Good News
Ruy T. has some numbers that constitute great news -- unless you're a Republican, that is.
AB
Tuesday, February 03, 2004
Extras in Bush's Budget
Not surprisingly, there's some extra stuff in the Bush budget; Mark Schmitt has the details.
AB
P.S. This is about par for the course and very reminiscent of Bush's 2001 letter to taxpayers announcing that, thanks to President Bush, they would be receiving a $300 rebate/advance against their next year's taxes.
Jobs in Missouri
My latest post at The American Street is up. This one is on the jobs picture in Missouri, where Bush/Buchanan combined to garner 50,000 more votes than Gore/Nader. Since Missouri has lost a lot more than 50,000 jobs (roughly twice as many, in fact), this swing state just might swing.
AB
Joementum
Apparently Joementum is exactly like momentum, but without any forward progress:
South Carolina: Edwards 44, Kerry 30, Sharpton 10AB
Oklahoma: Edwards 31, Kerry 29, Clark 28
Missouri: Kerry 52, Edwards 23, Dean 10
Delaware: Kerry 47, Dean 14, Lieberman 11, Edwards 11
Arizona: Kerry 46, Clark 24, Dean 13
Monday, February 02, 2004
John Kerry Getting the Kid Gloves Treatment?
I've seen a few posts here and there claiming that John Kerry's been treated with kid gloves the last few weeks, both by the press and by the rival democrats. One theory is that Dean and Gephardt were both badly damaged by their mutual fierce attacks in Iowa, and the contenders learned a lesson from that. That's plausible as an explanation for the candidates' circumspection, and good news if it's true, but what about journalists?
The only explanation I've seen for the journalists' light touch has been rather circuitous and loony: the media love Bush, know that Dean can beat Bush, and that Kerry can not. So they tore Dean down and pushed Kerry up. Crazy, I know. But I did read that in passing, somewhere that I can't recall at the moment.
A third theory, my theory, is that the media haven't been light on Kerry at all. First, there's the botox stuff, which seems to lack traction. But there's also this asinine and pathetic attempt by Washington Times' editor in chief Wes Pruden. If this followed the script, Wes Pruden would pitch it in his Washington Times column, then The National Review, The Weekly Standard, and the WSJ editorial page would pick it up. Then the NYT and Washington Post would report on the reports for a few days, the wires might run a story on "reports that Kerry said ...," and eventually Pruden's allegation would be accepted as conventional wisdom.
What broke the chain this time? Pruden baldly and badly doctored his quote, as Nick Confessore amusingly recounts (Pruden's reply after being caught red-handed faking a quote was classic: "I did doctor the quote to attribute the statement directly to Kerry, but since Kerry didn't refute the people he was quoting, faking the quote was the right thing to do.")
AB
P.S. Note to Pruden: The fine folks at Liberty High School in Bethlehem, PA have conveniently placed their style guide on line. Here's the part on eliding quotes. If you would like to bring your standards at least up to the high school level, you should write Liberty High School's quotation mandate 100 times on the nearest blackboard:
IMPORTANT: In no way may any change in a quote alter the intent or meaning of the original writer! [Emphasis in original.]
Costs and Benefits
Sound policy decisions require analysis of both the costs and benefits of a given proposal. Most proposals have some positive benefit, which allows supporters to make arguments along the lines of "Don't you agree that achieving X is a good thing?" Then opponents have to make a slightly more complex counter-argument along the lines of "Yes, there are benefits to achieving X, but the costs are even greater. Therefore your proposal is unwise."
This logical shortcoming is starkly illustrated by pro-war advocates who seek to refute criticism of the war, the pre-war intelligence, and the post-war execution by making this argument: "Don't you think it's a good thing that Saddam is out of power?" Or the more disingenuous framing, "You would prefer to see Saddam still in power?"
The reply to this is that there are, of course, many benefits to the removal of Saddam and his regime from power. However, that does not remotely begin to imply that removing Saddam from power was sound or wise. It simply means that there is a benefit, B>0, to removing Saddam from power. To come to a conclusion, the costs, C, must also be realistically assessed. Once this is done, the questions of interest are
- Is B > C? If so, then removing Saddam was a good idea.
- Is B < C? If so, then removing Saddam was a bad idea. Furthermore, relying upon the fact that B>0 to justify the invasion is a clear sign of willful ignorance or calculated disingenuity.
What are the costs, C? The direct monetary costs were at least $87 billion last year, and now the administration is seeking another $50 billion. (Which the administration says won't count against its promise to cut the deficit in half in five years.) Some of that $50b is for Afghanistan, so this is an upper estimate. On the other hand, the White House's estimates of the costs of things are frequently biased downward -- reliably unreliable, if you will -- so $50 billion for Iraq is probably about right. Then there are the costs of over 525 dead U.S. soldiers and 92 dead allied soldiers, plus the costs of at least 8,000 Iraqi dead. Then add the intangible cost of lost good will abroad (which is costly since we need their cooperation in the War on Terror.) At last, you have a pretty good idea of what the costs of the war are.
I think reasonable people can disagree about the magnitude of the costs and benefits, though as the costs continue to wax while the benefits wane, it becomes ever more difficult to make the case that the benefits exceed the costs. And the adminstration's claims about the costs and benefits were systematically and perhaps intentionally biased toward understating the cost and overstating the benefits.
What reasonable people cannot honestly disagree over is the claim that any policy with positive benefits is justified, regardless of the costs. A shiny new $15,000 car for every adult in the U.S. certainly has some benefits. If I make this proposal and encounter some opposition then I can easily reply, "You would prefer that citizens of this great nation not have new cars?" Case closed. Bring on the new cars.
Wait. It would cost about $3 trillion to implement this proposal. Are the benefits of the Angry Bear New Car Plan at least $3 trillion? Probably not. (It would work about as well as Hoover's Chicken in Every Pot plan.)
Finally, how does this analysis apply to Afghanistan? I think it works rather well. First, the costs were much lower in that instance. Second, the benefits were surely higher. While hard to quantify, the benefits of sending a message along the lines of "Any government that attacks or directly supports an attack on the United States will be eliminated and the perpetrators will be tried and convicted" are extremely high. Certainly they are much higher than the benefits of a message like, "if you annoy us and it strikes our fancy, then you will be eliminated."
AB
Personal Income Growing, Barely
This morning the BEA released its estimate of personal income and spending in December. Income was up by 0.2% in December, while spending grew by 0.4%, in nominal terms. In real (inflation-adjusted) terms, income showed virtually no growth, while spending grew a little. This has continued a trend over the past few months of spending growing faster than income. What does that mean? A falling saving rate:
The falling savings rate (which is now lower than it was back in 2000, at the peak of the stock market boom) means that there’s very little scope for consumers to spend more unless their income starts rising. And unfortunately, consumer income is not growing very fast – over the last quarter of 2003, it grew at a 2.9% annual rate. In real terms, growth was even lower. That’s not fast enough to sustain more than a rather tepid expansion.
Kash
Statement and Refutation
In Dana Milbank's latest Washington Post piece, Mr. Milbank actually presents White House statements about Iraqi WMD, and then follows them up with direct refutations. This is a very welcome departure from the more typical but less informative style in which a journalist first writes "Democrats allege X" and then adds "Republicans deny allegation X," followed by no reporting on which side is correct:
On Wednesday, for example, Bush suggested that war came because Saddam Hussein did not let inspectors into Iraq, when in fact it was the United States that called for inspections to end. "It was his choice to make, and he did not let us in," Bush said.AB
That same day, Bush press secretary Scott McClellan said the White House never said Iraq was an "imminent" threat. But when McClellan's predecessor, Ari Fleischer, was asked whether Iraq was an imminent threat, he replied: "Absolutely." And when White House communications director Dan Bartlett was asked whether Hussein was an imminent threat to U.S. interests, he replied: "Well, of course he is."
