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Posts Tagged ‘Economy’

‘Meh’ Economy Muddies Mid-Term Election Picture

October 3rd, 2014


It’s the “meh” economy, stupid. 2014 is not a boom year or a bust year. It’s just “meh.”

That’s why President Obama chose his words carefully when he talked about the economy in his CBS 60 Minutes interview last week. “Ronald Reagan used to ask the question, ‘Are you better off than you were four years ago?’ In this case, are you better off than you were six [years ago]?” the president said. “The answer is, the country is definitely better off than we were when I came into office.”

Notice that Obama said “the country” is better off. He didn’t say “You’re better off.”

He is right. “The country” is clearly better off. The official unemployment rate has dropped below 6 percent, the lowest level since July 2008, before the Great Recession. Productivity is rising. The economic growth rate for the second quarter was a robust 4.6 percent. And with tax revenues increasing, the federal budget deficit is lower.

“The United States has put more people back to work than Europe, Japan and every other advanced economy combined,” Obama said at Northwestern University Thursday. That’s true. But it won’t do him much good politically. How many American voters will say, “We’re doing better than the Japanese! Woo-hoo!”

President Obama didn’t dare say, “You’ve never had it so good,” because he would have been laughed off the stage. What he did say was, “Our broader economy in the aggregate has come a long way, but the gains of recovery aren’t yet broadly shared.”

That’s also true. Only the wealthiest 5 percent of Americans have seen solid gains in income. The vast majority have not experienced any improvement, and many are facing wage stagnation and declining incomes. President Obama’s argument is that he has policies to help lower-income workers, but congressional Republicans have stubbornly blocked them: a higher minimum wage, equal pay for women, more infrastructure spending. Obama said in his speech that, while he himself is not running this year, “these policies are on the ballot—every single one of them.”

Since 1974, polltakers have been asking Americans, “How well do you think things are going in the country today?” It’s a pretty good indicator of how people see the economy—and how it affects their vote.

When the number who say things are going well is more than 60 percent, it’s a boom year. Incumbents do well at the polls. For instance:

  • 1984, when Reagan declared “Morning in America” and got re-elected (74 percent said things were going well)
  • 1988, when Vice President George H.W. Bush was elected as “Reagan’s third term” (70 percent)
  • 1996, when Clinton won a second term (67 percent)
  • 2000, when Vice President Al Gore got 540,000 more votes than George W. Bush but didn’t quite make it in the electoral college (79 percent)

When the number who say things are going well dips below 40 percent, it’s a bust year. Incumbents do poorly. Like:

  • 1980, when Jimmy Carter got fired (32 percent said things were going well)
  • 1992, when the first President Bush was laid off (35 percent)
  • 2008, the financial crisis (16 percent, the lowest figure ever)

How many Americans people think things are going well in the country now? Answer: 50 percent, according to a CNN poll. That’s a lot better than 2008, when Obama was elected. It’s even better than 2012, when Obama got re-elected (40 percent). But it’s not exactly a boom. Fifty percent is “meh.”

The “meh” economy is dampening enthusiasm for Democrats among the party’s core constituencies: low-income Americans, minorities, young people and single women. If Democrats are unenthusiastic, Republicans are in a rage. They can’t wait to vote because Obama’s policies have been far more liberal than they can tolerate. Obamacare, for instance, is not a top issue to most voters this year, as it was in 2010. But it is at the core of seething resentment among Republicans.

Democratic candidates are still competitive in many states because they are running hard on social issues, especially women’s rights. The emergence of the New America—young people, educated professionals, single and working women, gays, Latinos and voters with no religious affiliation—has enabled Democrats to use social issues to bludgeon their Republican opponents, just as Republicans used to do to Democrats. Those issues may rally Democrats the same way hatred of President Obama rallies Republicans.

Meanwhile Republican candidates are trying to replicate their surprise victory in the 2002 midterms, when terrorism was at the top of the agenda. Once again, we are hearing charges that Democrats are “soft on terrorism.”

In a “meh” economy, candidates rely on other issues to drive the vote. To quote the wisdom of the late Gilda Radner’s Roseanne Roseannadanna, “It just goes to show you, it’s always something. If it’s not one thing, it’s another.”

This piece was originally published via The Huffington Post.

Elites focus on inequality; real people just want growth

May 6th, 2014


The economic debate is now sharply focused on the issue of income inequality. That may not be the debate Democrats want to have, however. It’s negative and divisive. Democrats would be better off talking about growth — a hopeful and unifying agenda.

Democrats believe income inequality is a populist cause. But it may be less of a populist issue than an issue promoted by the cultural elite: well-educated professionals who are economically comfortable but not rich. There’s new evidence that ordinary voters care more about growth.

Growth and inequality are not separate issues. Nobel Prize-winning economist Joseph E. Stiglitz wrote, “Politicians typically talk about rising inequality and the sluggish recovery as separate phenomena when they are in fact intertwined.  Inequality restrains and holds back our economic growth

The question is whether Democrats want to talk about punitive and confiscatory policies aimed at curbing the power of the wealthy and special interests or an agenda aimed at growing the economy for everyone.

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NSA Snooping’s Negative Impact On Business Would Have The Founding Fathers ‘Aghast’

December 20th, 2013

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James Madison would be “aghast.” That was one of the incendiary charges leveled at the National Security Agency and its mass surveillance activities by Judge Richard Leon in his December 16 opinion ordering the government to stop collecting some of the data that it’s been gathering on private citizens here and abroad.

