The Economist: Ukraine's economy is in the toilet

"Few people know that Ukraine is the world’s most unequal country, if you look at wealth (not income). The second-most unequal is Russia," noted The Economist.

And few people know that Ukraine's Maidan Revolution was not about the Russian language, or even about signing an agreement with the EU. It was about systemic corruption and political cronyism that was slowly yet unstoppably choking the life out of the economy, chasing out foreign investment and the country's best and brightest, and depriving a whole generation of smart, ambitious young Ukrainians of any kind of future where their hard work and merit could better their station in life.  

Russia's president Vladimir Putin cannot let the Maidan Revolution succeed in stamping out corruption and reforming the economy. Now he is perfectly content to let Ukraine be a freezing economic and political basket case with a Russian-fomented "frozen conflict" in its eastern Donbas region.

It is really that bad

By C.W.

November 20, 2014 | The Economist

URL: http://www.economist.com/blogs/freeexchange/2014/11/ukraines-economy

Roubini: Global economy running on one engine

More bad news from "Dr. Doom."  Doesn't Roubini know that a Republican Congress will solve everything, and that despite its higher growth rate, the U.S. is still inferior to austerity-loving Europe?

Roubini's analysis is going to be so far over the heads of my Tea Party friends who think belt-tightening by the public sector is the answer to everything, the European example be damned. 

Bottom line: Team Keynes was right. Either you're a Keynesian cheerleader and get to sip his milkshake at the victory party, or you're with the losing team sent home to your trailer community in mirthless shame on a quiet bus.

The Single-Engine Global Economy

By Nouriel Roubini

October 31, 2014 | Project Syndicate

The global economy is like a jetliner that needs all of its engines operational to take off and steer clear of clouds and storms. Unfortunately, only one of its four engines is functioning properly: the Anglosphere (the United States and its close cousin, the United Kingdom).

The second engine – the eurozone – has now stalled after an anemic post-2008 restart. Indeed, Europe is one shock away from outright deflation and another bout of recession. Likewise, the third engine, Japan, is running out of fuel after a year of fiscal and monetary stimulus. And emerging markets (the fourth engine) are slowing sharply as decade-long global tailwinds – rapid Chinese growth, zero policy rates and quantitative easing by the US Federal Reserve, and a commodity super-cycle – become headwinds.

So the question is whether and for how long the global economy can remain aloft on a single engine. Weakness in the rest of the world implies a stronger dollar, which will invariably weaken US growth. The deeper the slowdown in other countries and the higher the dollar rises, the less the US will be able to decouple from the funk everywhere else, even if domestic demand seems robust.

Falling oil prices may provide cheaper energy for manufacturers and households, but they hurt energy exporters and their spending. And, while increased supply – particularly from North American shale resources – has put downward pressure on prices, so has weaker demand in the eurozone, Japan, China, and many emerging markets. Moreover, persistently low oil prices induce a fall in investment in new capacity, further undermining global demand.

Meanwhile, market volatility has grown, and a correction is still underway. Bad macro news can be good for markets, because a prompt policy response alone can boost asset prices. But recent bad macro news has been bad for markets, owing to the perception of policy inertia. Indeed, the European Central Bank is dithering about how much to expand its balance sheet with purchases of sovereign bonds, while the Bank of Japan only now decided to increase its rate of quantitative easing, given evidence that this year’s consumption-tax increase is impeding growth and that next year’s planned tax increase will weaken it further.

As for fiscal policy, Germany continues to resist a much-needed stimulus to boost eurozone demand. And Japan seems to be intent on inflicting on itself a second, growth-retarding consumption-tax increase.

Furthermore, the Fed has now exited quantitative easing and is showing a willingness to start raising policy rates sooner than markets expected. If the Fed does not postpone rate increases until the global economic weather clears, it risks an aborted takeoff – the fate of many economies in the last few years.

If the Republican Party takes full control of the US Congress in November’s mid-term election, policy gridlock is likely to worsen, risking a re-run of the damaging fiscal battles that led last year to a government shutdown and almost to a technical debt default. More broadly, the gridlock will prevent the passage of important structural reforms that the US needs to boost growth.

Major emerging countries are also in trouble. Of the five BRICS economies (Brazil, Russia, India, China, and South Africa), three (Brazil, Russia, and South Africa) are close to recession. The biggest, China, is in the midst of a structural slowdown that will push its growth rate closer to 5% in the next two years, from above 7% now. At the same time, much-touted reforms to rebalance growth from fixed investment to consumption are being postponed until President Xi Jinping consolidates his power. China may avoid a hard landing, but a bumpy and rough one appears likely.

The risk of a global crash has been low, because deleveraging has proceeded apace in most advanced economies; the effects of fiscal drag are smaller; monetary policies remain accommodative; and asset reflation has had positive wealth effects. Moreover, many emerging-market countries are still growing robustly, maintain sound macroeconomic policies, and are starting to implement growth-enhancing structural reforms. And US growth, currently exceeding potential output, can provide sufficient global lift – at least for now.

