U.S. economy 2012

The Economist updates the lexicon of hedge funds
In line with the rest of our industry we are making some changes to the language we use in our marketing and communications. We are writing this letter so we can explain these changes properly. Most importantly, Zilch Capital used to refer to itself as a “hedge fund” but 2008 made it embarrassingly clear we didn’t know how to hedge. At all. So like many others, we have embraced the title of “alternative asset manager”. It’s clunky but ambiguous enough to shield us from criticism next time around.

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Paul Krugman: On the Economics and Politics of Deficits
… the whole deficit panic is fundamentally misplaced. And it’s especially galling if you look at what many of the same people now opining about the evils of deficits said back when we had a surplus. Remember, George W. Bush campaigned on the basis that the surplus of the late Clinton years meant that we needed to cut taxes — and Alan Greenspan provided crucial support, telling Congress that the biggest danger we faced was that we might pay off our debt too fast. Now Greenspan is helping groups like Fix the Debt. … The point is that the whole focus of budget discussion is based on a combination of bad economics and bad (and fundamentally dishonest) politics. We’re looking not so much at a Grand Bargain as at a Great Scam.
28 December
Women will save the US economy, says billionaire Warren Buffett
Forget the “fiscal cliff”, it will be women who save the economy, according to the “Sage of Omaha”.
(The Telegraph U.K.) Women will save the American economy, billionaire investor Warren Buffett has predicted.
As fears grow that the United States is preparing to plunge over the “fiscal cliff”, the octogenarian philanthropist said he expected a deal to be reached to avoid automatic austerity measures kicking in.
But over the longer term he said he was particularly optimistic about prospects for the US because the country was finally beginning to harness the full potential of women.
In an interview with fellow philanthropist Melinda Gates, who was guest editor on BBC Radio 4’s Today, the so-called Sage of Omaha said affording women the same prospects to succeed as men was key to a bright economic future. “[It is] one of the things that make me so optimistic about the future,” he said.
Why they want to go over the cliff
(Politico) Short of getting exactly what they want, Washington’s political leaders appear content to avoid what they fear politically and on policy grounds — losing. That’s why, despite all the bluster, most folks in the nation’s capital now believe it’s more likely than not that the Bush tax cuts will expire and the automatic cuts known as sequestration — $1.2 trillion over a decade — will be set in motion come January.
21 December
Analysis: Boehner has few options in fiscal cliff mess
(Reuters) – Now that House Speaker John Boehner’s “Plan B” for addressing the “fiscal cliff” has crashed and burned, the top U.S. Republican appears to have two remaining options – wash his hands of the entire matter or negotiate a compromise with Democrats that could abandon scores of his fellow Republicans.
20 December
‘Plan B’ Vote Spiked In House In Major Setback For Boehner
(HuffPost) House Speaker John Boehner (R-Ohio) failed to muscle a controversial fiscal cliff fallback through the House Thursday night, suddenly pulling the bill after spending almost a week on a plan that Democrats called a waste of time.
The failure to bring the measure to a vote kills Boehner’s “Plan B” and moves the nation one large step closer to the so-called fiscal cliff looming on Jan. 1, when a combination of tax hikes and spending cuts are set to start kicking in. It also marks a major setback for Boehner, who was unable to marshal enough of his fractious, Tea Party-inspired members, even after he and other leaders had pledged earlier in the day that they would succeed.
“The House did not take up the tax measure today because it did not have sufficient support from our members to pass,” Boehner said in a statement. “Now it is up to the president to work with Senator Reid on legislation to avert the fiscal cliff.”
17 December
Dr. Rodrigue Tremblay: The Five Pillars of the Growing Inequality in the U.S.
On November 6, 2012, American voters chose not to entrust their central government to ultra-conservative billionaires and their candidates and they rejected their anti-government, low taxation and no regulation ideology.
One reason may be that there is a perfect storm brewing in the United States in the direction of an ever greater income and wealth inequality. However, a majority of Americans are beginning to understand that the ultra-conservative ideology and the government policies it generates play a large role in the fact that a minority of very rich people are getting richer while a majority of poor and middle income people are getting poorer.
14 December
Odds rise for “fiscal cliff” fight entering 2013
(Reuters) – The “fiscal cliff” impasse is raising the odds that Congress will fail to meet a year-end deadline to avert steep tax hikes and budget cuts that could push the nation into another recession.
