Economy

The Fairness Doctrine

Today's Balance Sheet: Obama laid out his economic message for the election in last night's State of the Union address.

President Barack Obama delineated his campaign message in last night's State of the Union address. Positioning himself as a populist alternative to Mitt Romney and the 1 percent, Obama spent the beginning of his speech laying out his economic plan for the year: "We need to change our tax code so that people like me, and an awful lot of Members of Congress, pay our fair share of taxes," he said. He recommended that the Buffett Rule—which would make it so millionaires can't pay less than 30 percent in taxes—be put in place. Underscoring his economic platform—which also touched on job creation, energy independence, deficit reduction, and trade—was the theme of fairness. "We can either settle for a country where a shrinking number of people do really well while a growing number of Americans barely get by, or we can restore an economy where everyone gets a fair shot, and everyone does their fair share, and everyone plays by the same set of rules," Obama said. The Latest European Central...

Eurozone Overexposed

EU leaders scuttle a Greek bond deal for fear of greater losses.

AP Photo/Thanassis Stavrakis
Greece is once again the focal point of efforts to stem the bleeding of investor confidence and save the eurozone. Intense negotiations continue on the precise terms of the restructuring of privately held debt in the struggling Mediterranean country. Agreement is a necessary condition for the approval of a second bailout package from Greece’s eurozone partners and the International Monetary Fund (IMF), which, at 130 billion euros or more, will exceed the first one. On Friday, it looked as though the Greek government and the Institute of International Finance (IIF), the global banking lobby group, were close to a deal and a tentative agreement on interest rates, averaging out around 4 percent for coupons on the 30-year bonds issued in exchange for Greece’s existing debt. As the day progressed, however, it became clear that, even though the Greeks and the bankers had reached the essentials of an agreement, the deal could not be finalized. The IMF and the eurozone countries, in...

The Scarlet Tax Return

AP Photo
Mitt Romney’s newly released tax returns, showing that he paid taxes in 2010 at a rate of just 13.9 percent on income of $21.6 million, should provide ammunition for President Barack Obama’s newly rediscovered populism. Obama is on record supporting a “Buffett Rule,” that the boss should pay at least the same tax rate as the help. In the watered down economic dialogue of 2012, a flat tax rate rather pitifully passes for the progressive position. Not so long ago, progressives were of the view that the more money you made, the higher your rate should be. The tax schedule should be, well, progressive. The original presidential sponsor of this concept was that Bolshevik, Theodore Roosevelt. That view of progressive taxation was widely held and was public policy in America, until the supply-side revolution of the Reagan era and its claim that lower taxes on dividends, interest, and capital gains would reward, and hence promote, investment and growth. Unfortunately for the theory, taxes,...

How the Other Half Banks

Today's Balance Sheet: Mitt Romney makes beaucoup bucks.

Mitt Romney released his tax returns today, revealing that he made a combined $42.6 million in 2010 and 2011, mostly through capital gains. Because the bulk of his wealth was made through investment, Romney only paid $6.2 million in taxes, which translates into a 13.9 percent tax rate in 2010 and an estimated 15.4 percent rate in 2011. Those rates place him in the same tax bracket as a couple making $70,000 a year. Romney's taxed income was mostly held in a blind trust, with an undisclosed amount held in the Grand Caymans and other overseas financial institutions (including a Swiss bank account that was closed in 2010 after an investment advisor said it could become politically embarrassing). Comparatively, President Barack Obama paid a 25 percent tax rate, and Newt Gingrich paid 31 percent on his income. None of Romney's earnings—$21.7 million in 2010 and $20.9 million last year—came from wages, which is the primary source of income for most people in the U.S. "I pay all the taxes...

Occupy the Alps

Today's Balance Sheet: The conference in Davos is no laughing matter, but apparently Federal Open Market Committee meetings were.

Thousands of the world’s business and political leaders are all heading to Davos, Switzerland—the home of Thomas Mann's fictional sanatorium—for this year’s five-day World Economic Forum. The euro crisis will be a dominant theme of the conference and Angela Merkel will serve as the keynote speaker. The conference comes as public confidence in world leaders' ability to fix the economic crisis hits a new low. In 2011’s “truth barometer” poll , conducted by the Edelman PR firm, 11 countries—twice as many as last year—said they are "skeptical" of government, business, non-governmental organizations, and the media. The drop in trust is most attributable to a loss in faith in political leaders—52 percent of "informed people" polled trusted government last year; this year the figure has dropped to 43 percent. Trust in business dropped too, from 56 to 53 percent. "European policy makers at Davos will keep doing everything possible to try to calm markets,” William Browder, a Davos-goer for 12...