But serious challenges lie ahead. Private and public debts in advanced economies are still high and rising – and are potentially unsustainable, especially in the eurozone and Japan. Rising inequality is redistributing income to those with a high propensity to save (the rich and corporations), and is exacerbated by capital-intensive, labor-saving technological innovation.

This combination of high debt and rising inequality may be the source of the secular stagnation that is making structural reforms more politically difficult to implement. If anything, the rise of nationalistic, populist, and nativist parties in Europe, North America, and Asia is leading to a backlash against free trade and labor migration, which could further weaken global growth.

Rather than boosting credit to the real economy, unconventional monetary policies have mostly lifted the wealth of the very rich – the main beneficiaries of asset reflation. But now reflation may be creating asset-price bubbles, and the hope that macro-prudential policies will prevent them from bursting is so far just that – a leap of faith.

Fortunately, rising geopolitical risks – a Middle East on fire, the Russia-Ukraine conflict, Hong Kong’s turmoil, and China’s territorial disputes with its neighbors – together with geo-economic threats from, say, Ebola and global climate change, have not yet led to financial contagion. Nonetheless, they are slowing down capital spending and consumption, given the option value of waiting during uncertain times.

So the global economy is flying on a single engine, the pilots must navigate menacing storm clouds, and fights are breaking out among the passengers. If only there were emergency crews on the ground.

Conservatives, do you want the good old days back?

When conservatives implore America to return to the good ole days, they don't understand what that entails.

For instance, a 90 percent top marginal tax rate. Check it out:

But hey, it was the golden age of America, right? So let's try it again and see what happens!

Economists Say We Should Tax The Rich At 90 Percent

By Ben Walsh

October 22, 2014 | Huffington Post

URL: http://huff.to/1FC9ZQL

How competitive is the U.S., globally?

The Switzerland-based IMD World Competitiveness Yearbook 2014 results are in.  The results are "based on hard data statistics (2/3) and a business executives' opinion survey (1/3)." 

Here's the top 10... What jumps out at you?

10. Norway (population: 5.1 million)  (GDP *: $516 billion)

9.   Denmark (pop.: 5.6 million)  (GDP: $324 billion

8.   United Arab Emirates (5.6 million)  (GDP: $390 billion)

7.   Canada (81 million)  (GDP: $1.8 trillion)

6.   Germany (34.8 million) (GDP: $3.6 trillion)

5.   Sweden (9.7 million)  (GDP: $552 billion)

4.   Hong Kong  (7.1 million)  (GDP: $272 billion)

3.   Singapore (5.6 million)  (GDP: $296 billion)

2.   Switzerland (8 million)  (GDP: $646 billion)

1.   USA (318.9 million)  (GDP: $16.7 trillion)

* All GDP figures are given at official government exchange rates, most from 2013, not GDP based on purchasing power parity, which for all these countries except the United States was much, much lower, sometimes by half. (Source: CIA World Factbook).

The first thing that should jump out from the list is that America's population is almost double the other top 9 combined.  Meanwhile, our GDP is more than double the other top 9 countries' combined. If we would take GDP by purchasing power, ours would probably be triple theirs combined.

I point this out in order to repeat that: 1) the U.S. economy is not "going socialist" -- at least not according to business people -- and 2) everything is relative, so when critics say, "The U.S. is going to hell in a hand basket" economically, the question immediately should be, "Relative to what country?"  (So no, my Tea Partying friends, there's no place on Earth to "go Galt" to, I'm sorry.)

Our quiet neighbor in the frosty North, Canada, is the only country in the top 10 that even comes to close to the U.S. in terms of population size, diversity and GDP.  

(And as I've already posted, the more popular/recognized annual competitiveness rankings for 2013-14 by the World Economic Forum put the U.S. in 5th place behind Switzerland, Singapore, Finland and Germany, respectively.  But these are apples to oranges.)

IMD World Competitiveness Ranking 2014

May 22, 2014 | IMD

URL: http://www.imd.org/news/2014-World-Competitiveness.cfm

Poll: Americans still blame Dubya for bad economy

Whoever said Americans are dumb?  No way!  Only 33 percent of them.

CNN Poll: Is Bush still to blame for economy?

February 6, 2014 | CNN

URL: http://politicalticker.blogs.cnn.com/2014/02/06/cnn-poll-is-bush-still-to-blame-for-economy/?hpt=hp_bn6

Will GOP reject terror tactics?

For Democrats' sake, I hope the GOP uses continued government operations as a hostage in budget negotiations.  It will backfire mightily on Republicans at the polls, just as Karl Rove, Mitt Romney and other Republicans are warning.

But for our economy's sake, I hope Congressional Republicans wise up and reject the Tea Parties' economic terror tactics.

The Morning Plum: The GOP’s fundamental miscalculation on Obamacare

By Greg Sargent

August 7, 2013 | Amazon Post

URL: http://wapo.st/159NSv7

Obama preaching to vanishing middle class

Cox's conclusion is quite alarming:

Referring to "the middle class" as a sympathetic totem, or even as an aspirational construct, now runs the risk of alienating voters as much as inspiring or comforting them. Offering "protections" to the middle class might even raise resentments: for a growing number of Americans, that means giving benefits to someone else.

