Economy

Bernanke Tries to Predict the Future

Today's Balance Sheet: The recovery is still moving at a snail's pace, but campaigns aren't doing too bad at raking in cash.

Ben Bernanke is second only to Barack Obama when it comes to being a Republican punching bag for the economic downturn, but the Federal Reserve chairman spent some time explaining his decisions and expectations for the coming months during a session with the Senate Budget Committee yesterday. Bernanke said that his biggest worry was the federal deficit, which he said is on pace to become unsustainable in the next 15 to 20 years. He refused to say whether higher taxes or reduced spending would reduce the deficit, saying it's " not [his] place " and "that's something Congress is going to have to work out ... That's what people elected you to do." However, Bernanke did say that reducing the deficit cannot come at the price of continued recovery, especially since the recovery is still "frustratingly slow" and "sluggish," and could be torn asunder by the euro crisis. Bernanke's address left out the good January jobs report, giving more credence to the theory that the numbers may be an...

Long Time, No See Payroll Tax

Today's Balance Sheet: It's the most wonderful time of the year, the payroll tax cut extension deadline, again.

The payroll tax cut extension passed by tooth and nail at the end of 2011 expires at the end of February, and this month's battle to work out the re-extension's logistics looks like it will be just as painful. A 20-member conference committee is hammering out the details, with three hearings scheduled for this week, including one this morning. The committee has less than three weeks to craft a deal and get it to Congress for passage before the President's Day recess. The two parties are fighting over the same territory they did in December—Democrats want a millionaire surtax and want to keep unemployment insurance untouched, Republicans want to freeze federal workers' pay, impose higher premiums on upper-income Medicare beneficiaries and ban millionaires from receiving jobless benefits. As of right now, neither side will budge. If legislators tread the same ground as they did two months ago, we'll see another payroll showdown at the end of the year. Senator Max Baucus told Politico...

Mitt Romney: Liberal Economist

(Flickr/Gage Skidmore)
Say you’re a presidential candidate shifting to the general election after your place as the party's nominee seems firmly settled. The entire logic of your candidacy has been built on business experience as the answer to an economic downturn, and you plan to assail the community-organizer president for not understanding how the private sector works. A high rate of unemployment is your friend. Voters will be dissatisfied enough with the general state of their lives that you should easily waltz past the incumbent president without having to do the tricky work of laying out your own vision for the country. Except, after a year of laying the groundwork for this sort of campaign, the economy slowly begins to recover. Things are certainly not in good shape, but the trend lines are beginning to move in the right direction and people are once again hopeful. That's the unenviable situation Mitt Romney has found himself. He is on the verge of dismissing his Republican opponents, and a string of...

Obama's Mixed Signals

Today's Balance Sheet: Obama needs a good nine months more of good news if he wants to win reelection. 

Before all eyes in the country turned to football last night, President Barack Obama told Matt Lauer in his annual pre-Super Bowl interview that he "deserve[s] a second term.” He went on: “We’ve made progress. The key right now is to just make sure we don’t start turning in a new direction that could throw that progress off." It's impossible to hear these words without thinking of the 243,000 new jobs added in January—very good news for an administration whose future rests on the capriciousness of the global economy over the next few months. The wealth of good news has also led to a jump in Obama's approval rating and, for the first time, Obama holds a significant edge over Mitt Romney in a hypothetical match-up; if the election were held today, Obama would win with 51 percent of the vote. However, the burst of economic confidence doesn't mean Obama's re-election is preordained. There are still nine months to go until the polls close, and the potential for things to go wrong is still...

+243,000 Jobs in January

Today's Balance Sheet: January's jobs numbers came out today, and they were way better than anyone expected. 

The Bureau of Labor Statistics released January's jobs numbers this morning, and the economy added 243,000 jobs last month. Unemployment dropped from 8.5 percent to 8.3 percent—the lowest the rate has been in nearly three years . Forecasts had predicted that the economy would only pick up 150,000 jobs, so this morning's news is a unexpectedly good. The White House is probably cheering January's hiring surge—the incumbent president's chances at reelection hinge on the growth of the economy. The Latest A Fistful of Dollars The Economist White House Offers Plan to Lure Jobs to America The New York Times Wall Street Split as Money Managers Fault Bank Foreclosure Deal Bloomsberg Businessweek I Paid $4 Million for This? Moneybox ​ Chart of the Day Once Facebook raises the $5 billion for its initial public offering, the company is expected to have a market valuation of $80-100 billion. The company has a very different structure than other companies of similar worth—with only 3,200 staff,...