Mega-Crackdown

Today's Balance Sheet: The FBI shuts down Megaupload in what the Justice Department is calling its biggest copyright case ever.

AP Photo/Greg Bowker
Yesterday, on the same day that major websites like Wikipedia, Wordpress, Reddit, and Wired went dark to protest the Stop Online Piracy Act (SOPA), the Justice Department shut down Megaupload , one of the largest file-sharing sites on the Internet. The site’s seven founders were arrested in New Zealand and are accused of making $175 million in profits while costing copyright holders an estimated $500 million in revenue. They face up to 20 years in prison for violating international copyright laws. Lawyers for the men said Megaupload allows users to legitimately transfer large files. But the government maintains that the service is simply a front for piracy, racketeering, and money-laundering. Hackers responded swiftly to the crackdown, with the group Anonymous taking responsibility for briefly shutting down the Department of Justice and Universal Music Group websites. The Latest Intel and Microsoft Post Gains in Last Quarter as Google Dips Bloomberg Businessweek European Debt Crisis:...

The Internet Strikes Back

Today's Balance Sheet: A war is brewing between the Internet and the entertainment industry, and it looks like things might get brutal this week.

The coming week is shaping up to feature a hostile fight between tech companies and content producers as the Stop Online Piracy Act (SOPA) and PROTECT-IP bills are debated in Congress. Reddit and Wikipedia have announced their intention to go dark for 12 hours on Wednesday to protest the bills, and rumors that Google, Facebook, and Twitter might join in have circulated. These tech companies are framing the issue as a battle between profits and free speech, an argument that has rallied opposition to the legislation. In a sign of support, 19,000 people on Twitter have changed their profile pictures to an icon saying "Stop SOPA." The White House joined Team Internet on Saturday, stating "While we believe that online piracy by foreign websites is a serious problem that requires a serious legislative response, we will not support legislation that reduces freedom of expression, increases cybersecurity risk, or undermines the dynamic, innovative global Internet." These measures, plus the...

Handicapping 2012

Today's Balance Sheet: Starting off the 2012 race between a tortoise and our economic recovery

In the past few weeks, the good economic news pouring in has kept newspaper business sections buoyant, but the celebrations may be premature. One of the biggest problems barring a quick comeback for the economy is inadequate aggregate demand —without demand, we can't produce more goods and can't hire more people. The Treasury estimates that the gap between actual and potential output is over 7 percent—that's equal to $1 trillion worth of goods and services. The U.S. has a considerable 12.1 million jobs gap as well, which won't close until 2024 if we keep adding 200,000 new jobs per month, the pace set in December 2011. Recovery so far has been somewhat backwards too—consumer spending, housing, and construction are usually signs of early growth, but they have been the last things to bounce back. Instead, manufacturing and business investments—leading to downturns in unemployment—have been at the forefront of our recovery. These changes have led to a tepid increase in consumer spending...

Lonely at the Top

The debate among the Republican candidates over Mitt Romney’s time at Bain Capital has raised again questions about whether Romney’s tenure in the “1 percent” will damage his campaign. The Obama team certainly welcomes this debate. After all, they have been attacking Romney along precisely these lines: The day after Mr. Romney squeezed out a razor-thin victory in the Iowa caucuses, Mr. Obama’s political brain-trust trained most of its fire on him, painting him as both a Wall Street 1 percent type and an unprincipled flip-flopper. Some new survey data that Lynn Vavreck and I have gathered in collaboration with YouGov suggests that Romney is vulnerable to this line of questioning. In a survey conducted nationwide from January 7-10—right about the time that the Republican attacks on Romney’s “vulture capitalism” were crescendoing as the New Hampshire primary approached—we asked respondents: How well do you think each the following describes Barack Obama/Mitt Romney: very well, somewhat...

Scarcity Came to Town

Two leading minds on our lean times

Jeff Madrick , the author most recently of Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present (Knopf), exchanges questions and ideas with Thomas Byrne Edsall , whose book The Age of Austerity: How Scarcity Will Remake American Politics (Doubleday) is out this week. Madrick : Your book places the current extreme partisanship in its critical economic context. There are cultural and religious conflicts in America, but it is economic scarcity that underlies much of our political paralysis. Is that so—scarcity lately more than culture? And scarcity has tended to favor conservatives? Edsall : Scarcity trumps culture, but it would be a mistake to view culture and the economy as inhabiting discrete spheres. Diminishing resources tend to push people in a conservative direction by increasing pressure to protect one’s own interests while simultaneously lessening generosity of spirit. Scarcity sharpens survival instincts, leading to a dog-eat-dog worldview that...