I've been talking for years now about the disappearance of the middle class.  See here, here, here and here.  Economists tell us that things have been bad for years, just covered up by households borrowing and spending more than they could afford to.  The Great Recession removed that fig leaf of middle-class affluence and laid bare the truth.  

Obama's address to the incredible shrinking middle class

By Ana Marie Cox

July 24, 2013 | Guardian

Republicans seized upon Obama's speech on the economy as a chance to reiterate their contention that very little about the nation's situation has changed in the past five years – and, paradoxically, there's very little Obama could do about it, even if he wanted to.

"The president himself said [the speech] isn't going to change any minds," John Boehner said in a floor speech before Obama even started. "All right, well. So exactly what will change? What's the point? What's it going to accomplish? You probably got the answer: nothing."

Of course, inertia – in both the political and economic sense – was a major theme of the speech itself. Obama started off with some applause-worthy boosterism: the country leads in technological advances! We manufacture a lot of stuff!

But the crux of the speech was less optimistic: the existing trends in "a winner-take-all economy where a few do better and better, while everybody else just treads water – have been made worse by the recession."

Obama's complaints about the parallel stagnation in Washington were familiar as well. He called out Republican obstructionism repeatedly, and in at least one unscripted and pointed assertion:  "Repealing Obamacare and cutting spending is not an economic plan. It's not."

Your opinion as to whether the speech served its purpose depends on your party identification, and your opinion on what its purpose was probably does, too. For me, it's a split decision: I am sympathetic to the president's policies – using government spending as a lever to enable upward mobility – but I think he may not have succeeded in what most progressives probably thought was the purpose of the speech: to rally his base and frame a renewed economic policy debate over the coming months.

Maybe, I'm being too literal, but I keep getting stuck on the very title of the speech, "A Better Bargain for the Middle Class."

Here's the problem: the "middle class" – a once-reliable rallying point for both parties – is shrinking (not really news); and so are the numbers of Americans who think they are members of it.  What used to be the case – Americans defined themselves as "middle class" even if they weren't – is starting to adjust to sad reality: Americans don't think of themselves as "middle class", because they're not.

A Pew study this spring found the number of Americans defining themselves as "middle class" has slipped from 53% to 49% since 2008, while those identifying themselves as "lower class" went from 25% to 32%.  Actual class slippage mirrors this finding almost exactly: the 2011 census found that since 2007, the share of working families with an income less than double the federal poverty line (the government's definition of "low income") rose from 28% to 32%.

Referring to "the middle class" as a sympathetic totem, or even as an aspirational construct, now runs the risk of alienating voters as much as inspiring or comforting them. Offering "protections" to the middle class might even raise resentments: for a growing number of Americans, that means giving benefits to someone else.

It may be sometime before political rhetoric adjusts to these harsh realities. I hope that the economy turns around before it has to.

Study: 19th-cent. U.S. wealth vested in slaves

I've said it before: America was a country built by slaves; and that wealth persists. To ignore that, and yet to revere our Founding Fathers who got rich on the backs of slaves, is to deny reason and history.

To wit, let's recall this brief but fascinating Bloomberg analysis last year:

The U.S. won its independence from Britain just as it was becoming possible to imagine a liberal alternative to the mercantilist policies of the colonial era. Those best situated to take advantage of these new opportunities -- those who would soon be called "capitalists" -- rarely started from scratch, but instead drew on wealth generated earlier in the robust Atlantic economy of slaves, sugar and tobacco. [...]

This recognizably modern capitalist economy was no less reliant on slavery than the mercantilist economy of the preceding century. Rather, it offered a wider range of opportunities to profit from the remote labor of slaves, especially as cotton emerged as the indispensable commodity of the age of industry.

In the North, where slavery had been abolished and cotton failed to grow, the enterprising might transform slave-grown cotton into clothing; market other manufactured goods, such as hoes and hats, to plantation owners; or invest in securities tied to next year's crop prices in places such as Liverpool and Le Havre. This network linked Mississippi planters and Massachusetts manufacturers to the era's great financial firms: the Barings, Browns and Rothschilds.

But you know... maybe that is indeed what the Tea Parties and far-right conservatives really want: a return to late 18th and early 19th-century America, when a white elite got rich on the backs of dark-skinned slaves?  What else can we infer from the Republicans' recent "work or starve" political economy?

America's Slaves Were More Valuable Than All Its Industrial Capital Combined  

By Matthew Yglesias

July 18, 2013 | Slate

Thomas Piketty and Gabriel Zucman have a new paper out (PDF) about the historical evolution of wealth in a number of different prominent countries, and it features this chart for the United States that really drives home the amazing reality of America's antebellum slave economy. The "human capital" consisting of black men and women held as chattel in the states of the south was more valuable than all the industrial and transportation capital ("other domestic capital") of the country in the first half of the nineteenth century. When you consider that the institution of slavery was limited to specific subset of the country, you can see that in the region where it held sway slave wealth was wealth.

