...

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