Help Wanted Again

AP Photo/Amy Sancetta
The latest jobs report was a welcome surprise . Jobs increased in January by 243,000, cutting the unemployment rate to 8.3 percent. The question remains: Is this a blip, or has the economy turned a corner? Earlier in the week, the Congressional Budget Report put out a more pessimistic report, showing unemployment rising to 8.9 percent by the final quarter of this year (which happens to include Election Day), and peaking at 9.2 percent in early 2013. According to the CBO, we won’t return to pre-recession employment levels until 2019. Why the grim picture? CBO assumes more budget cutting, as the Bush tax cuts sunset, the deficit keeps declining, and there is no further offsetting stimulus. Though the short-term jobs numbers have been above expectations for both December and January, there is no assurance that this good news will continue in the absence of additional stimulus. And the risk remains of either a spike in the price of oil, as a byproduct of the escalating conflict with Iran...

A Blockbuster Jobs Report

AP Photo/Madelyn Ruggiero
Earlier this morning, Nate Silver argued that 150,000 was President Obama’s “magic number” for job growth, in part, because 150,000 is the dividing line between a bad report—where the economy isn’t growing fast enough to keep up with population—and a decent one, where it is. If the economy could generate that many jobs on a monthly basis, then Obama is on OK footing for the election in November. Today’s report blows that magic number out of the water. According to the Bureau of Labor Statistics, the economy created a whopping 243,000 jobs in January, with upward movement in nearly every sector of the economy, other than the government (public-sector jobs fell, again, by 14,000). What’s more, job growth for the last two months was revised upward, from 100,000 to 157,000 for November, and from 200,000 to 203,000 for December. Unemployment has fallen to 8.3 percent, the lowest it’s been since February 2009. Indeed, for the first time in a long time, all of the indicators are in the right...

Facebook and Wall Street: It's Complicated

Today's Balance Sheet: Mark Zuckerberg "likes" Morgan Stanley.

Facebook filed for its initial public offering yesterday. The internet behemoth could be valued between $75 billion and $100 billion, making its IPO one of the biggest stock-market debuts in U.S. history and netting founder Mark Zuckerburg up to $28 billion . While Facebook is a company defined by its users, the company decided not to follow Google's example of holding a dutch auction. Instead, shares are likely to be offered to clients only on Wall Street. Morgan Stanley won the lead underwriter position in a close race against Goldman Sachs, which Bloomberg Businessweek characterized as "having to choose between a leech and a tick for a medicinal bloodletting." Although a Wall Street-brokered deal is nearly guaranteed to reap big rewards for investors, critics don't see the move as lining up with Facebook's egalitarian image. “I’ve always interpreted their values to be about openness and transparency, and there is nothing less transparent than having five bankers set the price of...

It Pays to Be Rich

Flickr/Yeshe
There's not a single state in the country in which the rich pay a higher percentage of their income in state (though not federal) taxes than the poor. According to a state-by-state scorecard from the Corporation for Enterprise Development (CFED), only Washington, D.C. has an equal tax burden for its wealthiest and poorest citizens. The CFED scorecard looks at income taxes, property taxes and consumption taxes to determine its percentages, and the results are clear. For instance, if you're in the poorest 20 percent of Washington state, you pay almost 7 times as much in state taxes as the top 1 percent. In fact, Washington taxes its poor at the highest rate in the country while its wealthiest residents have one of the lowest rates. It's the most extreme example of the difference in tax burdens between the rich and the poor, but it's hardly alone. In Wyoming, Nevada, South Dakota and Florida, the bottom quintile pays at least five times as much as the top 1 percent. But the "Assets and...

Romney Wins a Double Header

Mitt Romney, who had a resounding victory in last night's Florida primary, also wins the unofficial award for most frightening super PAC. A Federal Election Commission release Tuesday revealed that pro-Romney super PAC "Restoring Our Future" raised over $30 million last year and spent $14 million on campaign ads for the first few crucial primaries. By way of comparison, the super PACs of all the other GOP candidates spent a combined $12 million, and the candidates' campaigns have spent a total of $20.7 million. According to Democratic National Committee Chair Debbie Wasserman Schultz, Romney's campaign has spent more on negative ads than John McCain spent during his entire presidential bid. We're only a month into the primary season, so expect post-Citizens United super PACs—which give an outsized level of influence to rich donors and corporations—to wreak even more havoc as the stakes get higher after the conventions. The Latest U.S. Deficit to Top $1 trillion, Smallest Since ’09 The...

Austerity Über Alles

Germany's insistence on belt-tightening during the recession stems from a fear of history repeating itself.