In addition, Bush aides have regularly said that they were following the advice of intelligence experts. On Thursday, national security adviser Condoleezza Rice said the weapons conclusion "was the judgment of our intelligence community, the judgment of intelligence communities around the world." Yet the White House, at various times, went beyond what the CIA advised.
Friday, January 30, 2004
Trouble By Summer?
It looks like that renowned leftist rag, BusinessWeek, agrees with Kash:
Yet the market fiesta could be fizzling -- and not only because of negative reaction to the Fed's post-meeting statement, say some Wall Streeters. The central bank had made a nuanced shift in expressing how soon it may be considering a hike in interest rates. While practically no one expects the market to drop dramatically in the next few months, they predict that a mostly steady climb over the past 10 months or so could turn into a less confident, up-and-down pattern by summer, if not earlier.AB
The latest quarter likely represents a peak in the effect of fiscal and monetary stimulus resulting from Bush Administration tax cuts and rock-bottom interest rates, says Chuck Hill, First Call's director of research in Boston. As the Fed signals that it may nudge rates higher sooner than expected, it's far from clear that the White House can convince Congress to make current temporary tax cuts permanent. "The stimulus has peaked," Hill notes.
MISSING DRIVERS. Furthermore, as the federal budget deficit rises, pressure could mount to hike interest rates to keep investors interested in U.S. bonds, which are a primary means for Uncle Sam to raise capital. Typically, higher interest rates translate into lower equities prices. "A lot of unresolved things out there could go bump in the middle of the night at any time," says A.C. Moore, chief investment strategist with Dunvegan Associates in Santa Barbara, Calif. "I really think markets could soften between now and the end of the summer."
What are We Getting for Our $535 billion?
As Kash noted earlier, the projected price tag for the Republican Medicare reform has shot up by a third, from $400b to $535 billion.
Now is as good a time as any to remind everyone that the coverage seniors get under this plan is fairly meager. For example, most seniors will still pay at least 60% of their drug costs and virtually all seniors will pay 40% or more of their own drug costs. Only when total drug costs exceed $25,000 does the government's share rise to 80%.
This CNN story has an interesting explanation of how the numbers were so far off -- by my reading, McClellan is saying that the administration simply made up the $400b figure:
White House spokesman Scott McClellan said the disparate numbers do not mean the president misled Congress. He said the administration's actuaries in the budget office began work on the numbers only after the bill became law.
I suppose the president can't lie to Congress when he doesn't know the true number. Instead, someone simply made a guess, Bush repeated it, the government took action, and only then did they bother analyzing the data and gathering facts. This sequence is causing a strong sense of deja vu ...
And by the way, has anyone seen numbers on how much of the $535 billion is attributable to actually paying for drugs, as opposed to the various subsidies to employers and insurers?
AB
What's New
It's Friday, which means that Bob Park's newsletter, What's New, is out. One item this week is the deficit:
BUDGET: HOW TO BRING DOWN AN OUT-OF-CONTROL BUDGET SURPLUS. When George W. Bush took office he was confronted with a looming $5.6 trillion surplus over the next decade (WN 9 Mar 01). OMB turned to fabled budget guru Elie Mosinari for help. Her first move was missile defense, a tactic previous administrations had relied on to control surpluses. Toss in a tax rebate, and by the end of summer the nation was safely in red ink. President Bush hailed it as "incredibly positive news"(WN 31 Aug 01). Elie was indignant when the Congressional Budget Office projected a mere $477B deficit for this year. It's actually going to be $521B. I called Elie to congratulate her. "How do you do it," I asked? "Discipline," she replied, "things like space stations help, but we never miss a chance to correct social injustice. [more ...]AB
Is the Recovery Fading Already?
The BEA just released their first estimate of economic activity in the fourth quarter of 2003 (October through December). The overall number for GDP growth is a solid 4.0% annual rate. However, that is below what many economists had been expecting.
One part of the report that’s discouraging is that it looks like the boom in spending by businesses (also known as investment spending) during the summer of 2003 may already be running out of steam. While the Q4 figure on nonresidential investment spending was a respectable 6.9%, that’s actually pretty low for the period immediately after a recession. In the year after the 1974-75 recession, nonresidential investment grew by 9.6%. The year after the 1981-82 recession, it grew by 20.5%. The year after the 1991-92 recession, it grew by 9.7%. In all of 2003 it grew by just 5.6%, and growth now seems to be slowing. The graph below illustrates the possible waning of the 2003 boom. The blue line is spending by individuals, the green line is construction activity on housing, and the red line is spending by businesses. All three have faded from their summer highs.
The second part of the report that doesn’t bode well is disposable personal income. The after-tax income of individuals grew by just 0.1% in the fourth quarter – the lowest rate of personal income growth since the depths of the recession in 2001. If income isn’t growing, it’s hard to see how consumption can continue to grow. Of course, the explanation for the lack of income growth is easy to understand -- few new jobs are being created, so income isn't growing.
It’s certainly too soon to call the recovery over – this quarter’s numbers will be revised, and they could just be a 1-quarter aberration. But I fear that it suggests that my stated pessimism about the recovery may be justified.
Kash
Thursday, January 29, 2004
By the Way, When We Said “$400 Billion” We Really Meant...
Shocking, just shocking. I am shocked and surprised. Really.
CNN: President Bush's new budget will project that the just-enacted prescription drug program and Medicare overhaul will cost one-third more than previously estimated... Instead of a $400 billion 10-year price tag, Bush's 2005 budget will estimate the Medicare bill's cost at about $540 billion, said aides who spoke on condition of anonymity.Well, at least it’s the first time the Bush administration has ever been slightly imprecise about the cost of their proposals. We all make occasional mistakes, right? I know it’s pure coincidence that their new cost estimate was made public just one month after Bush signed the bill into law. And I’m still going to confidently assume that Bush’s estimate is correct that putting bases on the moon and Mars will only take $1 billion.
Bush just signed the Medicare measure into law last month. While it was moving through Congress, Bush, White House officials and congressional Republican leaders had assured doubting conservatives that the bill's costs would stay within the $400 billion estimate.
Kash
Alphabet Soup From the Alpha Quadrant
I'm not actually sure where the Alpha Quadrant is, but based on this DeLong post, it must be somewhere near Berkeley. Here's my favorite paragraph:
And every single senior Republican economic policy appointee comes out of a look back at the past three years looking very badly. X fails to organize meetings so that the long-run budgetary consequences of short-run policy moves are properly considered. Y pirouettes in midair and transforms from a deficit hawk into a deficit dove so as not to offend White House Media Affairs. Z lowballs the interest rate effects of higher deficits--and manages not to talk about the savings and investment effects at all. W mutters in the privacy of his own office about the importance of maintaining a surplus--but doesn't have the nerve to say "Boo!" to a goose (let alone to George W. Bush) once he steps outside his office door. V remains silent while the clown show that is the Bush economic policy process--a process he cannot view with equanimity--rolls forward. U cuts his own agency staff off at the knees and shows no interest in the very important and interesting work on the long-run fiscal options that they have done. Outsiders like R who assured me back in the fall of 2000 that Bush understood and would tackle the long-run problems of funding entitlements and the social-insurance state manage not to emit a public peep of complaint. Q talks about how much the president wants to reduce the deficit without daring to put his own position on the line within the administration by demanding that words like "deficits are bad" be accompanied by an actual plan to reduce the deficit. Every one. Every single last one.Some fun for the policy nerds:
AB
Where's the Fork?