In their discussion, the point Piketty and Zucman make about this is that slave wealth was the functional equivalent of land wealth in a country where agricultural land was abundant. The typical European wealth-holding pattern was of an economic elite composed of wealthy landowners in a environment of scarce usable land. In America, land was plentiful since you could steal it from Native Americans. That should could have led to an egalitarian distribution of wealth, but instead an alternative agrarian elite emerged that did happen to own large stocks of land but whose wealthy was primarily composed of owning the human beings who worked the land rather than owning the land itself.

Was American Revolution worth it? Revisiting the 'American Dream'

This July 4th we can stop and ponder: was the American Revolution worth it? Here's what NPR had to say about the "American Dream," i.e. social and economic upward mobility:

So, in the 19th century in the U.S., there's unbelievable economic mobility. If your father, for example, was an unskilled laborer, sort of the lowest end of the working hierarchy, then you had an 80 percent chance of doing some more skilled, more highly paid job than your father. At the same time, in the U.K., you had about a 50 percent chance. Half the children of unskilled laborers were unskilled laborers themselves. But by just after World War II, the U.S. and U.K. are converging and the differences start to disappear. And by 1970, the U.K. has pulled ahead. So, by the 1970s, the children of unskilled laborers are more likely to do be doing something higher paying in the U.K. than in the U.S.

Why is that so?  Why is the "American Dream" more alive in Britain today than in America?  There are two basic theories, according to NPR:

• By the 20th century, the U.S. was a mature economy like Britain, without all the exceptional opportunities for growth that exist in a young, expanding nation.

• In early-mid 20th century, the welfare state and education in Britain grew at a faster pace.

These two theories are not mutually exclusive.  I would also point out the respective rates of unionization in the U.S. and UK: 11.1 percent vs. 25.8 percent.  The average in OECD countries for trade union density is 17 percent.  Nordic socialist paradises Denmark, Finland, Norway and Sweden, which top almost every global indicator of economic and social well-being, have well over 50 percent of their workers in trade unions.  In the U.S. we blame falling wages all on globalization, but then we should ask why wages aren't falling elsewhere in G-8 countries?  Unions have a lot to do with it.

And then there is the U.S. tax system, which for the past 30 years has discriminated against wages in favor of income earned through interest and financial securities, thereby inflating inequality and crushing the "American Dream."  Remember this chart?:

Paul Pirie for WaPo  gives us more socio-economic data to ponder:

Most Americans work longer hours and have fewer paid vacations and benefits — including health care — than their counterparts in most advanced countries. Consider also that in the CIA World Factbook, the United States ranks 51st in life expectancy at birth. Working oneself into an early grave does not do much for one’s happiness quotient. This year the United States tied for 14th in “life satisfaction” on an annual quality-of-life study by the Organization for Economic Cooperation and Development. That puts the United States behind Canada (eighth) and Australia (12th). A report co-authored last year by the economist Jeffrey Sachs ranked the United States 10th in the world for happiness — again behind Canada and Australia. The Sachs study found that the United States has made “striking economic and technological progress over the past half century without gains in the self-reported happiness of the citizenry. Instead, uncertainties and anxieties are high, social and economic inequalities have widened considerably, social trust is in decline, and confidence in government is at an all-time low.”

But the difference is not just in economics or happiness, but also liberty.  Pirie points out that the British Empire (including Canada) abolished slavery in 1833, a full 32 years befoe the U.S. ratification of the 13th Amendment to the Constitution. Today's slavery is the U.S. prison-industrial complex that incarcerates more adults, in both absolute and relative terms, than any other country by a wide margin, including Red China and Russia.  

And speaking of Americans' liberty, I have three words for you: N-S-A.  Do I really need to say more?  It doesn't matter, the spooks are archiving this post anyway.

Today, having mentioned some of these factoids to a Brit, I joked about our reneging the Declaration of Independence.  He said Britons are glad America is no longer their problem; they can't imagine trying to govern the U.S.  I joked back, "Yeah, we have enough trouble dealing with places like Texas!"  Can you imagine British PM David Cameron trying to talk sense to the folks in U.S. flyover country? You start to wonder who got the better end of the deal when the U.S. declared its independence....   

Happy 4th of July, everybody!  Have a hotdog and light off a roman candle for me.

UPDATE: If you think I'm unpatriotic, here's a guy who really can't stand the 4th of July: "Hatetriot's Day: July 4th Is America's Crappiest Holiday."

Austerity punks downgrade Britain's debt anyway

Sorry, I missed this story when it happened but it's still worth dwelling on because you won't hear this in the U.S. media.  Fitch's downgrade followed Moody's downgrade of Britain's sovereign debt in February.

Let me underline why these downgrades by the independent ratings agencies are so important: this is the exact consequence that advocates of austerity warned Britain to avoid, and yet austerity has made their worst nightmare come true.

For all you Tea Partyers, let me make it simpler: cutting government spending led to a weaker economy and thus higher government debt, which led to ratings downgrades.

Let me also point out the outrageous, self-serving logic of Fitch:

"The current pace of deficit reduction doesn't seem excessive," Fitch analyst David Riley said. "Other countries in Europe are cutting at a similar speed or even faster."

Translation: "As good little neoliberals, we at Fitch agree ideologically with rapid deficit reduction, but we base our ratings on actual results, which have been awful, so... take that."

