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Christina Romer Was Right

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Now it’s official.  Christina Romer was right.  The signs that she was about to be proven correct had been turning up everywhere.  When Charles Kaldec of Forbes reminded us – yet again – of President Obama’s willful refusal to seriously consider the advice of the former Chair of his Council of Economic Advisers, it became apparent that something was about to happen  .  .  .

On Friday morning, the highly-anticipated non-farm payrolls report for April was released by the Department of Labor’s Bureau of Labor Statistics (BLS).  Although economists had been anticipating an increase of 165,000 jobs during the past month, the report disclosed that only 115,000 jobs were added.  In other words, the headline number was 50,000 less than the anticipated figure, missing economists’ expectations by a whopping 31 percent.  The weak 115,000 total failed to match the 120,000 jobs added in March.  Worse yet, even if payrolls were expanding at twice that rate, it would take more than five years to significantly reduce the jobs backlog and create new jobs to replace the 5.3 million lost during the recession.

Because this is an election year, Republicans are highlighting the ongoing unemployment crisis as a failure of the Obama Presidency.  On Friday evening’s CNN program, Anderson Cooper 360, economist Paul Krugman insisted that this crisis has resulted from Republican intransigence.  Bohemian Grove delegate David Gergen rebutted Krugman’s claim by emphasizing that Obama’s 2009 economic stimulus program was inadequate to address the task of bringing unemployment back to pre-crisis levels.  What annoyed me about Gergen’s response was his dishonest implication that President Obama’s semi-stimulus was Christina Romer’s brainchild.  Nothing could be further from the truth.  The stimulus program proposed by Romer would have involved a more significant, $1.8 trillion investment.  Beyond that, the fact that unemployment continues for so many millions of people who lost their jobs during the recession is precisely because of Barack Obama’s decision to ignore Christina Romer.  I have been groaning about that decision for a long time, as I discussed here and here.

My February 13 discussion of Noam Scheiber’s book, The Escape Artists, demonstrated how abso-fucking-lutely wrong David Gergen was when he tried to align Christina Romer with Obama’s stimulus:

The book tells the tale of a President in a struggle to create a centrist persona, with no roadmap of his own.  In fact, it was Obama’s decision to follow the advice of Peter Orszag, to the exclusion of the opinions offered by Christina Romer and Larry Summers – which prolonged the unemployment crisis.

*   *   *

The Escape Artists takes us back to the pivotal year of 2009 – Obama’s first year in the White House.  Noam Scheiber provided us with a taste of his new book by way of an article published in The New Republic entitled, “Obama’s Worst Year”.  Scheiber gave the reader an insider’s look at Obama’s clueless indecision at the fork in the road between deficit hawkishness vs. economic stimulus.  Ultimately, Obama decided to maintain the illusion of centrism by following the austerity program suggested by Peter Orszag:

BACK IN THE SUMMER of 2009, David Axelrod, the president’s top political aide, was peppering White House economist Christina Romer with questions in preparation for a talk-show appearance.  With unemployment nearing 10 percent, many commentators on the left were second-guessing the size of the original stimulus, and so Axelrod asked if it had been big enough.  “Abso-fucking-lutely not,” Romer responded.  She said it half-jokingly, but the joke was that she would use the line on television.  She was dead serious about the sentiment.  Axelrod did not seem amused.

For Romer, the crusade was a lonely one.  While she believed the economy needed another boost in order to recover, many in the administration were insisting on cuts.  The chief proponent of this view was budget director Peter Orszag.  Worried that the deficit was undermining the confidence of businessmen, Orszag lobbied to pare down the budget in August, six months ahead of the usual budget schedule.      .   .   .

The debate was not only a question of policy.  It was also about governing style – and, in a sense, about the very nature of the Obama presidency.  Pitching a deficit-reduction plan would be a concession to critics on the right, who argued that the original stimulus and the health care bill amounted to liberal overreach.  It would be premised on the notion that bipartisan compromise on a major issue was still possible.  A play for more stimulus, on the other hand, would be a defiant action, and Obama clearly recognized this.  When Romer later urged him to double-down, he groused, “The American people don’t think it worked, so I can’t do it.”

That’s a fine example of great leadership – isn’t it?  “The American people don’t think it worked, so I can’t do it.”  In 2009, the fierce urgency of the unemployment and economic crises demanded a leader who would not feel intimidated by the sheeple’s erroneous belief that the Economic Recovery Act had not “worked”.