You've likely heard that Dean fired his campaign manager, Joe Trippi, yesterday. The more surprising news, news I hadn't heard until today in Salon, is that he's out of money too:
According to staffers, Dean held a meeting with campaign workers in which he announced that there was no money to pay staff at the beginning of February. He said that the campaign had $3 million in the bank, but that it had also racked up $3 million in debt that needed to be paid off. A senior aide confirmed the meeting, but not the numbers in question.The conventional wisdom on Dean has consistently been wrong: first it was who is this guy?, Then it was Dean's inevitable (until he inevitably becomes evitable, at which point evitability is itself evitable), then it became well he's behind now but his money and organization still dominate his rivals'.
But if -- emphasis on if -- he's truly out of money, in debt actually, then the Dean party really is over. Perhaps with a more Dean-friendly slate of states on Feb. 3, Dean could recover. But Dean's likely to finish third next Tuesday in most of the states, and fourth in some of the more populous ones (SC, OK, MO, AZ). After such a disastrous result, the financial spigots shut completely and it's over. Still, his Daily Show bit (scroll down) was a classic, and so was his campaign.
If he truly is out of money, the only question is whether Dean will exit more gracefully than Joe "Mentum" Lieberman.
AB
Pre-War Intelligence Inquiry?
David Kay is now advocating an independent investigation:
David A. Kay, the former chief weapons inspector in Iraq, called on Wednesday for an independent inquiry into prewar intelligence about Saddam Hussein's weapons programs, but he said he did not believe that the Bush administration had pressured intelligence analysts to exaggerate the threat.Not surprisingly, the White House has spurned that suggestion while Democrats mostly embrace it.
Kay also had this to say:
"It turns out we were all wrong, probably, in my judgment," Dr. Kay told the Senate Armed Services Committee. "And that is most disturbing."Here's one more quote from Kay -- the one you're sure to see at the various pro-war blogs:
"If I had been there, presented what I have seen as the record of the intelligence estimates, I probably would have come to -- not probably -- I would have come to the same conclusion that the political leaders did."
AB
Wednesday, January 28, 2004
The Causes of the Budget Deficit: A Reckoning
In case you missed it yesterday:
There seems to be some disagreement about the true cause of the US’s current budget woes. Conservatives blame it on federal spending, which they claim has risen too fast. The Bush administration, on the other hand, blames the state of the economy for the budget deficit. Refuting both arguments, the Center for Budget Policy and Priorities argues that lower tax revenues are to blame. Who’s right?
I've agreed to be the arbiter between these three claims. My job here is to gauge the relative importance of these three factors (spending increases, tax cuts, and the economy) on the budget deficit through the end of the decade, using the most concrete dollar figures available.
First, we need to precisely estimate the budgetary effects of the tax cuts. To do so, we can turn to the CBO. They provide periodic estimates of the effects of all specific changes in tax or spending policy on the federal budget. Looking through CBO publications over the past few years it is possible to piece together the specific revenue costs associated with the various Bush tax cuts. Assuming that Congress approves Bush’s request to extend the tax cuts that are currently scheduled to expire, the total cost of his tax cuts was about $83bn in 2002 and will grow to about $470bn in 2010. Note that both Republicans and Democrats in Congress use the CBO's estimates as a neutral, non-partisan prediction.
Next, consider the spending increases. Congress and the President have no direct control over mandatory spending, so assume that those spending levels remain at the levels estimated by the CBO through 2010. For discretionary spending, however, let’s suppose that spending on everything that was not related to 9/11 (i.e. reconstruction costs, additional homeland security, and the war in Afghanistan) had grown at just the rate of inflation, instead of growing at the rate that we’ve actually seen. If discretionary federal spending had been restrained to grow at the rate of inflation, it would have been $38bn lower in 2002, and about $200bn lower in 2010 than currently projected.
The following graph shows the combined effects of the two. The blue line shows the CBO’s projection of the deficit through 2010, assuming that the expiring tax cuts are indeed made permanent. This will be Bush’s budget legacy, if he gets his way. The green line shows what it would have been without the tax cuts or faster-than-inflation increases in discretionary spending. One can think of the green line as what the deficit would have been were Bill Clinton still President.
The result is clear. Yes, the state of the economy has contributed somewhat to the US’s budget woes – even without tax cuts or unusual spending increases, the budget would have been in deficit from 2002 to 2004. The economy’s effect on the budget balance looks like a neat bite taken out of the green line from 2002 to 2005. The size of that bite, and thus a rough estimate of the 10-year budgetary costs of the recession and 9/11, is about $0.8 trillion. So the White House is slightly right -- the economy has indeed had a negative effect on the budget. However, it’s also clear that the large and persistent deficits that the US is facing over the next decade are by and large NOT due to the state of the economy. By next year, the budget would once again be in surplus if it weren’t for the tax cuts and unusual spending increases. The majority of the budget deficit is due to deliberate, discretionary policy choices.
Of the two remaining possibilities, which is more responsible for the remaining budget shortfall – tax cuts or spending increases? The next graph shows the shares of the budget shortfall due to each.
Those who argue that the budget deficit is the result of spending growth are about 30% right. A bit under one-third of the avoidable budget shortfall between 2002 and 2010 – roughly $1.4 trillion – is due to discretionary spending (other than spending related to 9/11) that has grown unusually fast. But they are also about 70% wrong, because the other 70% of the remaining budget shortfall is due to the Bush tax cuts. The cost of the tax cuts will be about $3.1 trillion over the decade.
We can think of the implications of this in two ways. First, if discretionary spending had somehow remained restrained to just the rate of inflation, the budget would STILL be in deficit as far as the eye can see (about $200bn by 2010). Keeping spending growth down would not have balanced the budget. Put another way, if spending was at current (supposedly high) levels but the tax cuts had never happened, then the budget would STILL return to surplus by 2006, and remain in surplus thereafter.
To sum up, here’s the definitive reckoning:
- Recession + 9/11: 10-year budgetary effect = $0.8 trillion, or about 15% of the total shortfall.
- "High" spending growth: 10-year budgetary effect = $1.4 trillion, or 25% of the total shortfall.
- Tax cuts: 10-year budgetary effect = $3.1 trillion, or 60% of the total shortfall.
Kash
-----------
Sources: Budgetary effects of the tax cuts is given by the CBO as “legislative changes to revenue,” and is taken from the CBO’s “Budget Updates” of January 2002, August 2002, January 2003, August 2003, and January 2004. Spending increases related to 9/11 are given by the CBO in “Letters” to John Spratt and Pete Domenici. CBO documents available here.
Tuesday, January 27, 2004
Tariffs and Jobs
The bloggers over at The American Street are supposed to be focusing -- sometimes, but not exclusively -- on swing states. While Michigan is very likely to vote Democratic, the margin was still too narrow for comfort: 51%-46%, with 2.6% other (mostly Nader, I suspect). On second thought, if Nader voters comprised most of that 2.6%, then only in the most optimistic Republican projections would Michigan really be a swing state. Add to this the disastrous effects of Bush's steel tariffs on the Michigan economy, and I'd say Michigan's 17 electoral votes will safely go to Kerry/Edwards/Clark/Dean, or whoever emerges from the primary.