With talks between President Barack Obama and House of Representatives Speaker John Boehner at an apparent standstill, analysts said on Friday that it was increasingly likely that Washington won’t be able to reach a deal before January 1.
11 December
The Tax Hike Canard — The Right Way Down the Fiscal Cliff
Martin Feldstein
(Foreign Affairs) For now, the country needs to raise revenue to reverse the rising ratio of debt to GDP.
The wrong way to get that extra revenue is to go over the fiscal cliff, which would cause tax rates on personal earnings, dividends, capital gains, and corporations to rise. When combined with the mandatory spending sequester scheduled to be implemented in 2013, demand next year could fall by a total of $600 billion — about four percent of GDP — and by larger sums after that. The Congressional Budget Office rightly predicts that would push the economy into a new recession. … A better way to raise revenue would be to broaden the tax base by capping the tax reductions that each taxpayer can claim. Each taxpayer would retain all of his or her existing deductions and exclusions, but the overall cap would limit the total amount by which the taxpayer could reduce his or her tax liability. The limit would apply not to the size of deductions and exclusions but to the resulting tax benefit to each individual. A cap of two percent of each individual’s adjusted gross income — applied to the taxpayer benefits from all itemized deductions and excluding municipal bond interest and the value of employer payments for high-value health insurance — would raise about $150 billion at the 2013 level of income, or about one percent of GDP.
It would make sense to modify an overall cap to retain the deduction for charitable gifts. Unlike most other deductions and exclusions, charitable gifts do not benefit the taxpayer. The increased giving generated by tax deductibility is important for maintaining private support for universities, churches, hospitals, and cultural institutions. If all charitable gifts remain deductible, the two percent cap would still produce $130 billion in revenue in 2013.
7 December
The Insourcing Boom
(Atlantic Magazine December 2012) After years of offshore production, General Electric is moving much of its far-flung appliance-manufacturing operations back home. It is not alone. An exploration of the startling, sustainable, just-getting-started return of industry to the United States.
29 November
The 1930s All Over Again?
By Reuven Brenner
(The American.com) Then, as today, societies were uncertain about which model of society to strive for and how to repair monetary systems. Societies bet on the wrong ideas; we may be committing similar mistakes now.
Then, as today, societies were uncertain about which model of society to strive for and how to repair monetary systems. Societies bet on the wrong ideas; we may be committing similar mistakes now.
Many people draw parallels between today and the 1930s, labeling this the Great Recession. They note the high unemployment rate, referring not to the mismeasured, official statistic, but to the number more than double that rate, which also accounts for those who dropped out from the labor force and are no longer counted as “unemployed.” Others worry about the deflationary risk, the dollar devaluation, and the status of the U.S. dollar as reserve currency. Still others worry that the “vital few” — those with high scientific aptitudes and entrepreneurial drive — no longer come to or stay in the United States, but stay in or go back to the many countries whose Iron Curtains have been punctured since 1989.
Yet the most worrying parallel with the 1930s is one that is not discussed. Then, as today, societies were uncertain about the model of society they should strive for and about how to repair domestic and international monetary systems after wildly varying expansions of credit during and after World War I in the different countries.[emphasis added] In addressing these two questions, societies ended up betting on the wrong ideas, which had long-term, disastrous consequences. We may be committing similar mistakes now.
28 November
Cracks surface in Republican unity on tax rates
(Reuters) – Republican unity against raising tax rates for the wealthy began to show cracks on Wednesday after a conservative congressman said he would back an agreement with President Barack Obama to raise rates on the rich but extend tax cuts for income below $250,000.
26 November
Cliff Notes
Would House Republicans actually vote for a “fiscal cliff” deal that would raise tax rates?
(Slate) Using this three-part filter, we can examine recent news that Republican Sens. Saxby Chambliss and Lindsey Graham have expressed support for raising revenue through the tax code as a part of a deal that would avoid the automatic spending cuts and tax increases that will come on Jan. 1. Our model tells us that the first relevant fact is that they are senators. In this drama, being a senator is not very important. Democrats control the Senate, and the majority will go along with the president. The real action of the day is between Barack Obama and John Boehner. Is there a majority of votes for a tax increase in the House of Representatives? Senators can comment on that; they can send helpful memos; they can hand out mixed nuts during negotiations; but they are in the chorus, not on stage. A few select GOP senators —Minority Leader Mitch McConnell, conservative leader Jim DeMint—might influence House Republicans, but those men are also likely to be on the same page as House Speaker John Boehner.