Ron Suskind’s book, Confidence Men is another source which contradicts David Gergen’s attempt to characterize Obama’s stimulus as Romer’s baby.  Last fall, Berkeley economics professor, Brad DeLong had been posting and discussing excerpts from the book at his own website, Grasping Reality With Both Hands.  On September 19, Professor DeLong posted a passage from Suskind’s book, which revealed Obama’s expressed belief (in November of 2009) that high unemployment was a result of productivity gains in the economy.  Both Larry Summers (Chair of the National Economic Council) and Christina Romer (Chair of the Council of Economic Advisers) were shocked and puzzled by Obama’s ignorance on this subject:

“What was driving unemployment was clearly deficient aggregate demand,” Romer said.  “We wondered where this could be coming from.  We both tried to convince him otherwise.  He wouldn’t budge.”

Obama’s willful refusal to heed the advice of Cristina Romer has facilitated the persistence of our nation’s unemployment problem.  As Ron Suskind remarked in the previously-quoted passage:

The implications were significant.  If Obama felt that 10 percent unemployment was the product of sound, productivity-driven decisions by American business, then short-term government measures to spur hiring were not only futile but unwise.

There you have it.  Despite the efforts of Obama’s apologists to blame Larry Summers or others on the President’s economic team for persistent unemployment, it wasn’t simply a matter of “the buck stopping” on the President’s desk.  Obama himself  has been the villain, hypocritically advocating a strategy of “trickle-down economics” – in breach of  his campaign promise to do the exact opposite.

As Election Day approaches, it becomes increasingly obvious that the unemployment situation will persist through autumn – and it could get worse.  This is not Christina Romer’s fault.  It is President Obama’s legacy.  Christina Romer was right and President Obama was wrong.


 

Struggles of a Passive Centrist

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In September of 2010, I wrote a piece entitled, “Where Obama Went Wrong”.  It began with this statement:  “One could write an 800-page book on this subject.”  Noam Scheiber has just written that book in only 368 pages.  It’s called The Escape Artists and it is scheduled for release at the end of this month.  The book tells the tale of a President in a struggle to create a centrist persona, with no roadmap of his own.  In fact, it was Obama’s decision to follow the advice of Peter Orszag, to the exclusion of the opinions offered by Christina Romer and Larry Summers – which prolonged the unemployment crisis.

The following graph from The Economic Populist website depicts the persistence of unemployment in America:

Noam Scheiber’s new book piqued my interest because, back in July of 2009, I wrote a piece entitled “The Second Stimulus”, which began with this thought:

It’s a subject that many people are talking about, but not many politicians want to discuss.  It appears as though a second economic stimulus package will be necessary to save our sinking economy and get people back to work.  Because of the huge deficits already incurred in responding to the financial meltdown, along with the $787 billion price tag for the first stimulus package and because of the President’s promise to get healthcare reform enacted, there aren’t many in Congress who are willing to touch this subject right now, although some are.

The Escape Artists takes us back to the pivotal year of 2009 – Obama’s first year in the White House.  Noam Scheiber provided us with a taste of his new book by way of an article published in The New Republic entitled, “Obama’s Worst Year”.  Scheiber gave the reader an insider’s look at Obama’s clueless indecision at the fork in the road between deficit hawkishness vs. economic stimulus.  Ultimately Obama decided to maintain the illusion of centrism by following the austerity program suggested by Peter Orszag:

BACK IN THE SUMMER of 2009, David Axelrod, the president’s top political aide, was peppering White House economist Christina Romer with questions in preparation for a talk-show appearance.  With unemployment nearing 10 percent, many commentators on the left were second-guessing the size of the original stimulus, and so Axelrod asked if it had been big enough.  “Abso-fucking-lutely not,” Romer responded.  She said it half-jokingly, but the joke was that she would use the line on television.  She was dead serious about the sentiment.  Axelrod did not seem amused.

For Romer, the crusade was a lonely one.  While she believed the economy needed another boost in order to recover, many in the administration were insisting on cuts.  The chief proponent of this view was budget director Peter Orszag.  Worried that the deficit was undermining the confidence of businessmen, Orszag lobbied to pare down the budget in August, six months ahead of the usual budget schedule.      .   .   .

The debate was not only a question of policy.  It was also about governing style – and, in a sense, about the very nature of the Obama presidency.  Pitching a deficit-reduction plan would be a concession to critics on the right, who argued that the original stimulus and the health care bill amounted to liberal overreach.  It would be premised on the notion that bipartisan compromise on a major issue was still possible.  A play for more stimulus, on the other hand, would be a defiant action, and Obama clearly recognized this.  When Romer later urged him to double-down, he groused, “The American people don’t think it worked, so I can’t do it.”