How disastrous were the tariffs for Michigan? More details are in my latest post at TAS, but here's a snapshot:
AB
No Criticizing Reagan or Bush II
As you may have heard, CBS (the network that didn't bring you a somewhat unflattering biographical movie about the Reagans) is refusing to broadcast MoveOn's ad during the Super Bowl. MoveOn is responding by doing what it does best: organizing emails, letters, and phonecalls. Since my favorite ad was the winner, I may as well do my part.
AB
History Never Exactly Repeats Itself
In the late 1960s, the US had a very expansionary monetary policy. To keep their currencies from appreciating, the world’s major central banks had to keep buying dollars, effectively expanding their own money supply at the same fast rate. Being inflation-shy, however, they hated doing so, and soon stopped. That brought about the end of the Bretton-Woods Age.
In the early and mid 2000s, the US had a very expansionary monetary policy. To keep their currencies from appreciating, the world’s major central banks had to keep buying dollars, effectively expanding their own money supply at the same fast rate. Being deflation-shy, however, they loved doing so, and continued...
Kash
Calculating the Cause of the Budget Deficit
You can check out a thorough decomposition of the causes of the US budget deficit at The American Street. The punchline: the state of the economy only accounts for a small fraction (less than 15%) of the US's budget problems this decade. On the other hand, tax cuts are responsible for about 70% of the remaining budget mess. Undo the tax cuts, and the US's budget problems would disappear.
Kash
Monday, January 26, 2004
Greenspan and Job Security
Fed Chair Alan Greenspan must both want to keep his job and think that Dean is going to be the next president. On Friday, CNN and others reported that
Former Vermont Gov. Howard Dean tried out a new tactic Friday while campaigning in New Hampshire, accusing Federal Reserve Bank chairman Alan Greenspan of making decisions that were "too political" and suggesting it may be time to replace him.Dean was mostly criticizing Greenspan's cooperation, at least publicly, with the Bush tax cuts. Today, CNN has a story titled Greenspan to get tough on deficit:
Greenspan is expected to say that deficits are in fact important to the nation's economic health and may offer ways to curb spending, Fortune magazine reports in issues due to hit newsstands on Feb. 2.... The central bank chairman could deliver the speech next month when he gives his semi-annual testimony on monetary policy to Congress ...
AB
Yet More Speaking for Itself
This time, from John Ashcroft:
"Weapons of mass destruction including evil chemistry and evil biology are all matters of great concern, not only to the United States but also to the world community. They were the subject of U.N. resolutions," Ashcroft said.We'll see whether the nefarious chemistry and biology turn out to only be evil-related. Via SK Bubba.
AB
P.S. Biology and Chemistry evil? This reminds me of the Hardball skits on Saturday Night Live, when one of the fake guests is Harry Belafonte. Whenever Matthews needs to liven things up, he goes to Belafonte. For example, these Matthews to Belafonte lines from the episode featuring John McCain:
Matthews: Wow! An impressive display of insanity! Harry Belafonte, keep this crazy train rolling!"Matthews: Dear Lord. Belafonte! Hit me with a quick one!
The second possibility is that to a devout Pentacostal like Ashcroft, Biology truly is evil because it is rooted in and supports evolution.
Breakdown of Higher Government Spending
AB noted that this morning the CBO released its new estimates of the budget deficit for 2004 and beyond. The news continues the almost monotonous upward revisions in the US’s budget deficit problems over the rest of the decade. This dovetails with a debate that has been growing of late, and which has been reflected in the Conservative v. Bush issue: what is the cause of the budget deficit? Is spending indeed out of control, and if so, spending on what? (For an example of what people are saying in this debate, you might want to read this NYTimes piece from over the weekend.)
I’ve put a table together to get at this question. The table shows government spending (and percent changes) in both discretionary and mandatory spending during the 4 years before Bush was elected and the 4 years after. Note that Bush and the Congress only have direct, budget-to-budget control over the discretionary portions of spending. To change mandatory spending, they would have to alter one of the US’s social benefit policies. Anyway, here are the results:
Clearly, skyrocketing defense spending over the past few years is the single biggest contributor to the increase in spending in both dollar and percentage terms... but there are lots of other contributions, too. Government spending on health care comes in as culprit #2. Discretionary non-defense spending has been rising, too, though not as fast as defense spending.(*) Later this week I’ll show you a further breakdown of the data by sub-category within non-defense discretionary spending.
One interesting note: surprisingly, Social Security is not a major contributor to higher government spending right now. But as I’ve noted elsewhere, that will change soon enough.
Kash
(*) note: the figure in the table includes $27bn for homeland security in 2004. Excluding HS, non-defense discretionary spending is $418 in 2004, which represents a 31% rise from 2000.
Going in the Wrong Direction
Just last week, the president announced that he planned to cut the deficit in half over the next five years. Yet the latest deficit projection for 2005 is now $20b higher than the previous projection:
In its bi-annual budget outlook, details of which were obtained by Reuters from congressional sources, the nonpartisan agency forecast a federal deficit of $477 billion in 2004, only $3 billion less than the last forecast made in August.Of course, it might be easier to cut the deficit in half after first doubling it.
It predicted next year's deficit will total $362 billion, up from $341 billion predicted in August. Based on current federal spending plans and tax policy, the deficit is expected to reach nearly $1.89 trillion between 2005 and 2014, up from prior predictions of $1.4 trillion in the next decade.
AB
More Speaks for Itself
This time from a Yahoo news story excerpting from a forthcoming biography of Tony Blair:
The extent of Mr Cheney's opposition emerges in the biography of the British prime minister by Philip Stephens, the Financial Times' political columnist.AB
In the run-up to the war, Mr Blair worked closely with Mr Bush to try to secure prior UN backing.
But Mr Stephens writes that Mr Cheney's opposition to UN involvement left Mr Blair uncertain whether Mr Bush would go down the UN route until he uttered the relevant words in his speech to the UN general assembly in September 2002. One Blair aide remarked: "[Mr Cheney] waged a guerrilla war against the process . . . He's a visceral unilateralist". Another agreed: "Cheney fought it all the way - at every twist and turn, even after Bush's speech to the UN."
Sunday, January 25, 2004
What it Takes To Be President ...
Apparently, the media has concluded that Dean lacks it. August Pollack lays out a great plan for Dean to become more presidential.
AB
UPDATE: Click here for a scandalous Dean photo. Seriously, click. You'll be glad you did. (Via Atrios)
Blogging of the President
Tonight on NPR from 9-11 Eastern, a bunch of bloggers (Atrios, Andrew Sullivan, Gary Hart, Jerome Armstrong, Frank Rich, Josh Marshall, Garance Franke-Ruta, Ed Cone, Jeff Jarvis, Kevin Phillips, Richard Reeves) will be talking politics).
You can find the list of participating stations here. Or you can listen to the webcast.
AB
UPDATE: Well, I listened to it. In case his blog failed to dispel all doubt, Andrew Sullivan really is a jackass. Instead of substantively debating Atrios, Sully instead decided that Atrios' anonymity was sufficient grounds for attack (moreover, the discussion was about blogging and politics; Sully decided to make it left vs. right and anonymous vs. named-and-usually-begging-for-money.) At one point, Atrios stated that he took on liberals when the situation warranted it, but he was unable to come up with an example on the spot. Here's one for you, Atrios: free trade.