But Thomas Jefferson might be horrified as well, because the NSA collection efforts are having a fairly profound effect on American business and its efforts to sell goods and services abroad. Jefferson, a big believer in the American “taste for navigation and commerce,” would be dismayed that our government was doing things that could hurt our competitiveness and our ability to set the terms of global trade.

To be sure, there has always been some tension between U.S. high-tech industries and our national security. In the 90s, the rules were fairly primitive, such as limitations on exports of high-performance computing designed to prevent countries from developing weapons of mass destruction. Those restrictions were quickly rendered outdated by Moore’s Law, but had they remained they would have prevented the exports of game consoles like Xbox.

Since then, increased globalization and the rise of terrorist organizations operating in the shadows and across national boundaries have complicated both the security and economic issues. The current debate about Edward Snowden’s intelligence revelations may seem like an unlikely place to see that tension emerge, but beyond the discussions of civil liberties and counterterrorism, it is becoming clear that the post-9/11 surveillance apparatus may be at cross-purposes with our high-tech economic growth.

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The Middle Class Gets Wise

October 21st, 2013

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Perhaps we underestimate ourselves. Five years after the Lehman collapse triggered the deepest recession in eight decades, the middle class may be solving the vexing problems of income inequality and stalled wages on its own.

Faced with unemployment and dim job prospects, Americans made one significant change that should alter their fortunes and those of the middle class for decades: they went back to school. During the recession, there has been a sharp surge in the number of Americans who are getting a college degree. Read the rest of this entry »

Have the Dominoes of Default Started to Tumble in the Markets?

October 3rd, 2013


How are markets reacting to the threat of default?

Treasury Secretary Lew has stated that the U.S. government will run out of cash on October 17th. In the market, the dominoes are already starting to tip and a “Congressional Default Risk Premium” has started. This means that investors are demanding greater compensation to hold U.S. government debt that matures after October 17th.

How do you spot the default risk premium?

On Tuesday, government bond trader Ed Bradford (@fullcarry) tweeted that the yields of U.S. T-bills maturing around the October 17th drop-dead-default-date were “blowing out,” that is market-speak for rising sharply. T-bills are Treasury bonds with short maturities, no more than 1 year.

A chart prepared by Bank of America Merrill Lynch analysts shows very-short-term Treasury bills are trading at sharply higher yields—an indication of real default fear in the market. 

BofA Global Research, Bloomberg, Business Insider

What is happening today?

Today, yields are even higher. Compare today’s .04% yield on the T-bill maturing on 10/10/13 with the yields on the T-Bills maturing 10/17/13, 10/24/13, 10/31/13—during the default risk zone. Yields on the debt maturing during the assumed default period are sharply higher—at least double the yield of the debt maturing on 10/10/13. And rising bond yields signal increased risk.

  • T-bill maturing 10/17/13 is yielding .10%
  • T-bill maturing 10/24/13 is yielding .12%
  • T-bill maturing 10/31/13 is yielding .135%

Who owns T-bills? How will they be harmed if the U.S. defaults?

Businesses use T-bills to manage their cash. Normally, businesses don’t sit on excess cash. If payroll is due in a month, a corporate treasurer may invest cash in a T-bill that matures in month. When the T-bill matures the company gets cash to meet its payroll obligations (plus a little interest).

But, what if when the T-bill matures the payment is delayed because the statutory debt limit has not been raised? Then you have problems because the business may be unable to meet their obligations—like paying employees and suppliers. This increased risk is displayed by today’s oddly shaped yield curve.

What’s a yield curve?

The Treasury yield curve plots interest rates for bonds against different time horizons—from very short-term to 30 years. Normally, investors will accept lower yields on short-term debt. But to hold debt maturing in the default-risk-period the market is demanding greater compensation—the congressional default premium.

This is evident if you compare the very short-term section of Tuesday’s yield curve with the yield curve that existed just a month ago. The first dominoes are starting to tip.

Business Insider/Matthew Boesler, data from Bloomberg

The bottom line is this: investors are preparing for the unthinkable—a U.S. debt default.

Remarks Prepared for Delivery by Bernard L. Schwartz at Third Way & The Atlantic’s Infrastructure 2.0 Panel

September 30th, 2013


The Case for Infrastructure

Before we dug the Erie Canal, it cost $120 to ship one ton of flour from Buffalo to New York City. After its construction, it cost $6. Because of that investment, business boomed, consumers lived better, and prices for products dropped.

That was almost 200 years ago, and the lesson hasn’t changed. Our national investment in the Grand Coulee Dam created millions of acres of arable land, whose wealth to our country cannot be estimated.  There is an unshakeable bond that links infrastructure to economic growth and to better lives for people. That is the story of America’s economic success and the creation of the greatest middle class in the world.

So why have we stopped investing? Why have we forgotten what made America and the middle class great?

Nothing would do more to put America back to work in good, long-term jobs than infrastructure investment. Nothing would be better for our long-term economy than making investments in better ports, roads, transmission wires, rail, and broadband so that we can move people, products, power, and ideas better, faster, and cheaper than the rest of the world.

And there is no better time to invest than now. Capital is available and cheap. The need is great. And the workforce is waiting.

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