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Archive for August, 2011

Do liberals have to be losers?

August 31, 2011 1 comment

from Dean Baker

National political discussion of the economics and budgets over the last two decades have been dominated by the debate over President Clinton’s tax increase and President Bush’s subsequent reversal of this tax hike. If we narrow down the focus to the hike on the richest 2 percent of the population, we are arguing over $50 billion a year, or 0.3 percent of GDP.

Meanwhile, we have seen the continuation of a massive upward redistribution of income that began under President Reagan. Read more…

Categories: jobs, Recession, The Economy

Confidence sucks

August 30, 2011 2 comments

from Peter Radford

Having survived an earthquake and a hurricane within a few days of each other I have a feeling that the economy cannot throw up much to upset me. Neither of those events amounted to a great deal here in New York City: the enormous energy spent by our various bureaucracies and breathless media in the run up to the hurricane dwarfed the rather meager effort of the storm itself which tricked us all and devastated inland areas rather than the more glittery targets here. Still all those boarded up storefronts and taped up windows spoke volumes about the risk aversion of New Yorkers when it comes to their personal belongings. I just wish that those of them who populate the trading desks of Wall Street banks had the same attitude towards risk when it comes to gambling with other people’s money. But that seems like a forlorn hope on my part.

Speaking of forlorn: Read more…

Categories: The Economy

Bubble spotting: the household investment rate.

August 30, 2011 2 comments

from Merijn Knibbe

Spurred into action by the editor’s ‘call to arms’ I’ve investigated the ‘Household Investment Rate’, which might be useful as a ‘bubble spotter’, somewhat more thoroughly. In my opinion, this indicator clearly shows (see graphs below, both showing ‘Household investments’, mainly houses, as a % of GDP) that: Read more…

President Obama discovers how serious the recession is

August 29, 2011 18 comments

from Dean Baker

That’s what he told an audience in Chicago last week. To be fair, he was referring to revised data from the Commerce Department showing that the falloff in GDP was larger than originally reported. However, ridicule is appropriate. He and we knew all along how many people were out of work. The employment numbers told us the size of the hole and the desperate need for government action.

This sort of ridiculous comment, and President Obama’s weak response to the recession over the first two and a half years of his presidency, explains the tidal wave of skepticism facing President Obama’s widely hyped upcoming speech on jobs.  The list of remedies leaked ahead of time does little to inspire hope. Read more…

Categories: Economy, unemployment

“The End of Loser Liberalism: Making Markets Progressive”

August 29, 2011 6 comments

In his new book, The End of Loser Liberalism: Making Markets Progressive, Dean Baker argues that progressives hurt their cause whenever they accept the conventional wisdom that conservatives are for the “free” market while progressives are for government intervention in the market economy.  In a much-needed counter-narrative, Baker stresses that this is both bad policy and bad politics.  He takes apart this fundamental misframing of economics and details how conservatives actually use the government to twist markets to their advantage and points out that they are just smart enough not to own up to it. Read more…

Bailing out the financial aristocracy

August 26, 2011 7 comments

from David Ruccio

We’ve known all along about the TARP funds.* Now, thanks to Bloomberg, we know about the $1.2 trillion of public money, which is about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages, Fed Chairman Ben S. Bernanke showered on the Wall Street aristocracy.  Read more…

Categories: financial crisis

Another look at the European debt crisis

August 26, 2011 1 comment

from John Schmitt

Unless European officials can find a viable solution soon, the continent’s sovereign debt crisis threatens to derail the increasingly fragile world economic recovery. The conventional wisdom blames Greece, Portugal, Spain and Ireland — the poorer “peripheral” countries at the center of the crisis — for “living beyond their means.” In an important new paper, however, Vicente Navarro, professor of public policy at Johns Hopkins University, offers a compelling alternative explanation for the mess. Read more…

The double dipsters are wrong and it makes a difference

August 25, 2011 6 comments

from Dean Baker

The latest fad among economic forecasters is to talk about the growing probability of a double-dip recession. They have raised fears that the economy will again go spiraling downward at a point where it has hardly made up any of the ground lost in the last recession. This is indeed a scary prospect. However the data suggest that the double dip gang is off the mark in raising these fears. Read more…

Categories: The Economy

What’s a U.S. corporation?

August 24, 2011 7 comments

from David Ruccio

It used to be that a U.S. corporation had its headquarters in the United States, paid U.S. taxes, and employed mostly U.S. workers.

Not anymore.

Now, while they still may have their headquarters officially located in the United States, they don’t pay much in the way of taxes, and many of the jobs they’re creating are overseas. In fact, they no longer even report the mix of U.S. and foreign jobs, even as they clamor for a tax holiday.  Read more…

Categories: globalization, jobs

How long will we tolerate an incompetent cult running central banks?

August 24, 2011 1 comment

from Dean Baker

The world financial system had another serious scare last week. The immediate issue was the prospect that the euro could break up. With the debt crisis spreading from smaller countries such as Greece and Ireland to the eurozone giants of Spain and Italy, events were again getting scary.

A default by the smaller countries would create serious disruptions throughout the eurozone and the larger world economy, but no one doubts that these could be contained. The European Financial Stabilization Fund (EFSB) is large enough to paper over the mess that would be created by the default of Greece or Ireland. Read more…

Which economic indicators?