You can go here for a link to the Atrios/Sully part of the show, which was about 15-20 minutes.
UPDATE 2: Speaking of anonymity, The Federalist Papers were originally written as a series of essays published in various papers, mostly in New York, under the anonymous pen name Publius. At some point, it became known that John Jay, James Madison, and Alexander Hamilton wrote them, though to this day, the author or authors of some of the Papers remains somewhat in question. Yes, our Constitution is deeply rooted in anonymous political writing. But I guess we can forgive a Tory for not knowing that.
Another Speaks for Itself Statement
One day after David Kay, the chief U.S. weapons inspector in Iraq, said he believes Hussein had not stockpiled unconventional weapons for years, Powell told reporters that his prominent Feb. 5 argument was based on "what our intelligence community believed was credible."However, neither Powell nor Kay has definitively addressed whether Iraq had stockpiles of WMDPRAs, stockpile-related WMD program activities, mass activity stockpile of destruction related programs, destruction-related mass activity programs, activity-related mass weapon program destructions, or other threatening linguistic permutations.
AB
Saturday, January 24, 2004
No Annotation Necesary
Usually, I feel that I should add something to statements that I quote, but this speaks for itself:
Asked directly if he was saying that Iraq did not have any large stockpiles of chemical and biological weapons in the country, Dr. Kay replied, according to a transcript of the taped interview made public by Reuters, "That is correct."AB
Friday, January 23, 2004
Hitting the Nail on Its Head
Slate's Michael Kinsley on the administration's philosophy (hint: it's not actually compassionate conservatism):
So, to sum up: Talk loudly. Carry a big stick anyway. Spend money. Borrow to pay for it. Fiddle the books. I guess that's a governing philosophy of sorts.Via Mark Kleiman.
AB
Roach Describes the “Frothy” 2000’s
Stephen Roach (chief economist at Morgan Stanley) is attending the annual World Economic Forum at Davos, Switzerland right now. He sends back this report:
I conceded the near-term outlook to the momentum crowd, [but] I dug in my heels on what I continue to believe is the key bone of contention in the macro debate — sustainability.I don’t always agree with Roach, but I do think that in this case he has hit the nail on the head.
The response was right out of the script of the late 1990s. One new paradigm after another was offered as explanations as to why this global recovery is for real... [and] these are precisely the assumptions that ever-frothy financial markets must be making in order to sustain asset values at current levels.
...[H]ave we truly learned nothing from the Great Bubble? As was the case in the late 1990s, the sustainability of a wealth-driven US economy is critically dependent on the permanence of asset appreciation. Yet bubbles are, by definition, the antithesis of such permanence.
Kash
Best N.H. Dem Debate Performance
In my opinion, the award goes to Peter Jennings, who displayed masterful control of himself by maintaining a perfectly straight face while asking the following:
JENNINGS: Reverend Sharpton, I'd like to ask you a question about domestic policy, if you don't mind... [G]ive us a little bit about your views on monetary policy.Kash
Membership Has its Privileges
Especially when you've been around for a while. Earlier, I pointed out that the per capita earmark is only slightly higher for Red states than Blue states. At the time, I speculated that the Republican districts within states were getting the majority of the pork. For example, perhaps Sugarland (Tom DeLay) gets a lot while San Antonio (Leticia Van de Putte's area) gets little.
Astute commenter and blogger Ben Muse did a bit more investigating and found a very plausible explanation:
I've ranked the states by earmark per capita and indicated whether or not the state had a senator on the Senate Appropriations Committee. Of the top 25 ranked states, 20 had someone on the committee; of the lower 25 states, only nine had someone on the committee. Of the top five ranked states, three had Democratic (minority) members on the committee. [Supporting data here.]
This is a great example of why, even though nearly everyone dislikes their incumbent senator, it may still be better for the voters to keep him or her around.
AB
100,000
There's a slight chance that Angry Bear will get its 100,000th visitor sometime today; more likely, the meter will turnover sometime this weekend. 100,000 is not too bad for a bit under a year. If you're excited by Angry Bear history, my first post was on 2/14/03 (my girlfriend was out of town then; when I saw her on the 16th, I asked her to guess what I had done on Valentine's day. Somehow, even after many tries, she was unable to guess the obvious: "started a blog!")
My first big link came from Dave Niewert, helping to propel my daily readership into the double digits (thanks, Dave!).
Kash joined the blog on 8/19/2003 with a prescient post about the need for the administration to alter its plan and commit more resources to Iraq. Originally, Kash was only going to fill in while I was on vacation, but I was so impressed with his posts (as were our readers) that I wisely invited him to stay.
After Kash's joined the blog, the rate of traffic growth increased nicely (not just correlation, I presume). It didn't quite grow as fast as actual and projected deficits under Bush, but the pace was nice nonetheless. We're now over 500 per day on the weekdays, which is far more than I ever expected. So thanks to all who linked Angry Bear, and most of all, thanks to the readers!
AB
P.S. Another story I've been meaning to tell. In early January, at the annual meetings of the American Economics Association, Kash and I finally met, at The Bitter End in San Diego. A good time was had by all, and several many beers were consumed. Eventually my girlfriend joined us. Her reaction was "wow, he seems really nice, and normal." If you know many economists, you'll agree that that's no small feat.
One last story: whence the title Angry Bear? Most would guess that it's based on anger at the Bush administration combined with some skepticism about the prospects of the stock market. Both are good guesses and contributed somewhat to the naming of the blog. But the principle impetus was the expression, which I've rarely heard outside of Texas, "It's like shooting a bear with a .22, you'll only make him angry!"
We now return to our regularly scheduled economic and political analysis.
Thursday, January 22, 2004
Public Service Announcement
Scammers get better all the time. Everybody knows not to answer an email with their account information. But many might think it's safe to visit PayPal's website in response to an apparent email from PayPal. In any event, in the latest scam, the actual link is to pcypal.com, but the text is colored blue and underlined (to appear like a link to PayPal) and says https://www.paypal.com/us/wf/f=ra_default, which actually is a PayPal URL. If you click it, however, you go to the fake site, PoyPal.
Once there, all of the front page, including the links, is an exact duplicate of PayPal's front page -- except the login button. If you use that button to log in, the scam operators will have the information they need to clean out your PayPal account.
My advice: never use an email link to visit a sensitive site. Use your bookmarks or type the site name (carefully!). And if in doubt, call, assuming you can find a phone number.
AB
Surprising
In the last post, I mentioned that "I'd like to see a break down by district and party." So I got the state-by-state data from Taxpayers for Common Sense and then aggregated to get a Red/Blue state breakdown of the earmarks:
Surprisingly, the difference is actually very small, about 2.4% more per capita for the Red states. Yet I know that I've read a number of stories claiming that the House Republicans in particular have shut off the flow of pork into Democratic districts (anyone have a cite for this?). If those claims are true, the gap must be across districts within a state. The Taxpayers for Common Sense page linked above does allow you to click on a state and see the earmark by earmark breakdown, so someone with a lot of time on their hands could add district level population and voting data to create a more accurate view of the Red/Blue breakdown of pork.
Note that this only applies to earmarks, which are a bit over $10.1 billion. If you itemize total federal spending, the Red states get about $1.12 per capital and the Blue get about $0.87 (based on 2002 data).