Bob Corker: ‘I’m Not Obligated’ To Follow Grover Norquist’s Anti-Tax Pledge
Open criticism of Grover Norquist and his Americans for Tax Reform group’s anti-tax pledge continued to make its way to the forefront of debate on Monday, with Sen. Bob Corker (R-Tenn.) saying that his only real obligation was to serve his constituents by finding a long-term solution to avert the so-called “fiscal cliff.”
Lindsey Graham: ‘I Will Violate The Pledge’ To Not Increase Taxes
(HuffPost) Several congressional Republicans said Sunday that they would be open to increasing the amount of money the government collects in taxes, with a senior Republican member of the U.S. Senate going so far as to say he is willing to break his earlier promise to not support tax hikes in any form. …
Doing so would violate Grover Norquist’s “Taxpayer Protection Pledge,” which both men have signed (as have most Republicans in Congress). Under the pledge, “candidates and incumbents solemnly bind themselves to oppose any and all tax increases,” according to the Americans for Tax Reform site.
25 November
CEO Council Demands Cuts To Poor, Elderly While Reaping Billions In Government Contracts, Tax Breaks
The corporate CEOs who have made a high-profile foray into deficit negotiations have themselves been substantially responsible for the size of the deficit they now want closed.
The companies represented by executives working with the Campaign To Fix The Debt have received trillions in federal war contracts, subsidies and bailouts, as well as specialized tax breaks and loopholes that virtually eliminate the companies’ tax bills.
During the past few days, CEOs belonging to what the campaign calls its CEO Fiscal Leadership Council — most visibly, Goldman Sachs’ Lloyd Blankfein and Honeywell’s David Cote — have barnstormed the media, making the case that the only way to cut the deficit is to severely scale back social safety-net programs — Medicare, Medicaid, and Social Security — which would disproportionately impact the poor and the elderly.
As part of their push, they are advocating a “territorial tax system” that would exempt their companies’ foreign profits from taxation, netting them about $134 billion in tax savings, according to a new report from the Institute for Policy Studies titled “The CEO Campaign to ‘Fix’ the Debt: A Trojan Horse for Massive Corporate Tax Breaks” — money that could help pay off the federal budget deficit.
14 November
(Economist Intelligence Unit)  After many months of campaigning and many millions of spending, the US democratic roadshow brought no change at the White House or on Capitol Hill, but this is far from a case of ‘as you were’. The Republicans in their present guise appear more than ever unelectable, while President Barack Obama faces his second four years with a new mandate and freed of the distractions of prospective re-election. That all suggests an important shift in the balance of power towards the president and his Democrats, toward a nuanced foreign policy and an approach to economic renewal balanced between taxation and spending, and between stimulus and reform. Now to scale that fiscal cliff.
Robert Wolf, Obama’s Top Wall Street Ally, Endorses Tax Hikes For Rich
“The private sector probably has an awareness that the capital gains rate will likely go back to somewhere around the low-20, maybe 20 percent, 22 percent, in that range,” Wolf said. “I don’t think a lot of people have a significant problem with being in the low-20s. Most people could live with where we were during the Clinton era, where he had great growth and we had a balanced structure with respect to our spending and our revenues.”
12 November
Obama Seeks Outside Support for Fiscal Cliff Negotiations
(Bloomberg) Obama will hold separate meetings with labor and business leaders at the White House this week ahead of his Nov. 16 meeting with Boehner, House Minority Leader Nancy Pelosi, Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell. Obama will host labor leaders tomorrow and business leaders on Nov. 14, according to a White House official who asked for anonymity.
Paul Krugman: Democrats Could Fail If They Betray Their Base
“The Democrats now look like the natural party of government,” the Nobel Prize-winning economist wrote in a New York Times blog post on Sunday. “We’re a diverse nation, ethnically and otherwise, in which a lot of liberal ideas have become perfectly mainstream.”
But, he added, Democrats could waste this opportunity by caving to the Republican agenda in negotiations with Congress.
“This newly effective coalition could be shattered if taken for granted,” Krugman wrote. “If, say, Obama raises the retirement age in return for vague promises on revenue (promises that would be betrayed at the first opportunity); if he appoints a deficit scold to a major economic post; it could all fall apart.”