The Class War Turns

Yesterday, the Pew Research Center released a report showing that the American public now perceives the conflict between the rich and poor as more prevalent and intense than conflicts between black and whites or conflicts between immigrants and the native-born. The number seeing those class conflicts has jumped 19 points since 2009, and amazingly, even 55 percent of Republicans think there are strong conflicts between rich and poor. For the GOP, about to nominate a guy who earned a couple of hundred million dollars as what one of his opponents calls a "vulture capitalist," this is disconcerting news. First, a graph: It's no surprise that the Republican establishment is freaking out a bit over the new attacks on Mitt Romney's career in private equity, particularly this remarkable video from a super PAC supporting Newt Gingrich. They've worked very hard for the last couple of decades to construct and reinforce a narrative that redirects class resentment—encourages it, actually, so long...

Insourced

Today's Balance Sheet: Obama tries to bring manufacturing jobs back home. 

As part of an effort to push "insourcing," President Obama is proposing tax incentives for companies that move manufacturing jobs back to the United States. “I don’t want America to be a nation that’s primarily known for financial speculation, and racking up debt and buying stuff from other nations,” Obama said during an announcement yesterday. “I want us to be known for making and selling products all over the world stamped with three proud words, ‘Made in America.’” The U.S. economy added manufacturing jobs for the first time in over a decade the past two years, so the president hopes the incentives will help deepen that trend. The proposal—which would also curtail tax breaks for those who continue to search for cheaper labor abroad—gives a hint of the populist economic message Obama plans to use in his State of the Union address and the general-election campaign. Reviving American manufacturing is a compelling narrative, especially on the campaign trail, but the truth is it's still...

An Ax to Grind

AP Photo/Mike Carlson
Cable-news pundits rejoiced a week ago when Rick Santorum drew Mitt Romney into an essential tie for first place in the Iowa caucuses. For all the ups and downs throughout the fall, this election has been inherently boring. Until Iowa, Romney had inched along unremarkably to the general election while a rotating group of talking heads ran nominal presidential campaigns in order to boost their fees on the lecture circuit. But then Rick Santorum arrived in the spotlight and won an actual vote, not just front-page headlines. Finally, we could train our sights on someone who could, just maybe, make Romney work for the nomination, pushing him out of the general-election comfort zone that he had coasted on all last year. Unfortunately for those invested in an extended horse race, the Santorum surge hasn't panned out. His campaign was an abject failure in New Hampshire last night, even under the arbitrary rules of the expectations game, finishing a distant fifth. Turns out, despite his weak...

The Tough Sell

AP Photo/Charles Dharapak
Nashua, New Hampshire— Mitt Romney is the sort-of acceptable man in this year’s Republican field. His strong victory here yesterday was rooted in his support from all quadrants of the Republican Party. He carried 40 percent of the voters who told exit pollsters that they supported the Tea Party movement, a far higher percentage than anyone else in the field. (Ron Paul finished second with 22 percent of Tea Partiers.) Romney also led the field among voters who said they were neutral toward the Tea Party. Only among voters who said they opposed the Tea Party—and that was just 17 percent of yesterday’s Republican electorate—did he come in second, to Jon Huntsman. Romney also carried all but one income category, doing best among voters whose annual income exceeded $200,000. The only income category he lost was those voters whose annual income was less than $30,000, a group won by Ron Paul. Paul’s voters were disproportionately young, male, low-income, unmarried—and not self-described...

Mittmentum, Meet High Unemployment

Today's Balance Sheet: As the race moves south, the candidates will need to tackle states with much higher unemployment rates. 

Winning the Iowa caucus and the New Hampshire primary puts Mitt Romney in a good place for the remaining primaries in South Carolina and Florida this month. But a grimmer economic picture in these states has the potential to damage his momentum. New Hampshire, with an unemployment rate of 5.2 percent in November, had the fourth-lowest unemployment rate in the country, and Iowa's 5.7 percent was similarly below the national rate. South Carolina and Florida, with unemployment rates of 9.9 and 10 percent respectively, will be much more focused on the candidate's economic credentials, and perhaps be open to platforms offering more radical change—like those of Ron Paul or Rick Santorum—than Romney's comparably moderate economic plan. The latest barrage of anti-Romney attacks in South Carolina aim to capitalize on local disappointment with the current state of affairs. But if the documentary painting Romney as a “predatory corporate raider," and Romney's economic stance aren't enough to...

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