AB
Omnibus Spending Bill Passes
WASHINGTON (AP) -- The Senate overcame Democratic delaying tactics Thursday and sent President Bush an overdue $373 billion bill financing a vast swath of government and bearing a bushel of victories for the White House.
Senators approved the measure 65-28 a month after House passage.
The bill finances agriculture, veterans and most other domestic programs for the budget year that began October 1 -- nearly four months ago.
The mammoth measure also protects Bush administration policies on overtime pay, media ownership and food labeling. Angry over those issues, Democrats had succeeded on Tuesday in blocking a vote on final passage.
While I don't see the direct connection to funding and spending issues, the bill also contains the President's desired alteration of overtime rules (hint: less overtime) and easing of media consolidation restrictions:
The bill would let the administration proceed with new rules that would let companies pay overtime to fewer white collar workers, and allow media conglomerates to own more television stations.And there's something for everyone (though I'd like to see a break down by district and party):
The measure also has 7,932 so-called earmarks -- for local items like museum upgrades and agricultural research -- costing $10.7 billion, according to Taxpayers for Common Sense, a group that pushes for lower spending.
AB
Cheetos of Mass Destruction
Well, not exactly. But Slacktivist does provide a great illustration of how the validity of a noun decreases with the number of adjectives appended to that noun.
Patrick Hayden has another amusing take on WMDRPAs.
AB
Health Savings Accounts
Mark Schmitt has the definitive explanation of why HSAs are a bad idea:
What the administration is doing, first with health savings accounts, which are now the law, and then with this [catastrophic insurance] proposal, is to confer enormous tax advantages on a type of insurance that is already advantageous, but only for the relatively wealthy. But the consequence of it would be that, as young and healthy people withdraw from the standard, low-deductible insurance market, premiums in that market would go through the roof, insurers would desperately try to find ways to deny coverage to higher-risk people, and the whole delicate balance would surely collapse.The problem is very similar to the problem with the recently passed Medicare Drug Benefit that I pointed out in this post and the one just before it. Basically, the only way around the adverse selection problems that plague the various Republican health care proposals is to make the programs mandatory, which I doubt will happen.
AB
Wednesday, January 21, 2004
More Then and Now
Tonight's Daily Show cited this quote from the 2002 SOTU (after 9/11 and, apparently, after there were already solid plans for invading Iraq):
To achieve these great national objectives -- to win the war, protect the homeland, and revitalize our economy -- our budget will run a deficit that will be small and short-term, so long as Congress restrains spending and acts in a fiscally responsible manner.
Contrast that to Bush in the latest SOTU:
In two weeks, I will send you a budget that funds the war, protects the homeland and meets important domestic needs, while limiting the growth in discretionary spending to less than 4 percent.Four percent spending growth would require unprecedented sobriety from our spending-like-drunken-sailors Republican Congress and President (from the 11/12/03 Washington Post):
This will require that Congress focus on priorities, cut wasteful spending and be wise with the people's money. By doing so, we can cut the deficit in half over the next five years.
Confounding President Bush's pledges to rein in government growth, federal discretionary spending expanded by 12.5 percent in the fiscal year that ended Sept. 30, capping a two-year bulge that saw the government grow by more than 27 percent, according to preliminary spending figures from congressional budget panels.And speaking of McCain, did anyone else notice how he had a hard time saying with a straight face that he would be "supporting President Bush" during an upcoming trip to New Hampshire? He sort of said it once, then did a double-take, and said it again.
Speaking of The Daily Show, here's Jon Stewart's reaction to Bush's "weapons of mass destruction-related program activities":
[speaking slowly and emphatically] "Dozens of weapons of mass destruction-related program activities?" ... "What the f**k is that?"Overall, I think the reception to this year's SOTU has been somewhere between fairly negative and mixed, but there is at least some good news for the administration: TV Viewership for Bush State of Union Slips.
AB
UPDATE: For a more substantive, and damning, critique of Bush's 4%/cut the deficit in half line, see CalPundit, who concludes "Explain to me again why I'm not allowed to call this a lie?"
Why Can't I Come up With These?
TBogg on Sen. Kennedy's obvious disapproval of the SOTU:
---Although I enjoyed Ted Kennedy and his head-shaking, I think making jerk-off motions with his fist while rolling his eyes would have been more effective.
AB
Conservatives v. Bush, Part II
So, some Republicans who are also fiscal conservatives have been reacting to the SOTU. This story contains some examples:
WASHINGTON, Jan 21 (Reuters) - U.S. President George W. Bush faced open rebellion on Wednesday from some members of his fiscal conservative base for not laying out concrete plans to reduce government spending and the budget deficit...These reactions conjure up two possibilities for me. The first is to take them at face value, and believe that fiscally conservative Republicans are losing their patience with Bush, and therefore may be less enthusiastic about supporting him for reelection (though I have no doubt that they will still support him over any Democrat).
Though Bush announced a relatively small number of inexpensive domestic proposals [in the State of the Union address], Heritage analyst Brian Riedl said fiscal conservatives were angry over what Cato estimated to be a nearly 25 percent surge in spending over the last three years -- the fastest pace since the Johnson administration of the mid-1960s.
Stephen Moore, president of the Club for Growth, a politically powerful conservative group, called Bush's State of the Union pledge to tackle the deficit "really unpersuasive."
"Conservatives were left grumbling," Moore said.
William Niskanen, the chairman of Cato Institute who advised former President Ronald Reagan, called it "most misleading."
..."He (Bush) did not identify any cuts. He didn't demonstrate how in any way the actions he proposed would cut the deficit in half over the next period of time," Niskanen said.
The second (far more cynical) possibility is that their reaction is simply following a script given them by Rove/Cheney. Maybe their marching orders right now are to help publicly build the case (and perhaps some astroturf) for dramatically cutting domestic spending, which is what the brains of the White House have wanted all along.
What do you think – are the fiscally conservative Republicans supporting or undermining the White House right now? I’m honestly undecided.
Kash
SOTU
I didn't listen to the entire SOTU, primarily because it pains me to hear the leader of the Free World say NU-CUE-LAR (yes, Carter did it too, but that doesn't make it right). But of the parts I did hear, one passage really struck me:
We're seeking all the facts. Already, the Kay report identified dozens of weapons of mass destruction-related program activities and significant amounts of equipment that Iraq concealed from the United Nations. [emphasis mine]I've long been painfully amused by the administration's substitution of "WMD Program" for "Actual WMD" but this brought it to a new level. Now, the purported threat to America is not WMD, nor WMD programs, nor even WMD-related programs, but instead WMD-related program activities, whatever that means. Perfunctory but true note: Saddam was in fact a very evil and cruel dictator. But there are many dictators and before deposing them, we must decide which ones are worth 500-and-counting lives of American soldiers (plus several thousand injured) to depose.
In any event, contrast tonight's "weapons of mass destruction-related program activities" to Bush last year:
Before September the 11th, many in the world believed that Saddam Hussein could be contained. But chemical agents, lethal viruses and shadowy terrorist networks are not easily contained.AB
Year after year, Saddam Hussein has gone to elaborate lengths, spent enormous sums, taken great risks to build and keep weapons of mass destruction. But why? The only possible explanation, the only possible use he could have for those weapons, is to dominate, intimidate, or attack.
UPDATE: Apparently, I wasn't the only one who found that phrase noteworthy.
