Tag: economy

Reading the business press — or, at least the business pages of the major dailies — can give one whiplash. The stories swing wildly between a bizarre level of economic optimism (we are turning the corner, stocks are up, hooray) and reality, as typified by today’s story on the June jobs figures:

The American economy lost 467,000 jobs in June and the unemployment rate edged up to 9.5 percent in a sobering indication that the most painful downturn since the Great Depression has yet to release its hold.

“The numbers are indicative of a continued, very severe recession,” said Stuart G. Hoffman, chief economist at PNC Financial Services Group in Pittsburgh. “There’s nothing in here to show that the economy and the market are pulling out of the grip of recession.”

The latest monthly snapshot of the nation’s job situation, released on Thursday by the Labor Department, reinforced a consensus that high levels of unemployment were likely to remain for many months and perhaps years. That will almost surely increase the difficulties of finding work for millions of jobless people while limiting
wages and working hours for those employed.

This kind of story, I think, offers a better snapshot of the current economic malaise. We continue to lose jobs and witness deflation in housing prices. Credit remains tight and, let’s face it, people are scared.

The cheerleader stories do little more than make us feel a bit better, while at the same time allowing our problems to fester. We need to be honest about the depths of what we are facing, about the structural and regulatory failings in our economy if we are to fix it.

The business community seems OK with the Obama administration’s proposed revamping of the financial regulatory structure — which should give anyone looking to rein in the so-called “Masters of the Universe” pause.

As Steve Pearlstein writes in The Washington Post,

the current system of financial regulation has been thoroughly captured by the companies it was meant to restrain — and that the only way to put things right is to bring in new rules, a new structure and tough new regulators. Anything short of that, and you can almost guarantee that the inmates will be back in charge of the asylum by the time the next bubble starts to develop.

Judged by that standard, the proposals the Obama administration put forward this week to reform the regulatory apparatus were a bit of a disappointment.

He blames the shortcomings on efforts by the president to move quickly and appease too many people. Reform, he says,

should have been grounded, first and foremost, in a thorough and independent analysis of how the crisis was allowed to develop and what regulators did and didn’t do to prevent it, drawn from interviews under oath and internal records and made available to the public. That should have been followed by a detailed set of recommendations from a panel of seasoned regulators and independent experts on how the regulatory system should be reformed to prevent similar crises in the future.

If Congress decided to deviate from those recommendations, of course, nobody would be surprised. But at least it would have given the public a marker for reform that was free of industry influence. It would have also provided political cover for the president and members of Congress, a politically acceptable default position that they could have used to turn aside the entreaties of local bankers and campaign contributors when they came knocking.

Instead, the Obama team, hoping to ride the wave of public outrage before
it crested, determined to fashion a reform proposal even before a thorough
analysis could be completed. And by deciding to contort and trim their proposal
to accommodate the objections from powerful interest groups and key members of
Congress, members of the Obama team have now made it politically acceptable for
everyone to treat this as just another special-interest free-for-all of the sort
that helped cause the crisis in the first place.

Pearlstein’s right. We need a full-blown investigation of what happened so that we can craft tough rules and rebuild our regulatory system to prevent future meltdowns. The economy is not supposed to be a casino that spits out winnings. It’s about producing goods and services that people need — and believe me, I’ve never met anyone who needed a collateralized debt obligation.

I know that the weather hasn’t been particularly summer-like so far, but only someone with his head in the sand or with a political ax to grind would take it as evidence that climate change is a myth. (I actually saw Dennis Miller make this case on one of the late-night shows a couple of years ago, that a couple of degrees increase in average planetary temperature would hardly be felt. What a sad coda to what was such a promising career.)

Most of the critics take a different tack — either talking about the science as just projections (see the comment from the American Farm Bureau at the end of this story on a new climate change report).

But the Earth is warming, and it may be happening more quickly and with more damaging consequences than we’ve thought, according to United States Global Change Research Program.

Here are the report’s key findings:

1. Global warming is unequivocal and primarily human-induced.
Global temperature has increased over the past 50 years. This observed increase is due primarily to human-induced emissions of heat-trapping gases. (p. 13)

2. Climate changes are underway in the United States and are projected to grow.
Climate-related changes are already observed in the United States and its coastal waters. These include increases in heavy downpours, rising temperature and sea level, rapidly retreating glaciers, thawing permafrost, lengthening growing seasons, lengthening ice-free seasons in the ocean and on lakes and rivers, earlier snowmelt, and alterations in river flows. These changes are projected to grow. (p. 27)

3. Widespread climate-related impacts are occurring now and are expected to increase.
Climate changes are already affecting water, energy, transportation, agriculture, ecosystems, and health. These impacts are different from region to region and will grow under projected climate change. (p. 41-106, 107-152)

4. Climate change will stress water resources.
Water is an issue in every region, but the nature of the potential impacts varies. Drought, related to reduced precipitation, increased evaporation, and increased water loss from plants, is an important issue in many regions, especially in the West. Floods and water quality problems are likely to be amplified by climate change in most regions. Declines in mountain snowpack are important in the West and Alaska where snowpack provides vital natural water storage. (p. 41, 129, 135, 139)

5. Crop and livestock production will be increasingly challenged.
Agriculture is considered one of the sectors most adaptable to changes in climate. However, increased heat, pests, water stress, diseases, and weather extremes will pose adaptation challenges for crop and livestock production. (p. 71)