That's called damned if you do, damned if you don't, folks.  It's safer to ignore the austerity punks and strive for a growing economy, because the austerity punks are fair-weather friends of budget-cutting states.

Fitch strips UK of triple-A rating, austerity debate deepens

By Christina Fincher and David Milliken

April 19, 2013 | Reuters

URL: http://uk.mobile.reuters.com/article/idUKBRE93I0SJ20130419?irpc=932

Japan v. Europe / stimulus v. austerity

It's still early, but so far so good for the anti-austerity economic policies of Japan's Prime Minister Shinzo Abe aimed at pulling Japan out of 20 years of economic doldrums.  

He's doing the exact opposite of what the IMF/WSJ/CNBC/Davos talking heads say to do, by spending money and encouraging inflation. 

I know, I know, many old teabaggers are clutching their chests and turning purple upon reading those words, but there are unintended evils attendant with high savings and zero inflation.

So, once again, the rest of the world is doing us a favor, showing us what works and what doesn't, and all we have to do is watch and copy the smart guys.

It's austerity on the right in Europe, and stimulus on the left in Japan.  Who's gonna win?  

Rest assured that your ace blogger will be following this story!....

(This is totally off-topic, but remember that Michael Crichton novel & movie Rising Sun?  Remember how he and others warned us that Japan's economy was going to eat our lunch?  Seems very silly now.  This was the same Michael Crichton, by the way, (may he RIP) who reportedly convinced Dubya that man-made global warming was a scientific hoax.  So that's, uh, two big strikes against the dead guy.)

Japan household spending surges as "Abenomics" gains momentum

By Stanley White and Kaori Kaneko

April 30, 2013 | Reuters

URL: http://www.reuters.com/article/2013/04/30/us-japan-economy-idUSBRE93T03R20130430

Baker: Errors by deficit-hawk economists cost how many jobs?

[HT: Vern.]  This is a somewhat technical piece, but it suffices to say that it takes down one of the principle economic arguments for austerity and deficit reduction.

How much real-world damage was caused by policy makers acting on R&R's flawed economic analysis by cutting public expenditures during an economic crisis thereby exacerbating the economic downturn?

Getting economics right matters to millions of real people!

How Much Unemployment Was Caused by Reinhart and Rogoff's Arithmetic Mistake?

By Dean Baker

April 16, 2013 | CEPR

URL: http://www.cepr.net/index.php/blogs/beat-the-press/how-much-unemployment-was-caused-by-reinhart-and-rogoffs-arithmetic-mistake

Baker: 10 years of economic doldrums ahead

With a recalcitrant GOP House and sequestration coming, if Obama sticks to his guns but makes no progress in negotiations, then we'll have spending cuts and tax increases in 2013, or austerity by default.  And zero chance of more necessary fiscal stimulus.  

Here's how liberal economist Dean Baker sums up U.S. economic prospects:

The number of jobs in the economy is roughly 9 million below the trend level. The recent pace of job growth has been approximately 170,000 a month. The economy needs to generate 100,000 jobs a month just to keep pace with the growth of the labor force.

This means that it would take almost 130 months, more than 10 years, for the economy to generate enough jobs to make up its 9 million shortfall at its recent growth rate. That is not a very good picture.

It is difficult to envision a scenario that looks much better. The housing market is recovering and that will provide a modest boost to growth, but it is not likely we will return to the construction rates of the boom years. Trade may be a small positive in the years ahead, but with the economies of most U.S. trading partners also weak, it is unlikely that trade will provide much of a boost in the near future.

The Post-Election Economic Blues

By Dean Baker

November 16, 2012 | Counterpunch

URL: http://www.counterpunch.org/2012/11/16/the-post-election-economic-blues/

Krugman: No way for 'V-shaped recovery' in 2009

Team Romney insists that the U.S. economy could and should have had a "V-shaped recovery" starting in 2009, despite all the historical and theoretical evidence to the contrary.

For the record, here's what Paul Krugman wrote in January 2008 (a year before Obama was President):

There’s still the question of how deep the slump will be. I can see the case for arguing that it will be nasty. The 1990-91 recession was brought on by a credit crunch, the 2001 recession by overinvestment; this time we’ve got both. I guess we’ll see. In any case, whatever happens will probably last quite a while.

More Financial Crisis Denialism

By Paul Krugman

October 28, 2012 | New York Times

URL: http://krugman.blogs.nytimes.com/2012/10/28/more-financial-crisis-denialism/

Poll: It's a black thing?

Thank goodness we're a post-racial society where people vote for their economic interests.

Oh, wait a minute....

Seriously though, one person already countered with that '90s line: "It's the economy, stupid."

You think so?  If that's so, then I guess that means only white men understand economics. And even they admit that Obama would do more to help the non-rich. Hmm... something doesn't add up....

Poll finds deepest racial split since ’88
By Scott Clement, Jon Cohen
October 25, 2012 | Washington Post

URL: http://wapo.st/R1SRZ3

Zakaria: U.S. economy is recovering the fastest

Here's another must-read op-ed from Fareed's interns!