UPDATE: The "Kay report" is the report from David Kay, the weapons inspector who failed to find WMD and, along with his team, recently withdrew from Iraq. (See Ken liberal but pre-war Hawk Ken Pollak's story in the February Atlantic for much more on Kay and the lack of Iraqi WMD.)
Tuesday, January 20, 2004
Employment Charts in Thirty Seconds
I just came across a really cool application, Labor Force Statistics from the Current Population Survey, at the Bureau of Labor Statistics web page. There, you can quickly assemble charts and graphs on a number of labor and economic measures collected by the BLS, broken down by a variety of demographic categories. Just to try it out, I thought I'd take a look at the seasonally adjusted number of people looking for full-time work, and within seconds I had a table (then select the "include graph" box for a graph.) My only complaint is that exporting the graph doesn't work well -- it looks great on the BLS page, but there's no convenient export function. In any event, here it is:
Seasonal Adjusted
Series title: (Seas) Unemployment Level - Looking For Full-Time Work
Labor force status: Unemployed looking for full-time work
Type of data: Number in thousands
Age: 16 years and over
The number looking for full time work climbed by by 2.5 million from 1/01 to mid-2003, before falling by 500k. Notice any similarities between 1993 to 2003? (In fairness to the younger Bush, the population is larger now than in 1993 by about 20 million, so his 7.5 million isn't as bad as Bush Sr.'s 7.5 million looking for full time work.)
AB
Iowa's Effect on the Political Markets
As I’ve mentioned before, the Iowa Electronic Market is a great place to see how events shape the perceived probabilities of each candidate winning the nomination. Here is today’s graph, showing the last night’s Iowa caucus results have affected the shares of all of the candidates. Note that Edwards is contained in the grey ROF line just below Kerry’s line in recent days.
The market apparently now thinks that Kerry and Dean have almost equal chances of winning the nomination now (about 30-35% each) while Clark and Edwards both have around a 20% chance of winning. I agree with AB: This is going to be good – pass the popcorn!
Kash
A Preview of the State of the Union: More Concealed Costs?
Bush has made a specialty of proposing policies that are tremendously expensive without actually addressing their costs. Some examples include:
- Tax cuts. Stated cost by Bush before the fact: none. The claim was that they would boost the economy so much that tax revenue would increase. Actual cost: hundreds of billions of dollars per year.
- War in Iraq. Stated cost by Bush before the fact: none. As Paul Wolfowitz said, "Such estimates are so dependent on future, unpredictable circumstances as to be of little value." Actual cost: $100bn so far and counting.
- Moon and Mars bases. Stated cost by Bush before the fact: $1 billion. Someone at some point in the future will presumably pay for and accomplish these missions, after all; Bush is just in charge of getting the vision started. Actual cost: We’ll see, but estimates are in the neighborhood of $130 to $250 billion.
Kash
Edwards-Clark or Clark-Edwards?
The title is actually intended to mock the proclivity of the press for taking any event and projecting it linearly into the future: Dean is definitely down, but not out. Also, I remain firm in my conviction that Kerry will not be the nominee (though I will support him if he is). Overall, it's definitely tough to attribute Dean's dramatic fall to anything other than the rash of negative press he got, unfairly for the most part (I'm giving Iowa Democrats enough credit to assume that the Club for Growth ads didn't play a role in Dean's defeat). And I'd like to attribute Edward's strong second place finish to his lack of negativity vis-a-vis other Democrats so far, but perhaps that's too optimistic.
So what does it all mean? Beats me. Where's the popcorn?
On second thought, I'll venture a call now: Edwards or Clark will be the nominee, and the winner will choose the loser to complete the ticket. Perhaps my predictive skills will surpass those of Atrios. On the other hand, my Condoleeza Rice Resignation Watch is now in day 175, so my prognistications are questionable at best.
AB
P.S. Just a week ago, Matt Y. predicted that "Dean's moment of inevitability would be followed by an inevitable moment of evitability which would be followed by victory. Now it really doesn't look inevitable right now, but I stand by that prediction." Query: Did Matt predict the Iowa outcome, or not?
Monday, January 19, 2004
We don't care if it's right, thorough, or helps prevent future attacks...Just get it done!
And by get it done, we mean get it done soon enough that voters won't remember it come November:
A growing number of commission members had concluded that the panel needs more time to prepare a thorough and credible accounting of missteps leading to the terrorist attacks on the World Trade Center and the Pentagon. But the White House and leading Republicans have informed the panel that they oppose any delay, which raises the possibility that Sept. 11-related controversies could emerge during the heat of the presidential campaign, sources said.
Much of the delay is due to the lack of cooperation by the White House, as spokesman Erin Healy explained:
"The administration has given them an unprecedented amount of cooperation."Not an unprecedentedly large amount of cooperation, but simply an unprecedented amount. That is, find the smallest amount of cooperation by any White House in an investigation of this sort. If the current White House cooperates a bit less than that amount, then Healy's statement is technically true.
AB
The No Jobs President
James K. Galbraith, who heads the University of Texas Inequality Project and who I correspond with fairly often, has today's lead piece in Salon, The no jobs president. Here's a highlight:
Next, notice when the deep dive ends. That's right: It was just after Sept. 11, 2001. It's true that President Bush ought not to be blamed for the job losses of the Internet bust. But neither can he properly blame his troubles on Osama bin Laden: Job losses slowed down when the war on terror began.
Bush should be judged on the record after that -- on the creation of jobs in 2002 and 2003. After all, the recession officially ended in November 2001. How many new jobs did we get since then? An average loss of 22,000 jobs every month.
There are no new jobs. Total job growth in the Clinton years: 23 million. Total job losses so far in the Bush years: over 2 million. Total gains in the last six months, since the so-called recovery supposedly accelerated in the third quarter? Just 221,000. That's less than a single month's average under Clinton. And last month? One thousand new jobs.
There's a lot more, including a discussion of the decline in labor force participation, a cynical (but not inaccurate) take on Bush's major policies, and a very pessimistic take on Bush's proposed immigration reform. Read the whole thing.
AB
Sunday, January 18, 2004
Mea Culpa?
Washington Post ombudsman Michael Getler has apparently been getting lots of email alleging that the Post is burying or slanting anti-Bush stories, particularly stories related to Iraq (the WaPo editorial page is pro-war). Point by point, Getler reviews the charges and then admits that they have some merit. The tone is one of denying actual impropriety, but admitting that there may in fact be an appearance of impropriety. Gertler's conclusion:
Editors should not edit because things may "look bad" to some readers. But there is a lot of smoke out there, and probably a fire.
Not mentioned is a plan for addressing these concerns.
AB
P.S. For another mea culpa, this time from NPR Ombudsman Jeffrey Dvorkin, click here (scroll down to "mea culpa").
Saturday, January 17, 2004
What's With Sully?
Noted conservative hack, Andrew Sullivan, posted this on Thursday:
LET THE KIDS PAY FOR IT: I'm talking about this $170 billion foray into space. After all, the next generation will be paying for a collapsed social security system, a bankrupted Medicare program, soaring interest on the public debt, as well as coughing up far higher taxes to keep some semblance of a government in operation. But, hey, the president needed another major distraction the week before the Iowa caucuses, and since he won't be around to pick up the bill, why the hell not? Deficits don't matter, after all. And what's a few hundred billion dollars over the next few decades anyway? Chickenfeed for the big and bigger government now championed by the Republicans. This space initiative is, for me, the last fiscal straw. There comes a point at which the excuses for fiscal recklessness run out. The president campaigned in favor of the responsibility ethic. He has governed - in terms of guarding the nation's finances - according to the motto: "If it feels good, do it." I give up. Can't they even pretend to give a damn?