Republicans say deal can be done on U.S. “fiscal cliff”
(Reuters) – A senior Republican senator voiced confidence on Sunday that U.S. lawmakers would forge a deal on the year-end “fiscal cliff,” while a top aide to President Barack Obama signaled a willingness to compromise over raising tax rates on the rich.
Republican Senator Bob Corker said increasing tax revenues from wealthier Americans would have to be part of the plan, but he stressed closing loopholes rather than raising top tax rates as many Democrats favor, provided spending is also tackled.
RPT-U.S. Congress created this cliff and may now plunge off it
(Reuters) – The “fiscal cliff,” a metaphor drawn from nature, was actually created by members of the U.S. Congress, who designed it to be so horrible that they and the president would come to their senses and avert it in the nick of time.
That time is now with the start this week of a lame-duck session of Congress. But it is not at all certain that Republicans and Democrats are ready to make the compromises necessary to undo the trap they set in August 2011.
With all the time available since then, optimists assumed that Congress and President Barack Obama would return after last week’s elections with a plan – perhaps a temporary fix – to avoid the $600 billion in tax increases and budget cuts set to start in January that threaten to throw the economy back into recession.
But they didn’t. See Fiscal Cliff Talks Will Likely Target Medicare, Social Security, Programs For The Poor
9 November
Brooks & Shields on the fiscal cliff
Matthew Yglesias:  Boehner Is Bluffing
(Slate) The House Speaker has no leverage on the Bush tax cuts. We should stop taking him seriously.
8 November
US Set to Restage Greek Tragedy
(Spiegel) The US has more in common with heavily indebted southern European countries than it might like to admit. And if the country doesn’t reach agreement on deficit reduction measures soon, the similarities could become impossible to ignore. The fiscal cliff looms in the near future, and its not just the US that is under threat.
… following Obama’s re-election, Americans are now facing a different, much more real horror scenario: In just a few weeks time, thousands of children could be denied vaccinations, federally funded school programs could screech to a halt, adults may be forced to forego HIV tests and subsidized housing vouchers would dry up. Even the work of air-traffic controllers, the FBI, border officials and the military could be drastically curtailed.
That and more is looming just over the horizon according to the White House if the country is allowed to plunge off the “fiscal cliff” at the beginning of next year. Coined by Federal Reserve head Ben Bernanke, it refers to the vast array of cuts and tax increases which will automatically go into effect if Republicans and Democrats can’t agree on measures to slash the US budget deficit.
Everything you need to know about the fiscal cliff
Washington and Wall Street are freaking out about a looming one-two punch of tax hikes and spending cuts
What, exactly, is the fiscal cliff?
A combination of $536 billion in tax increases — a return of rates to 2001 levels (before the Bush tax cuts) plus an end to Obama’s 2 percent payroll tax holiday and various business and investment tax breaks — plus $110 billion in spending cuts almost immediately affecting everything from the military to Medicare. The Congressional Budget Office (CBO) estimated in May that this would drain about $600 billion from the U.S. economy in the first nine months of 2013, or about $800 billion for the whole year (though it recently revised its outlook to show a somewhat smaller impact). The phrase “fiscal cliff” was coined by Federal Reserve Chairman Ben Bernanke, and he didn’t mean it in a good way.
7 November
A Four-More-Years Mandate for Barack Obama: A New Opportunity
by Rodrigue Tremblay
(The New American Empire) President Obama’s re-election in 2012, with the U.S. economy still reeling after the worst financial crisis in half a century is quite an accomplishment and it deserves congratulations.
However, let us keep in mind that candidate Barack Obama was elected in 2008 with a mandate to change things, not superficially but fundamentally, after eight disastrous years under George W. Bush. The fact remains that he did not do that in any appreciable way and he did not meet the challenges facing him, nor did he meet his supporters’ expectations. In a few words, Barack Obama was not a reincarnation of Franklin D. Roosevelt. …
Aside from his half-baked health care reform (along the line of an original Republican proposal!) and his even more half-baked financial reform, Barack Obama did not accomplish much during his first term, domestically speaking. He even bent to those who wanted to extend the disastrous George W. Bush’s tax cuts for the very rich, and he let the federal deficit and the public debt explode!