I'm not quite so optimistic as him, especially about housing when a quarter of U.S. homes are still underwater: that's just psychological ballast on consumption and investment.  Then again, Americans have short memories and may resume their free-spending ways again even if they cannot afford it, to every economist's delight.  

Now I know all my dear Republican friends will want to take issue with the following rosy analysis, but they should remember: no rooting against the home team!  Your psychic energy makes all the difference.  

America is recovering well

By Fareed Zakaria

October 25, 2012 | Washington Post

The International Monetary Fund’s latest World Economic Outlook makes for gloomy reading. Growth projections have been revised downward almost everywhere, especially in Europe and the big emerging markets such as China. And yet, when looking out over the next four years — the next presidential term — the IMF projects that the United States will be the strongest of the world’s rich economies. U.S. growth is forecast to average 3 percent, much stronger than that of Germany or France (1.2 percent) or even Canada (2.3 percent). Increasingly, the evidence suggests that the United States has come out of the financial crisis of 2008 in better shape than its peers — because of the actions of its government.

Perhaps the most important cause of America’s relative health is the Federal Reserve. Ben Bernanke understood the depths of the problem early and responded energetically and creatively. The clearest vindication of his actions has been that the European Central Bank, after charting the opposite course for three years with disastrous results, has adopted policies similar to the Fed’s — and averted a potential Lehman-like collapse in Europe. (Mitt Romney’s two most prominent academic advisers, Glenn Hubbard and Gregory Mankiw, seem to recognize this, but Romney apparently doesn’t. As recently as August the Republican presidential nominee repeated his criticisms of the Fed and promised to replace Bernanke at its helm.)

In addition to providing general liquidity, the Fed and the Treasury rescued the financial system but also forced it, through stress tests and new rules, to reform. The result is that U.S. banks are in much better shape than their European counterparts. Consumers have also been paying off debt, thanks to a series of tax cuts and other forms of relief.

A McKinsey & Co. study of crises in recent decades found that the United States is mirroring the pattern of countries with the strongest recoveries. It noted that “Debt in the financial sector relative to GDP has fallen back to levels last seen in 2000, before the credit bubble. US households have reduced their debt relative to disposable income by 15 percentage points, more than in any other country; at this rate, they could reach sustainable debt levels in two years or so.”

Kenneth Rogoff and Carmen Reinhart, the leading experts on financial crises, argue that the United States is performing better than most countries in similar circumstances. U.S. consumer confidence is at its highest levels since September 2007.

Every recovery since World War II has been led by housing, except this one.  But finally, housing is back. Two weeks ago, Jamie Dimon, the chief executive of JPMorgan Chase, declared that housing had turned the corner and predicted that, as a consequence, economic growth in 2013 would be so strong the Fed would have to raise interest rates. Given his firm’s vast mortgage portfolio, Dimon has a unique perspective on housing, and he is a smart man who knows that the Fed has promised to keep rates flat for three years. Last week, data on new housing starts confirmed Dimon’s optimism.

U.S. corporations have also bounced back. Corporate profits are at an all-time high as a percentage of gross domestic product, and companies have $1.7 trillion in cash on their balance sheets. The key to long-term recoveries from recessions is reform and restructuring, and U.S. businesses have been quick to respond.

Government intervention assisted this process with banks, auto companies and even in housing. Romney is correct to point out that the Obama administration supervised a managed bankruptcy in Detroit — forcing the kind of reform a private equity firm would have (though, crucially, providing the cash that a President Romney would not have). The Economist magazine, which initially opposed that bailout, reversed itself because of the manner in which General Motors and Chrysler were made to cut costs and become competitive.

And then there is America’s energy revolution, which is also bringing back manufacturing. U.S. exports, which have climbed 45 percent in the past four years, are at their highest level ever as a percentage of GDP.

All these good signs come with caveats. Europe continues to weaken. The fiscal cliff looms ominously. But the fact remains, compared with the rest of the industrialized world and the arc of previous post-bubble recoveries, the United States is ready for a robust revival.  This is partly because of the dynamism of the U.S. economy but also because of the timely and intelligent actions of the Fed and the Obama administration.

The next president will reap the rewards of work already done. So it would be the ultimate irony if, having strongly criticized almost every measure that contributed to these positive tends, Mitt Romney ends up presiding over what he would surely call “the Romney recovery.”

Is MSM narrative on Romney - and Obama - all wrong?

Aw, poor Mitt.  Maybe we all have been too hard on the loser -- er, guy, huh?  

I'm willing to admit that there are media narratives that get accepted and become their own truth, especially during U.S. presidential campaigns.  Matt Taibbi has written about this extensively.  

If there is a "Mitt is a loser" narrative in the media lately, then it must be a reaction to the unfulfilled promise of the "Obama is dead meat after the GOP primaries" narrative.  The media have reminded us for months that no President has ever been re-elected with unemployment above 7 percent, blah, blah, blah.  The media have predicted that no matter how smooth Obama was, he couldn't overcome this bad economy; anybody with a smile and a pulse would cream him.