August 23, 2011 13 comments

Despite the abundance and omnipresence of economic indicators in the media and in our professional outlets, the economics profession in the main failed to observe the approach of the Global Financial Collapse.  But what about that small minority of economists, many of whom were nominated for the Revere Award, who saw it coming and gave warning. From which indicators did they gain their foresight?  Given that there has been no major reform of financial systems, the same indicators that foretold approaching disaster last time will most likely also provide the means of doing so in the future.

The world needs a short list of such indicators with concise explanations of how to interpret them.  Ideas anyone?

Debate: The US Economy post the 2008 Crash

August 23, 2011 2 comments

from Steve Keen

The ABC Radio National program Rear Vision is a current affairs program that presents “contemporary events and people in their historical context”.

I was recently interviewed by Rear Vision for a retrospective on the crisis, entitled “Here we go again: A look at the US economy post the 2008 GFC crash” which debated why the crisis is still with us today.

Other speakers were Ed Harrison from Credit Writedowns, with whom I’m very much in agreement, economic historian Richard Sylla from New York University, and Steve Hanke from John Hopkins with whom I almost completely disagree.  Read more…

United states of child poverty

August 22, 2011 2 comments

from David Ruccio

Who cares about the children? Certainly not the United States.

According to a recent report by the Annie E. Casey Foundation [pdf], over the last decade, child poverty surged in 38 states and erased many of the gains in child well-being made in the last 20 years. For the nation as a whole, child poverty increased 18 percent between 2000 and 2009: from 17 percent in 2000 to 20 percent in 2009. That means, 14.7 children now live in poor households, 2.5 million more than a decade ago.  Read more…

Categories: poverty

The USA’s broken business model

August 22, 2011 1 comment

from John Schmitt

The Wall Street Journal’s David Wessel recently had a good column arguing that the US business model is broken.

According to Wessel:

Two big sectors of the U.S. economy have been on steroids: finance and health care. If anything is crowding out more productive activities, it’s them, Read more…

Categories: The Economy

Shorter Weeks, Longer Vacations

August 20, 2011 16 comments

from Dean Baker

The United States is suffering the enduring effects of a collapsed housing bubble, not a financial crisis. This is an important distinction, because it points to the necessity of relying on shorter workweeks and longer vacations to return to full employment.

The financial crisis is largely irrelevant to the economy’s current weakness. The problem is that the demand that was created by $8 trillion in housing bubble wealth cannot be easily replaced. The bubbles generated more than $600 billion in annual demand in construction that has now been lost. The imaginary equity created by bubble-inflated house prices led to a consumption boom that pushed the saving rate to zero. Now that this wealth has vanished, so has the consumption that it fueled. Read more…

Categories: The Economy, unemployment

Sense from Krugman on private debt

August 19, 2011 6 comments

from Steve Keen

I was highly critical of Paul Krugman’s recent academic paper on the financial crisis, because it argued, on neoclassical a priori grounds, that:

Ignoring the foreign component, or looking at the world as a whole, the overall level of debt makes no difference to aggregate net worth — one person’s liability is another person’s asset. (p. 3)

Given that criticism, I feel obliged to point out that in his recent comment on Rick Perry’s nomination for the Presidency, “The Texas Unmiracle”, Krugman makes a very sensible observation about the importance of “the overall level of debt” that contradicts the assumption he made in that paper. Read more…

U.S. debt—let’s do the numbers

August 19, 2011 9 comments

from David Ruccio

In the midst of the current debt hysteria in the United States, it might be helpful just to look at the numbers.

MSNBC [ht: ja] has compiled some useful information. For example, instead of just going by the scary number on the National Debt Clock, it’s useful to consider the ratio of debt to national income. As it turns out, the United States is seventh (at a ratio of 101 percent), after Japan, Greece, Italy, Iceland, Ireland, and Portugal, just above Belgium, France, and the United Kingdom.

What about the holders of U.S. debt? The bugaboo is, of course, China—which, as it turns out, owns just 8 percent of total U.S. debt.  Read more…

Categories: The Economy

Bits and pieces from the front line

August 19, 2011 7 comments

from Peter Radford

Historians will surely love to reflect on these days. Each seems to bring some violent twist. Each adds to the amounting confusion. Each makes the story that much more difficult to tell.

Yesterday we learned that last week’s apparent uptick in the U.S.  labor market was an illusion. At least until next week. New claims for unemployment assistance rose once more above the 400,000 level – to 408,000. Last week they had managed to slide slightly below, although only by a hair to 399,000. Somewhere along the way we have altered our view of what a “good” new claims number is. Read more…

What and who caused the government debt crisis? – 3 graphs

August 18, 2011 2 comments

from Edward Fullbrook

What happened in 2008?  What and who caused it?  Who should pay for it now?  Read more…

U.S. and Europe: slow strangulation is much more likely than financial catastrophe

August 18, 2011 9 comments

from Mark Weisbrot

The prevailing understanding of economic troubles in the U.S. and Europe, the world’s two largest economies, is misunderstood in a number of ways.  First: Imagine that you are driving a car down a road packed with snow and ice and you are worried about an accident. At the same time you are ignoring the fact that you are about to run out of gasoline, leaving you stranded and freezing in the middle of nowhere.

Such have been the main reactions to last week’s extreme volatility in financial markets: There has been much more fear of financial crisis than the slow strangulation that poses the greater risk. Read more…

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