But, what about the future? Is it not an opportunity for President Obama now to be his own man and deliver on his previous promises to change things, not superficially but fundamentally, and meet his supporters’ expectations by rising to the challenges of the times? …
It is well known that some of Obama’s advisors argued in favor of bold economic actions to be taken early on. Thus, in early 2009, Harvard economist Larry Summers, President Obama’s first director of the National Economic Council, and former Fed chairman Paul Volcker, among others, advised the new president that he needed to take drastic action toward the largest insolvent banks, lest these failed banks drag the entire U.S. economy down. —Such advice went unheeded. For millions of Americans, the housing crisis lasted much longer than it should have and millions of them lost their homes through foreclosures, while the large super-banks received trillions of dollars in bail-outs to remain afloat. Their CEOs hardly suffered any hardship or retribution, since they were allowed to keep their huge salaries and bonuses.
To prevent large insolvent banks from dragging down the U.S. economy with them, the first-term Obama administration rejected suggestions to use a Resolution Trust similar to what President Ronald Reagan and President George H. Bush created to manage the Savings and Loans crisis of the late 1980s. Another financial shock, if it happens, could give President Obama a second chance to revisit that problem.
Indeed, the Bank of Canada has estimated recently that one trillion dollars is missing from the U.S. economy. That pretty much explains why American economic output is still about 6 per cent lower than its potential and why unemployment is nearly double of what it should be.
That money has gone to some banking black holes and it never got back totally into the economic stream. First and foremost, that money went from the public to the so-called “too big to fail” large banks under the guise of recapitalizing them. Secondly, while the Bernanke Fed artificially pushed real short-term interest rates to negative territory for the same purpose (it has announced that it will pursue this policy for three more years, i.e. until mid-2015), this has decimated the income of millions of retirees, money that was not spent. It also created a bond bubble which, when it comes crashing down three or four years hence, will be most destabilizing to the economy. In other words, the short-term gain will be paid with long-run pain. Thirdly, consider also that American corporations have been piling up cash, both at home and abroad in order to avoid paying taxes, and you can begin to understand why the U.S. economy is starving for investment funds.
These lingering problems will have to be tackled if the U.S. economy is going to get out of the current doldrums. Maybe the most immediate task is to avoid the January 1st fiscal cliff. If not, an arbitrary over-the-board rise in all kind of taxes and a cut in all kinds of public expenses are likely to bring forth a new economic recession in 2013-14.

Stock Market Collapse: Obama Reelection Not To Blame
(HuffPost) … For one thing, Obama was the perpetual favorite throughout the election, with his odds on the prediction market Intrade never dropping below 50 percent all year. He consistently led in the polls of key swing states like Ohio and was very seldom behind in measures of the national popular vote. Meanwhile, his challenger, Mitt Romney, spent much of the election shooting himself in the foot. Despite all of these signs of Obama’s impending re-election, stocks managed to rally throughout the year, with the Dow up 6 percent since the end of 2012, even with Wednesday’s loss.
What’s more, the Dow posted a huge, 1 percent gain, on election day, when Obama’s Intrade odds were at 70 percent or better and number-crunchers such as Nate Silver and Mark Blumenthal were calling Obama a 90-percent lock for re-election.
And as Business Insider pointed out, stock futures were rising Wednesday morning, even after Obama’s fairly resounding victory. They only started falling when it became clear that Europe’s perpetual economic crisis was starting to affect German economic growth. European Central Bank President Mario Draghi also warned about the European economy. And investors started to get nervous again about the prospect of a Greek exit from the euro zone. All of those things helped conspire to send stocks down by a bunch in early trading.
Are there some effects of Obama’s re-election in the market? Probably, yes. Many investors are only just now waking up to the possibility that he will push fiscal-cliff negotiations to the limit, because he has the leverage to do so. The banking sector is taking a beating today, not only because of its exposure to the European economy, but also because Obama’s re-election, and Elizabeth Warren’s election to the Senate, means the Dodd-Frank financial reform law, and the hated Volcker Rule limiting proprietary trading, are a done deal.