But when the polls -- cast in stark relief by the aftermath of the GOP's flat convention, and Romney's flip-flops and occasional odd comments -- didn't fulfill the media's prediction, the media turned on Romney (instead of turning on its own narrative).  If the former narrative was still true, then the only explanation for Obama's high poll numbers could be be that Romney was an exceptionally pathetic loser.  Only this inept fool Romney could miss a one-inch putt to the Presidency, goes the revised media narrative.

I admit that's not exactly true, and unfair.  I've been a guilty of repeating this narrative myself.  Perhaps the truth is more optimistic: voters are smarter than the media think.  Maybe the previous media narrative was all wrong.  Perhaps Obama was always the favorite.  Maybe voters already realized that Obama inherited a shit sandwich the size of Salt Lake City from Dubya, and had to deal with problems that no other President faced -- such as $15.5 trillion in lost U.S. wealth, 8.8 million lost jobs (more than the previous four recessions combined) and a quarter of all homes underwater on their mortgages, not to mention two expensive wars to clean up.  Maybe they realized, correctly, that no POTUS could fix all that in three years.  If I realized all that a long time ago, then maybe millions of my fellow Americans did, too?  Indeed, a recent poll shows that Americans have about equal confidence in Obama and Romney to handle the economy.  So the election won't be referendum on the economy.  Romney can't be as good as Obama; he must be much better.

“No one ever went broke underestimating the intelligence of the American public," goes the infamous cynical quip.  Well, I truly doubt Mitt Romney will ever go broke, but it sure looks like he's going to lose this race.  And it's not because he's such a pathetic loser.  He's not.  It's because the American public is that discerning.  The Romney campaign has condescended and underestimated them.

Yes, Mitt Romney Is Getting a Raw Deal From the Press

By John Cook

October 1, 2012 | Gawker

URL: http://gawker.com/5947910/yes-mitt-romney-is-getting-a-raw-deal-from-the-press

Laffer up to his old tricks again

As if we needed more proof that Laffer sucks at drawing curves...

Popular views on the effectiveness of fiscal stimulus v. austerity measures will likely determine the outcome in November's elections.  That is why GOP hack economist Art Laffer is deliberately muddying the waters with his latest WSJ op-ed.  It's not surprising that this facile analysis came from the same guy whose claim to fame is scribbling an arc on a napkin for Dick Cheney.

Anyway, his only real data here is the relation between spending from 2007-09 and rate of GDP growth over the same period.  The rest is a lot of noise you'd see in, say, one of Thomas Sowell's lazy, phoned-in editorials.

This data tells us there is a weak negative correlation, -0.23, between governments' spending and their rates of GDP growth.  That is, as one tended to decrease, the other tended to increase, and vice-versa.  However, any statistician will tell you can't take two variables and draw conclusions about causality, especially with such a low correlation coefficient.  

Indeed there are some big, unexplained outliers like Hungary, that increased spending only 0.7 percent but saw its rate of GDP growth decline by 9.9 percent.  That's a greater decline than in the U.S., which increased spending 7.3 percent.  Or take Israel, which cut spending 0.9 percent but still saw its rate of GDP growth decline 6.2 percent.  Or Switzerland, which also cut spending 0.2 percent and still lost 7.1 percent of GDP growth rate.  

Laffer doesn't even try to explain these outliers because he can't; or if he did try, he'd have to admit that many more variables played a role, for instance (just thinking logically here), the percent of each country's pre-crisis GDP represented by banks and financial services.  

Next, all these economies were going to shrink with or without stimulus spending.  It was a question of how much.  Furthermore, it is entirely reasonable to suppose that economies that were going to suffer the worst from a financial crisis, for example, those more dependent on the financial sector, knew they had to spend more on stimulus.  

Finally, there is a timing problem here:  three years is a long time and some economies tanked very quickly, whereas stimulus wasn't passed as a reaction until later.  For instance, the U.S. recession started in December 2007 but Obama's ARRA (stimulus bill) wasn't passed until February 2009.  Laffer's GDP analysis stops in 2009... effectively blocking out the effect of Obama's stimulus bill.  Official data from the BEA shows us that U.S. GDP growth was negative in 2009 but then roared back 3.8 percent in 2010 and 4 percent in 2011 after the stimulus bill (adjusted for current dollars).  

The truth is, we will never know how much worse it would have been without stimulus and automatic stabilizers to workers' income.  We certainly would not want to find out firsthand.

The Real 'Stimulus' Record

By Arthur Laffer

August 5, 2012 | Wall Street Journal

URL:  http://online.wsj.com/article/SB10000872396390444873204577537244225685010.html?mod=WSJ_Opinion_LEADTop

Romney's economic 'plan' is madness

Sorry, but voting for Romney simply because he's "not Obama" is irresponsible.  If Romney's advisers' vague economic "plan" can be taken at face value, then it's a promise of short-term austerity measures to pay for tax cuts for the rich.

In the current economy this would be reckless madness.  EU examples show that austerity doesn't work to lower national borrowing costs or attract investment.  And its effects on ordinary citizens ain't pretty.  