That’s a fine example of great leadership – isn’t it?  “The American people don’t think it worked, so I can’t do it.”  In 2009, the fierce urgency of the unemployment and economic crises demanded a leader who would not feel intimidated by the sheeple’s erroneous belief that the Economic Recovery Act had not “worked”.  Obama could have educated the American people by directing their attention to a June 3, 2009 essay by Keith Hennessey (former director of the National Economic Council under President George W. Bush) which described the Recovery Act as “effective”.

Noam Scheiber’s New Republic article detailed Obama’s evolution from inexperienced negotiator to President with “newfound boldness”:

FOR TWO AND A HALF YEARS, Obama had been hatching proposals with an eye toward winning over the opposition.  In most cases, all it had gotten him was more extreme demands from Republicans and not even a pretense of bipartisan support.  Now, after the searing experience of the deficit deal, he still wanted reasonable, centrist policies.  But he was done trying to fit them to the ever-shifting conservative zeitgeist.  When he finally turned back to jobs in August, he told his aides not to “self-edit” proposals to improve their chances of passing the Republican House.  “He pushed us to make sure this was not simply a predesigned legislative compromise,” one recalls.

Many readers will be surprised to learn that Larry Summers had aligned himself with Christina Romer by advocating for additional fiscal stimulus during the summer of 2009.  In fact, Ms. Romer herself has already confirmed this.  The Romer-Summers alliance for stimulus was also discussed in Ron Suskind’s book, Confidence Men.

As for the stimulus program itself, a new book by Mike Grabell of ProPublica entitled, Money Well Spent? provided the most even-handed analysis of what the stimulus did – and did not – accomplish.  Mike Grabell gave us a glimpse of his new book with an article which appeared in The New York Times.  The piece was cross-posted to the ProPublica website.  Keith Hennesssey’s prescient observations about the shortcomings of that program, which he discussed  in June of 2009, were somewhat consistent with those discussed by Mike Grabell, particularly on the subject of “shovel-ready” programs.  Here is what Keith Hennessey said, while supporting his argument with the observations of Congressional Budget Office Director Doug Elmendorf:

In fact, the infrastructure spending in the stimulus law will peak in fiscal year 2011, which goes from October 1, 2010 to September 30, 2011.  That’s too late from a macro perspective.

The Director further points out that the 2009 stimulus law created many new programs.  This slows spend-out, as it takes time to create and ramp up the new programs.

The Administration has made much of working with federal and state bureaucracies to find “shovel-ready” projects to accelerate infrastructure spending.  All of my conversations with budget analysts suggest this claim is tremendously overblown, and Director Elmendorf asks, “Is this practical on a large scale?”

On February 11, 2012, Mike Grabell said this:

But the stimulus ultimately failed to bring about a strong, sustainable recovery.  Money was spread far and wide rather than dedicated to programs with the most bang for the buck.  “Shovel-ready” projects, those that would put people to work right away, took too long to break ground.  Investments in worthwhile long-term projects, on the other hand, were often rushed to meet arbitrary deadlines, and the resulting shoddy outcomes tarnished the projects’ image.

The Economic Recovery Act of 2009 will surely become a central subject of debate during the current Presidential election campaign.  Regardless of what you hear from partisan bloviators, Messrs. Hennessey and Garbell have provided you with reliable guides to the unvarnished truth on this subject.



 

Ignoring The Smart People

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The clowns in Washington seem to be going out of their way to ignore the advice of respected economists as they focus on deficit reduction while ignoring the worsening unemployment crisis.  The fact that mainstream news outlets are oblivious to the consequences of foolish economic policy doesn’t really help.  President Obama now finds himself wedded to a policy of economic destruction, while at the mercy of his opponents, simply because he ignored the good advice he was receiving back in 2009.

The urgency of our current predicament is lost on the asshats vested with the responsibility and authority to implement a “course correction”.  As I pointed out last month, bond guru Bill Gross of PIMCO made an effort to debunk the myth that balancing the budget “will magically produce 20 million jobs over the next 10 years”.  More recently, Princeton economics professor and former vice-chairman of the Federal Reserve, Alan Blinder, wrote an article for The Wall Street Journal entitled, “Our National Jobs Emergency”.  After discussing the most recent non-farm payrolls report from the Bureau of Labor Statistics, Professor Blinder made this observation:

The horrific June employment number made it two in a row.  With the latest revisions, job growth in May is now estimated to have clocked in at only 25,000 jobs.  So that’s 25,000 and 18,000 in consecutive months.  Given the immense size of total U.S. payroll employment (around 131 million) and the sampling error in the survey, those numbers are effectively zero.  Job creation has stopped for two months.