22 October
More from Chrystia Freeland:
The Problem of Plutocrats: What a 19th-Century Economist Can Teach Us About Today’s Capitalism
(HuffPost) George’s political quest was driven by what he relentlessly defined as “the great enigma” of 19th century America — the puzzling co-existence of, as he put it in the title of his best-seller, Progress and Poverty. As he declared during the 1886 mayoral campaign, the two key questions were: “Why should there be such abject poverty in this city?” and “What do we propose to do about it? … George’s diagnosis was beguilingly simple — the fruits of innovation weren’t widely shared because they were going to the landlords. This was a very American indictment of industrial capitalism: at a time when Marx was responding to Europe’s version of progress and poverty with a wholesale denunciation of private property, George was an enthusiastic supporter of industry, free trade and a limited role for government. His culprits were the rentier rich, the landowners who profited hugely from industrialization and urbanization, but did not contribute to it.
13 October
CHRYSTIA FREELAND: The Self-Destruction of the 1 Percent
(NYT) Even as the winner-take-all economy has enriched those at the very top, their tax burden has lightened. Tolerance for high executive compensation has increased, even as the legal powers of unions have been weakened and an intellectual case against them has been relentlessly advanced by plutocrat-financed think tanks. In the 1950s, the marginal income tax rate for those at the top of the distribution soared above 90 percent, a figure that today makes even Democrats flinch. Meanwhile, of the 400 richest taxpayers in 2009, 6 paid no federal income tax at all, and 27 paid 10 percent or less. None paid more than 35 percent.
Historically, the United States has enjoyed higher social mobility than Europe, and both left and right have identified this economic openness as an essential source of the nation’s economic vigor. But several recent studies have shown that in America today it is harder to escape the social class of your birth than it is in Europe. The Canadian economist Miles Corak has found that as income inequality increases, social mobility falls — a phenomenon Alan B. Krueger, the chairman of the White House Council of Economic Advisers, has called the Great Gatsby Curve.
Educational attainment, which created the American middle class, is no longer rising. The super-elite lavishes unlimited resources on its children, while public schools are starved of funding. This is the new Serrata. An elite education is increasingly available only to those already at the top. Bill Clinton and Barack Obama enrolled their daughters in an exclusive private school; I’ve done the same with mine.
20 August
Ezra Klein: The worst case against the Obama administration
(WaPost) If [Niall] Ferguson’s theory had passed its previous tests and we had evidence that the debt is what’s holding back our economy, perhaps that would be a reasonable prediction. But Ferguson’s theory failed its previous tests, and there’s no evidence that debt is what’s holding back our economy right now. Which is one more thing Ferguson never tells you.
And this is really a rather important point about the current crisis. There is a strain of thinking that argued, from the beginning, that Obama’s policies would fail because the required borrowing would send interest rates soaring. Ferguson was a member of this club, but so was the Wall Street Journal editorial board, which warned, back in May 2009, that the bond vigilantes “appear to be returning with a vengeance now that Congress and the Federal Reserve have flooded the world with dollars to beat the recession.”
It is no surprise that most of the folks who bought into this theory were early and enthusiastic backers of Paul Ryan. After all, he bought into this theory, too, and his initial budgets included deep, quick cuts. More so than any other politician, he translated this theory into legislation. But the theory’s primary predictions proved wrong. That has not, however, had any reputational impact on the people who believed those predictions, and their champion is now on the GOP’s presidential ticket, but neither he nor his backers appear to have rethought any element of their critique or of their program.
9 August
More Than 100 Million Americans Are On Welfare
(Veracity Voice) There are more Americans dependent on the federal government than ever before in U.S. history. According to the Survey of Income and Program Participation conducted by the U.S. Census, well over 100 million Americans are enrolled in at least one welfare program run by the federal government. Many are enrolled in more than one. That is about a third of the entire population of the country. Sadly, that figure does not even include Social Security or Medicare. Today the federal government runs almost 80 different “means-tested welfare programs”, and almost all of those programs have experienced substantial growth in recent years. ……
23 July
How Republicans Sabotaged the Recovery
The economy didn’t jump. It was pushed.
(Foreign Policy) Imagine, for a moment, how difficult it would have been to land a man on the moon if half of the U.S. Congress had believed that the sun revolved around the earth. Or consider how the War in the Pacific might have progressed if half of Congress had still thought the world was flat. Or whether polio would have been eradicated if half of Congress insisted that the best cure was bleeding using leeches. Unfortunately, this was the situation the United States in January 2009, when Barack Obama assumed the presidency. The nation was trying to climb out of the deepest economic hole since the Great Depression, but the Republican Party had about as scientific an approach to the economy as medieval alchemists did to the periodic table.