BERLIN, GERMANY —Score another one for Angie. Last night in Brussels, the leaders of 25 of the 27 European Union countries agreed to become more like Germany. Not in so many words, of course. There was talk of spurring growth, creating jobs, and liberalizing trade. But at the heart of the pact was the so-called debt brake. Modeled on Germany’s own 2009 Schuldenbremse , which imposed a tight cap on federal and state deficits, the debt brake compels participating eurozone countries to keep their structural deficits under 0.5 percent of their gross domestic product (GDP). The 25 countries that signed on—that is, every EU country but non-eurozone Britain and the Czech Republic—are now expected to write language into their national constitutions codifying the deficit limit, with violators to be hauled before the European Court of Justice, which can fine member countries as much as 0.1 percent of their GDP. The fiscal pact is a major victory for German Chancellor Angela Merkel, who set it...

Let's Worry About Unemployment Instead

Over at The Washington Post , op-ed editor Fred Hiatt is worried that the political world has stopped being concerned with the federal debt and is instead focused on pet programs: Mitt Romney would extend all the Bush tax cuts and cut trillions more besides—eliminating taxes on investment income for most Americans, reducing the corporate tax, getting rid of the inheritance tax and more. How would he afford this? Please don’t ask. President Obama wants to rebuild our infrastructure, and never mind raising the gasoline tax to do so. He would pay by redirecting money that we would have borrowed for foreign wars, if the wars had continued, and instead borrow it for roads. This is what passes for fiscal prudence these days. Hiatt ends the column with an ominous warning: “If America doesn’t tackle its debt problem, everything else is at risk: economic growth, the safety net for the poor, investment in research and roads.” Hiatt is exaggerating the extent to which Congress and the president...

Couture's Chinese Culture Shock

Chinese luxury consumers are becoming an important market but fashion's racial stereotypes persist.

AP Images
We’re witnessing a remarkable shift in China’s relationship to global fashion: once “the world’s factory,” in Asian American fashion scholar Thuy Linh N. Tu’s words, China is now poised to be the world’s mall. While China remains a poor country with an average annual per capita consumption of $2,500 (in contrast, the U.S. per capita average is $30,000), China’s rising number of millionaires and the Internet-enabled diffusion of Western fashion consumer culture are quickly transforming the communist nation into what The New York Times has called “The Shoppers’ Republic of China.” Today, young Chinese—like Lu Jing, a 22-year-old Beijing resident who told the China Daily that she earns $943 a month and saved up for a $3,200 Louis Vuitton handbag by surviving on instant noodles and taking public transportation—make up an new consumer class. Fashionistas between 20 and 30 years old are buying luxury fashion and micro-blogging about it on Sina Weibo (China’s version of Twitter) where...

By Any Other Measure

Relying on GDP to calculate economic progress ignores social and environmental realities.

The 2011 fourth quarter GDP numbers released today show a 2.8 percent growth in economic activity, due in part to the increase in spending around the holidays. But, what do GDP numbers really show? A new report from Demos, Beyond GDP , looks at the flaws in our dependence on GDP as the sole measure of progress and highlights important economic and social measures that are not captured by GDP. GDP calculates the total monetary value of goods and services produced domestically in a given period. At the time it was developed at the end of the Great Depression, it was meant to be used as a tool to help policymakers gauge the success of economic recovery measures. At no time was it meant to be a tool for measuring economic, let alone social, progress. Fast forward several decades and GDP has become the go to measure for determining economic and societal well-being, even though it is not equipped to offer an accurate reflection of either. To paraphrase Robert F. Kennedy in a speech he made...

Mitt Romney, Hero of Finance

Romney’s backers say he did the tough work needed to restructure the economy. Actually, he seized opportunities that the tax, securities, and bankruptcy laws should never have given him.

“Creative destruction” is Mitt Romney’s best defense for his career in private equity and the trail of displaced workers some of his ventures left behind. The idea comes from the economist Joseph Schumpeter, who argued that capitalism generates economic growth through “gales of creative destruction” that sweep away obsolete technologies and products. As Romney’s advocates have it, that’s what his firm, Bain Capital, has advanced—painful economic changes that are essential to a rising standard of living. If Romney made his fortune that way, he deserves the praise that some conservatives have lavished on him for contributing to American competitiveness. But that isn’t the whole story. Much of the work of Bain and other private—equity firms has little to do with the kind of wrenching Schumpeterian change that contributes to growth, still less to the job creation for which Romney claims credit. Technological innovation was at the heart of Schumpeter’s vision, and no one today objects to...

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