6. Coastal areas are at increasing risk from sea-level rise and storm surge.
Sea-level rise and storm surge place many U.S. coastal areas at increasing risk of erosion and flooding, especially along the Atlantic and Gulf Coasts, Pacific Islands, and parts of Alaska. Energy and transportation infrastructure and other property in coastal areas are very likely to be adversely affected. (p. 111, 139, 145, 149)

7. Threats to human health will increase.
Health impacts of climate change are related to heat stress, waterborne diseases, poor air quality, extreme weather events, and diseases transmitted by insects and rodents. Robust public health infrastructure can reduce the potential for negative impacts. (p. 89)

8. Climate change will interact with many social and environmental stresses.
Climate change will combine with pollution, population growth, overuse of resources, urbanization, and other social, economic, and environmental stresses to create larger impacts than from any of these factors alone. (p. 99)

9. Thresholds will be crossed, leading to large changes in climate and ecosystems.
There are a variety of thresholds in the climate system and ecosystems. These thresholds determine, for example, the presence of sea ice and permafrost, and the survival of species, from fish to insect pests, with implications for society. With further climate change, the crossing of additional thresholds is expected. (p. 76, 82, 115, 137, 142)

10. Future climate change and its impacts depend on choices made today.
The amount and rate of future climate change depend primarily on current and future human-caused emissions of heat-trapping gases and airborne particles. Responses involve reducing emissions to limit future warming, and adapting to the changes that are unavoidable. (p. 25, 29)

The disbelievers have already written their response to this report; it is the same one they’ve been offering for years. But they are such a small minority — the science is against them.

Maybe the report can be the impetus needed to get Congress to act.

Matthew Yglesias, in this post, says what I’ve been thinking for a while:

I continue to be baffled that with all the problems facing the economy and all the genuinely debatable policy issues in play, some people continue to be spending most of their time warning us of the dangers of inflation. Consider:

So-called core producer prices, which exclude food and energy costs, fell 0.1 percent, indicating broad pressure on prices because of lower demand across the economy.

I think the inflation rate should at least be above zero before we start worrying that it’s gotten out of control. I don’t think that’s too much to ask.

The New York Times today offers an analysis of the budget deficit and growing debt that should shut up Congressional Republicans, but won’t.

The story of today’s deficits starts in January 2001, as President Bill Clinton was leaving office. The Congressional Budget Office estimated then that the government would run an average annual surplus of more than $800 billion a year from 2009 to 2012. Today, the government is expected to run a $1.2 trillion annual deficit in those years.

You can think of that roughly $2 trillion swing as coming from four broad categories: the business cycle, President George W. Bush’s policies, policies from the Bush years that are scheduled to expire but that Mr. Obama has chosen to extend, and new policies proposed by Mr. Obama.

The first category — the business cycle — accounts for 37 percent of the $2 trillion swing. It’s a reflection of the fact that both the 2001 recession and the current one reduced tax revenue, required more spending on safety-net programs and changed economists’ assumptions about how much in taxes the government would collect in future years.

About 33 percent of the swing stems from new legislation signed by Mr. Bush. That legislation, like his tax cuts and the Medicare prescription drug benefit, not only continue to cost the government but have also increased interest payments on the national debt.

Mr. Obama’s main contribution to the deficit is his extension of several Bush policies, like the Iraq war and tax cuts for households making less than $250,000. Such policies — together with the Wall Street bailout, which was signed by Mr. Bush and supported by Mr. Obama — account for 20 percent of the swing.

About 7 percent comes from the stimulus bill that Mr. Obama signed in February. And only 3 percent comes from Mr. Obama’s agenda on health care, education, energy and other areas.

If the analysis is extended further into the future, well beyond 2012, the Obama agenda accounts for only a slightly higher share of the projected deficits.

The analysis talks about the impact the debt could have down the road:

“Things will get worse gradually,” Mr. Auerbach predicts, “unless they get worse quickly.” Either a solution will be put off, or foreign lenders, spooked by the rising debt, will send interest rates higher and create a crisis.

The solution, though, is no mystery. It will involve some combination of tax increases and spending cuts. And it won’t be limited to pay-as-you-go rules, tax increases on somebody else, or a crackdown on waste, fraud and abuse. Your taxes will probably go up, and some government programs you favor will become less generous.

One economist quoted in the analysis — Alan Auerbach, at the University of California, Berkeley,

describes the situation like so: “Bush behaved incredibly irresponsibly for eight years. On the one hand, it might seem unfair for people to blame Obama for not fixing it. On the other hand, he’s not fixing it.”

“And,” he added, “not fixing it is, in a sense, making it worse.”

That seems harsh, especially when focusing on the deficit could be the worst thing to do at the present time. Focusing on deficit reduction — by cutting federal spending and increasing taxes — will deepen the recession, which will further deplete revenues (remember, 37 percent of the debt generated since 2001 is tied to the business cycle); not doing so could leave the government with a time bomb down the road.

I think it’s clear — as many, if not most, economists have said — that we must continue to run deficits to get ourselves out of our economic mess. But we need to keep in mind that there is a difference between deficits of the sort we have seen under Bush and productive deficits. The Bush tax cuts reduced revenue without anything to show for it, while the Obama spending plans are designed to pump money into the economy.

I’d like our national budget to be balanced at some point, but let’s get ourselves out of what promises to be a long and painful recession first.