17 July
Bernanke warns US economy could topple into recession if Congress doesn’t end budget impasse
(WaPost) Federal Reserve Chairman Ben Bernanke sketched a bleak picture of the U.S. economy Tuesday — and warned it will darken further if Congress doesn’t reach agreement soon to avert a budget crisis.
Without an agreement, tax increases and deep spending cuts would take effect at year’s end. Bernanke noted what the Congressional Budget Office has warned: A recession would occur, and 1.25 million fewer jobs would be created in 2013.
29 June
Congress Passes Transportation Package
The massive bill will fund highway programs, keep student loan interest rates from increasing.
(Slate) As the Associated Press notes, the passage of the $109 billion transportation bill would provide legislators, especially those facing re-election in November, with a counternarrative for the current perception that partisan gridlock has resulted in a “do-nothing” Congress. They’re up against two deadlines—highway and transit programs expire on Saturday, and new student loan interest rates will double on Sunday. Legislators apparently felt the pressure of the approaching deadlines, pulling the bill together this week after months of negotiations. Both the House and Senate have votes on the bill scheduled for Friday. President Obama has pitched the bill as a means to promote construction job growth. It will fund transportation projects in every state, CNN reports. The president is expected to swiftly sign it into law after passage.
The bill’s supporters include leaders from both parties. Both sides gave up divisive demands at the last minute in order to make it more likely to pass: Republicans wanted the bill to approve the Keystone XL oil pipeline, while Democrats wanted to introduce environmental protections as well as bike and pedestrian safety programs, as the AP notes. Both are gone from the current package
1 June
Confusion About the Deficit
(NYT via Yahoo!finance) Is a decrease in the federal budget deficit good or bad for jobs and growth in the American economy?
… if a significant decrease in the deficit would be bad for the economy, does that mean an increase in the deficit would be good for the economy?
At the heart of the confusion lies the fact that there is no one answer. No wonder students and voters are confused. The effects of an increase or a decrease in the deficit depend on the economy’s specific conditions. Under current conditions, an increase in the budget deficit would be better for the economy than the decrease scheduled to take effect next year.
The author also notes that The Congressional Budget Office has just issued a sober warning that these measures, which would reduce the fiscal deficit by about 5 percent of gross domestic product between 2012 and 2013, are likely to throw the economy back into recession.
Joseph Stiglitz: The 1 Percent’s Problem
(Vanity Fair, May 2012)
Why won’t America’s 1 percent—such as the six Walmart heirs, whose wealth equals that of the entire bottom 30 percent—be a bit more . . . selfish? As the widening financial divide cripples the U.S. economy, even those at the top will pay a steep price.
… From the right, you sometimes hear the argument made that inequality is basically a good thing: as the rich increasingly benefit, so does everyone else. This argument is false: while the rich have been growing richer, most Americans (and not just those at the bottom) have been unable to maintain their standard of living, let alone to keep pace. A typical full-time male worker receives the same income today he did a third of a century ago.
From the left, meanwhile, the widening inequality often elicits an appeal for simple justice: why should so few have so much when so many have so little? It’s not hard to see why, in a market-driven age where justice itself is a commodity to be bought and sold, some would dismiss that argument as the stuff of pious sentiment.
20 May
Heist of the century: Wall Street’s role in the financial crisis
(The Guardian) Wall Street bankers could have averted the global financial crisis, so why didn’t they? In this exclusive extract from his book Inside Job, Charles Ferguson argues that they should be prosecuted
It is no exaggeration to say that since the 1980s, much of the global financial sector has become criminalised, creating an industry culture that tolerates or even encourages systematic fraud. The behaviour that caused the mortgage bubble and financial crisis of 2008 was a natural outcome and continuation of this pattern, rather than some kind of economic accident.
This behaviour is criminal. We are talking about deliberate concealment of financial transactions that aided terrorism, nuclear weapons proliferation and large-scale tax evasion; assisting in major financial frauds and in concealment of criminal assets; and committing frauds that substantially worsened the worst financial bubbles and crises since the Depression.
And yet none of this conduct has been punished in any significant way.
6 April
Paul Krugman: Not Enough Inflation
A few days ago, Alan Greenspan, the former chairman of the Federal Reserve, spoke out in defense of his successor. Attacks on Ben Bernanke by Republicans, he told The Financial Times, are “wholly inappropriate and destructive.” He’s right about that — which makes this one of the very few things the ex-maestro has gotten right in the past few years.