If we were at 5% unemployment, two bad payroll reports in a row would be of some concern yet tolerable.  But when viewed against the background of 9%-plus unemployment, they are catastrophic.

*   *   *

All this adds up to a national jobs emergency.  Tragically, however, it is not being treated as such.  When is the last time you heard one of our national leaders propose a serious job-creating program?

The operative word here is “serious.”  Every day brings new proposals to slash government spending.  But as I noted on this page last month, those are ways to kill jobs, not create them.  As a matter of fact, despite all the cries of “big government” or even “socialism,” public-sector employment has been falling.

Fortunately, Professor Blinder had some good ideas for private-sector job creation.  One such idea was a tax credit for firms that create new jobs:

As one concrete example, companies might be offered a tax credit equal to 10% of the increase in their wage bills (over 2011 levels, say).  No increase, no reward.

You might think Republicans would embrace an idea like that. After all, it’s a business tax cut and all the new jobs would be in the private sector.  But you’d be wrong.  Frankly, I’m not sure why. Maybe it’s seen as “left-wing social engineering.”

Professor Blinder then proposed an alternative:

Suppose we allow firms to repatriate profits at some super-low tax rate, but only to the extent that they increase their wage payments subject to Social Security.  For example, if XYZ Corporation paid wages covered by Social Security of $1.5 billion in 2011, and then boosted that amount to $1.6 billion in 2012, it would be allowed to repatriate $100 million at a tax rate of 5% or 10% instead of the usual 35% rate.  The tax savings to the company would thus be $25 million-$30 million for raising its payroll by $100 million.  That’s a powerful incentive.

Did anyone in Washington pay serious attention to Professor Blinder’s Wall Street Journal article  . . .  or were they all too busy shorting Treasuries to give a damn?

Oxford-educated economist Martin Wolf wrote a piece for the Financial Times, in which he lamented the antics of those entrusted with the power of managing financial and economic policy:

It is not that tackling the US fiscal position is urgent.  At a time of private sector deleveraging, it is helpful.  The US is able to borrow on easy terms, with yields on 10-year bonds close to 3 per cent, as the few non-hysterics predicted.  The fiscal challenge is long term, not immediate.  A decision not to allow the government to borrow to finance the programmes Congress has already mandated would be insane…. Yet, astonishingly, many of the Republicans opposed to raising the US debt ceiling do not merely wish to curb federal spending:  they enthusiastically desire a default.  Either they have no idea how profound would be the shock to their country’s economy and society of a repudiation of debt legally contracted by their state, or they fall into the category of utopian revolutionaries, heedless of all consequences.

*   *   *

These are dangerous times.  The US may be on the verge of making among the biggest and least-necessary financial mistakes in world history.  The eurozone might be on the verge of a fiscal cum financial crisis that destroys not just the solvency of important countries but even the currency union and, at worst, much of the European project.  These times require wisdom and courage among those in charge of our affairs.  In the US, utopians of the right are seeking to smash the state that emerged from the 1930s and the second world war.  In Europe, politicians are dealing with the legacy of a utopian project which requires a degree of solidarity that their peoples do not feel.  How will these clashes between utopia and reality end? In late August, when I return from my break, we may know at least some of the answers.

At this point, those “answers” are beginning to look pretty scary.  Of course, the Republicans are not the only ones to blame.  Let’s take a look at the wonderful job Mike Whitney of CounterPunch did when he dropped the entire matter back onto President Obama’s lap:

How do you light a fire under Washington, that’s the question?  Is Congress even aware that we’re undergoing a major jobs crisis or are they too busy bickering over tax cuts for fatcats or how much money they can divert from Social Security to Wall Street?

Look; unemployment is over 9% and rising.  The states are firing tens of thousands of teachers and public employees every month because they need to balance their budgets and they’re not taking in enough revenue.  The stimulus is dwindling (which means that fiscal policy is actually contractionary in real terms) And the 10-year Treasury has dipped below 3 percent (as of Monday morning.)  In other words, the bond market is signaling “recession”, even while the dope in the White House is doing his utmost to slice $4 trillion off the deficits.

Does that make any sense?

Maybe if you’re Herbert Hoover, it does.  But it makes no sense at all if you were elected with a mandate to “change” the way Washington operates and put the country back to work.  Obama is just making a bad situation worse by gadding about in his golf togs blabbering about belt tightening.  It’s enough to make you sick.

Get with the program, Barry, or resign.  That would be even better.  Then maybe we can find someone who’s serious about running the country.