Romney's other keystone campaign promise is to repeal Dodd-Frank.  Really?!?  That's the best he could come up with?  This is not something anybody is clamoring for right now, even the bizarro Tea Parties.  There is not a shred of evidence or economic theory to argue that decreased financial regulation would lead to job growth.  (And don't forget how we narrowly avoided financial Armageddon and could not be so lucky next time if we let Wall Street regulate itself....)

To me, this all goes to show that Romney supports exactly what his richest backers are for.  The man has no core beliefs.  He just wants to be President, period.  Heck, even Obama, who is also accused of having no core, campaigned on a ballsy promise to reform healthcare -- and he did it, suffering extreme political damage to this day as thanks.    

Where is Romney's big-picture idea to turn around the economy, or at least improve the average American's quality of life?  What issue does Romney believe in so fervently that he would suffer political damage to support it?  What in the world does this empty suit stand for besides himself?  

Romney's "Recovery Plan" Could Bring On Another Recession

By John Cassidy

August 2, 2012 | New Yorker

URL://www.newyorker.com/online/blogs/johncassidy/2012/08/romneys-recovery-plan-could-bring-on-another-recession.html#ixzz22hJmKPtt

Bloomberg: There's no debate on economics

"Faith-based economics."  Maybe that kind of hooey is just what we deserve after teaching our kids Creationism as a legitimate scientific theory.

The U.S. Economic Policy Debate Is a Sham

By Betsey Stevenson & Justin Wolfers 

July 23, 2012 | Bloomberg

Watching Democrats and Republicans hash out their differences in the public arena, it's easy to get the impression that there's a deep disagreement among reasonable people about how to manage the U.S. economy.

Nothing could be further from the truth.

In reality, there's remarkable consensus among mainstream economists, including those from the left and right, on most major macroeconomic issues. The debate in Washington about economic policy is phony. It's manufactured. And it's entirely political.

Let's start with Obama's stimulus. The standard Republican talking point is that it failed, meaning it didn't reduce unemployment. Yet in a survey of leading economists conducted by the University of Chicago's Booth School of Business, 92 percent agreed that the stimulus succeeded in reducing the jobless rate. On the harder question of whether the benefit exceeded the cost, more than half thought it did, one in three was uncertain, and fewer than one in six disagreed.

Or consider the widely despised bank bailouts. Populist politicians on both sides have taken to pounding the table against them (in many cases, only after voting for them). But while the public may not like them, there's a striking consensus that they helped: The same survey found no economists willing to dispute the idea that the bailouts lowered unemployment.

Do you remember the Republican concern that Obama had somehow caused gas prices to rise, a development that Newt Gingrich promised to reverse? There's simply no support among economists for this view. They unanimously agreed that "market factors," rather than energy policy, have driven changes in gas prices.

How about the oft-cited Republican claim that tax cuts will boost the economy so much that they will pay for themselves? It's an idea born as a sketch on a restaurant napkin by conservative economist Art Laffer. Perhaps when the top tax rate was 91 percent, the idea was plausible. Today, it's a fantasy. The Booth poll couldn't find a single economist who believed that cutting taxes today will lead to higher government revenue -- even if we lower only the top tax rate.

The consensus isn't the result of a faux poll of left-wing ideologues. Rather, the findings come from the Economic Experts Panel run by Booth's Initiative on Global Markets. It's a recurring survey of about 40 economists from around the U.S. It includes Democrats, Republicans and independent academics from the top economics departments in the country. The only things that unite them are their first-rate credentials and their interest in public policy.

Let's be clear about what the economists' remarkable consensus means. They aren't purporting to know all the right answers. Rather, they agree on the best reading of murky evidence. The folks running the survey understand this uncertainty, and have asked the economists to rate their confidence in their answers on a scale of 1 to 10. Strikingly, the consensus looks even stronger when the responses are weighted according to confidence.

The debate in Washington has become completely unmoored from this consensus, and in a particular direction: Angry Republicans have pushed their representatives to adopt positions that are at odds with the best of modern economic thinking. That may be good politics, but it's terrible policy.

The disjunction between the state of economic knowledge and our current political debate has important consequences. Right now, millions of people are suffering due to high unemployment. Our textbooks are filled with possible solutions. Instead of debating them seriously, congressional Republicans are blocking even those policy proposals that strike most economists as uncontroversial.

This inaction has no basis in economics. Instead, it's raw politics -- a cynical attempt to score points in a phony rhetorical war or a way of preventing their opponents from scoring a policy win.

The debate about the long-run challenge posed by the federal budget deficit has also become divorced from economic reality. The same panel of economists was almost unanimous in agreeing that "long run fiscal sustainability in the U.S. will require cuts in currently promised Medicare and Medicaid benefits and/or tax increases that include higher taxes on households with incomes below $250,000." Only one in 10 was uncertain. None objected.

Likewise, popular tax deductions such as that for mortgage interest didn't fare well in the surveys and would be on almost any economist's list of targets for reform. Yet neither party is willing to propose such policies.

The consensus, of course, can be wrong. On the probable consequences of economic reforms, though, leading economists are more likely to be right than politicians running for re- election. Their solidarity needs to be taken seriously. Too much of what passes for economic debate in Washington is the product of faith, not evidence.

It's time to put economics back into the economic debate.