… the real reason the attacks on Mr. Bernanke from the right are so destructive is that they’re an effort to bully the Fed into doing exactly the wrong thing. The attackers want the Fed to slam on the brakes when it should be stepping on the gas; they want the Fed to choke off recovery when it should be doing much more to accelerate recovery. Fundamentally, the right wants the Fed to obsess over inflation, when the truth is that we’d be better off if the Fed paid less attention to inflation and more attention to unemployment. Indeed, a bit more inflation would be a good thing, not a bad thing.
17 February
Congress Votes to Extend U.S. Payroll Tax Cut Through 2012
(Bloomberg) — A coalition of Democrats and Republicans in the U.S. Congress united to extend a payroll tax cut through the rest of the year, less than two weeks before it was scheduled to expire. In addition to the two percentage-point tax cut for workers, the agreement will continue expanded unemployment benefits and avoid a cut in doctors’ Medicare reimbursements through the end of this year. The provisions would have expired at the end of the month if Congress didn’t act.
Another doomed exercise — Politics has tied budget-making in knots
(The Economist) On February 13th Mr Obama issued his fourth budget. Besides recycling the proposed tax increases of previous years, it also proposes repealing the preferential tax rate on dividends for the wealthy, and penalising multinationals that outsource jobs. In all, the budget would raise taxes on companies and the wealthy by $2 trillion over the next ten years.
There is little reason to think Congress is any more likely to grant those tax increases than their predecessors. Of course, Congress tends to be unco-operative when it comes to fiscal matters; since the House holds the purse-strings, a president’s budget has always been as much aspiration as road map. But the gap between aspiration and reality is now enormous. Mr Obama’s first budget foresaw the budget deficit, then roughly 10% of GDP, falling to 3.5% this year. Instead, it will clock in at 8.5% (see chart). The public debt was supposed to peak at 67% in 2011. Mr Obama now sees that happening in 2014, at 78%.
16 February
Peter Ferrara* — Obama’s Budget: The Decline and Fall of the American Economy
(Forbes) President Obama’s budget released Monday embodies his policies for economic growth and recovery. The document, including the President’s accompanying budget message, makes those policies quite clear. If you think the key to economic growth and prosperity is increased government spending, financed by increased tax rates on job creators, investors and small business, with sustained record deficits and soaring debt, then President Obama is your man. If you think that is nuts, then what the budget says to you is your only choice is to get him out of office.
* See bio
13 February
(The White House) The President’s Budget for Fiscal Year 2013
The President’s 2013 Budget is built around the idea that our country does best when everyone gets a fair shot, does their fair share, and plays by the same rules. We must transform our economy from one focused on speculating, spending, and borrowing to one constructed on the solid foundation of educating, innovating, and building. That begins with putting the Nation on a path to living within our means – by cutting wasteful spending, asking all Americans to shoulder their fair share, and making tough choices on some things we cannot afford, while keeping the investments we need to grow the economy and create jobs.
27 January
Paul Krugman: Jobs, Jobs and Cars
Mitch Daniels, the former Bush budget director who is now Indiana’s governor, made the Republicans’ reply to President Obama’s State of the Union address. His performance was, well, boring. But he did say something thought-provoking — and I mean that in the worst way.
For Mr. Daniels tried to wrap his party in the mantle of the late Steve Jobs, whom he portrayed as a great job creator — which is one thing that Jobs definitely wasn’t. And if we ask why Apple has created so few American jobs, we get an insight into what is wrong with the ideology dominating much of our politics.
A big report in The Times last Sunday laid out the facts. Although Apple is now America’s biggest U.S. corporation as measured by market value, it employs only 43,000 people in the United States, a tenth as many as General Motors employed when it was the largest American firm.
Apple does, however, indirectly employ around 700,000 people in its various suppliers. Unfortunately, almost none of those people are in America.

In praise of pessimists
Sometimes it helps if investors are gloomy
(Economist|Buttonwood) … gloom seems entirely beneficial. Low rates stimulate the economy and are good news for the American government, which can finance its deficit cheaply and without facing the dilemmas that beset the Italian and Spanish governments, which must impose austerity at a time of economic slowdown. But the pessimists can’t expect to be thanked.