As I pointed out on November 4, 2010  . . .  someone has to challenge Obama for the 2012 Democratic nomination and I have someone in mind   .   .   .


 

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Maria Cantwell For President

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I was going to hold off on this and give President Obama the benefit of a doubt – at least for a few months.  Nevertheless, after reading the magnificent piece by Barry Ritholtz, entitled:  “The Tragedy of the Obama Administration”, I decided that it was time to start discussing leadership alternatives for the next Presidential term.

On October 30, the Associated Press published the results of a poll it conducted with Knowledge Networks.  Forty-seven percent of the Democrats surveyed expressed the opinion that Obama should be challenged for the 2012 Democratic Presidential nomination.  In the wake of the mid-term election massacre, I expect that more Democrats will be anxious to find a new standard-bearer for their party in 2012.  The AP article concerning the AP-KN poll, mentioned the theory that the public’s opinion of Obama could change if the economy improves.  Unfortunately, most American consumers will not observe any significant improvement in the economy during the next two years.  There is a greater likelihood that the Chicago Cubs will win next year’s World Series.

We currently find ourselves bombarded with a wide spectrum of opinions, which purport to explain what the results of the 2010 elections really mean.  The most obvious conclusion to be drawn from this event is that the voters resent being taken for chumps.  Obama’s supporters were promised change they could believe in by a President and a party that sold its soul to the Wall Street megabanks at the cost of America’s future economic health.  When he had the opportunity to do so in early 2009, Obama refused to put those too-big-to-fail, zombie banks through temporary receivership.  As a result, we are now approaching a situation which – according to financial risk management expert Chris Whalen – will necessitate another round of bank bailouts.  When President Obama had the opportunity and the public support (not to mention Democratic control over both houses of Congress) to enact an adequate stimulus program to save the economy from a decade(s) – long, Japanese-style recession, he refused to so.  If an extra $600 billion had been added to the $787 billion in 2009 (as part of a better-thought-out, infrastructure-based stimulus program) we would be experiencing significant economic growth and a recovering job market right now.  Australia keeps reminding us of this.  (Oops!  Australia just did it again!)  Instead, America finds itself in a situation wherein the Fed is now appropriating that $600 billion toward another round of quantitative easing, which will serve no other purpose than to push investors into the stock market.  According to economist Andy Xie, those stock investors will have an unpleasant experience when Chairman Bernanke’s latest asset bubble pops in 2012.

While many Senate Democrats (along with operatives from the Treasury Department) were busy removing all of the teeth from the financial reform bill, Maria Cantwell was fighting those efforts as one of the few advocates for the American taxpayers.  Back on May 19, Arthur Delaney and Ryan Grim of The Huffington Post described how Senator Cantwell stood up to the efforts of Harry Reid to use cloture to push the financial reform bill to a vote before any further amendments could have been added to strengthen the bill.  Notice how “the usual suspects” – Reid, Chuck Schumer and “Countrywide Chris” Dodd tried to close in on Cantwell and force her capitulation to the will of the kleptocracy:

There were some unusually Johnsonian moments of wrangling on the floor during the nearly hour-long vote.  Reid pressed his case hard on Snowe, the lone holdout vote present, with Bob Corker and Mitch McConnell at her side.  After finding Brown, he put his arm around him and shook his head, then found Cantwell seated alone at the opposite end of the floor.  He and New York’s Chuck Schumer encircled her, Reid leaning over her with his right arm on the back of her chair and Schumer leaning in with his left hand on her desk.  Cantwell stared straight ahead, not looking at the men even as she spoke.  Schumer called in Chris Dodd, who was unable to sway her.  Feingold hadn’t stuck around.  Cantwell, according to a spokesman, wanted a guarantee on an amendment that would fix a gaping hole in the derivatives section of the bill, which requires the trades to be cleared, but applies no penalty to trades that aren’t, making Blanche Lincoln’s reform package little better than a list of suggestions.

*   *   *

“I don’t think it’s a good idea to cut off good consumer amendments because of cloture,” said Cantwell on Tuesday night.

Senator Cantwell has proven herself worthy of our trust.  Her nomination as the 2012 Democratic Presidential candidate will revive the excitement and voter enthusiasm witnessed during the 2008 campaign.  On the other hand, if President Obama decides to seek a second term and wins the nomination, we will likely find a greater enthusiasm gap than the example of November 2.  As a result, by January of 2013 we could have a new administration in the White House, espousing what economist Nouriel Roubini describes as “the economic equivalent of creationism”.

Here’s to a bright future!


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