Later that same day, he added this:
AND WHEN IN DOUBT, LIE: Leave it to Rick Santorum to say the following: "I would just suggest we stayed within the budget targets the President has set forth. They are substantially less than what the increases were under the Clinton administration. They are, I would argue, fiscally responsible." Here's the truth: If you take defense and entitlement spending out of the picture altogether (and they have, of course, gone through the roof), Bush and the Republican Congress have upped domestic spending by a whopping 21 percent in three years...
Astounding! I completely agree with both posts. But Sully was only experiencing a brief moment of clarity. On Friday, he returned with a very disingenuous and specious account of Gen. Clark's pre-war assessment of the steps America should take to deal with Saddam Hussein. (To see why Sully's argument is specious, see Kleiman, Marshall, Drum, or Columbia Journalism Review's new blog.)
AB
American Street Update
There's one more to-be-revealed contributor, but the list is otherwise complete:
Angry BearThe most recent additions are Ross, Tom Burka, and General J.C. Christian. Ross adds some great expertise on health care issues, while Tom Burka and The General ably mix healthy doses of insight with even healthier doses of humor. Overall, I think Kevin Hayden did a great job of assembling a group with complementary skills. Nice job, Kevin.
Bill Scher
Chuck Currie
Dave Johnson
David Neiwert
Digby
Dirk Steele
General J.C. Christian
Jeff Alworth
Jeralyn Merritt
Kash
Kevin Hayden
Luis Toro
Mary Ratcliff
Mark A.R. Kleiman
Ross
skippy
Tom Burka
AB
Friday, January 16, 2004
Full-Scale War in the Senate?
With this news, President Bush may have fired the launched a meaner, dirtier, nastier Senate than any of us has ever seen in our lifetimes.
Kash
Why Are Long-Term Interest Rates Still So Low?
In a thought-provoking post, Brad DeLong ruminates on the fact that bond prices yields are far below where most economists think they should be.
My two favorite explanations:
1. Vast quantities of foreign demand for US bonds is keeping bond prices high. As the Treasury report mentioned in the post below indicates, foreigners (especially central banks) are plunking down $20 to $30bn every month to buy US government bonds. I think that should be plenty to keep prices significantly higher than they would be otherwise. In addition, some of those buyers (again, especially central banks) have other priorities (such as exchange rate goals) that supercede their beliefs about the future of US inflation and interest rates.
2. Short-term rates affect long-term rates. The fact that the Fed is keeping short-term rates so low for so long does seem to cause long-term rates to fall. Yes, the Fed is supposed to only be able to affect short-term rates, but as one of my friends at the Board of Governors says, “I don’t know how or why, but we DO have control over long-term rates.”
Kash
Foreigners Still Buying US Assets
Today the US Treasury released the latest statistics on international capital flows into the US, covering the month of November 2003. It shows a few interesting and surprising things.
1. Foreign private firms and individuals increased their purchases of US stocks and bonds in November. In fact, through Nov 2003 private net purchases of stocks and bonds totaled $575bn, up from $511bn in 2002. This surprises me, since I expected that the falling dollar was in response to weak private foreign demand for US assets. However, foreigners were still gobbling up US stocks and bonds in November. This suggests that the fall in the dollar may be due more to speculative activity in short-term investments rather than due to a major shift in long-term investor sentiment.
2. Foreign central banks continued accumulating US government bonds, buying a net of about $19bn during November. However, nearly all of this is accounted for by Japan alone. Japan’s central bank now owns over $525bn worth of US government bonds, up from about $385bn at the beginning of the year. (See chart below.) This is a stunningly massive quantity of US government bonds under the control of one institution. Good thing they’re on our side.
3. China’s central bank has not been accumulating large amounts of long-term US government bonds – contrary to what I expected, given their massive increase in foreign reserves. Together, China and Hong Kong have only added about $30bn in US government bonds to their portfolio this year. (Again, see chart below.) This creates a bit of a puzzle: where is China putting all of their dollars, if not in US government bonds? Is it all in short-term assets such as cash and T-bills?
It’s an interesting report. I need to take a closer look at it and think about it some more, but my preliminary conclusions are to be less worried about a significant drop-off in the willingness of private foreigners to lend in the US right now, to be more perplexed about China’s reserves, and to be more sanguine about the possibility of a huge sell-off in US government bonds this year, since I think Japan is much less likely to do that than China would be.
Kash
Thursday, January 15, 2004
Pension Problems
Not good:
WASHINGTON, Jan 15 (Reuters) - The federal agency that provides a safety net for U.S. corporate pension funds said on Thursday that its deficit had more than tripled last year, to a record $11.2 billion.This is a problem that’s going to get a lot worse before it gets better. Expect US taxpayers to pony up several tens of billions of dollars to fund these pensions over the next decade.
The U.S. Pension Benefit Guaranty Corp., which insures the pensions of about 44 million Americans, had started fiscal 2003 with a $3.6 billion deficit. Executive Director Steven Kandarian said the growing red ink threatened the agency's ability to protect pensions in the future.
Kash
Kash’s Call #4: Housing Market Prices
My prediction is that housing prices will peak in 2004 in many (perhaps most) of the major regional markets in the US. By late 2004 or 2005 house prices will actually begin to fall in many of those markets.
Why? First, because housing prices are historically high. The chart in the post below that shows house prices in several states describes what I mean. I’m a great believer in reversion to long-run trends in general, and housing is one market in particular where prices have almost always reverted to long-run trends. As the IMF report also cited in the post below concludes, "housing booms are more likely than stock booms to end in a bust."
Second, because the discrepancy between rents and house prices is huge. Right now, rental markets are soft in many places. Rents are stable or falling, and renting is cheaper than buying a similar place almost everywhere in the US. Historically, such a condition does not persist – people arbitrage between renting and buying (albeit slowly), and in the long run the two types of housing prices tend to converge.
Third, because interest rates will rise later this year. Various forces make this likely, including decreased lending by foreign investors and an increase in inflation in the US from its historically low levels. Recently, low interest rates have enabled people to put off repaying more of their house until later, so some people have been willing to pay a higher price for a given house than they would have otherwise (see the post below for further explanation). Well, the reverse is also true – when interest rates and inflation rise, people will react by being willing to pay less for their house.
Put these factors together and I am forced to conclude that we’re near the peak of house prices in several markets – and that once we’re past the peak, they will go down.
Kash
Dispelling Myths About The Real Estate Market
To lay the groundwork for my next prediction, let me first summarize and dispel a few commonly-held misperceptions about home ownership.
Myth #1: Real estate prices never fall.
In fact, housing price busts are extremely common. For some examples, take a look at the graph below, which shows real housing prices in several different states in the US since 1975. (Note: data is from the Office of Federal Housing Enterprise Oversight.) It’s evident that house prices can fall as well as rise, despite the overall upward trend.
To provide a broader picture of house price busts, the IMF published a couple of papers about asset price bubbles and crashes last April (available here). They studied 52 stock market busts and 20 housing market busts that have happened in the last 30 years. Among the numerous interesting points they made were:
- Whereas only about 25% of stock market booms are followed by busts, about 40% of housing booms are followed by busts.
- On average, when there is a bust in the housing market, real prices fall by an average of about 30%.
- The bigger the price boom in the period leading up to the peak, the bigger the fall in prices after the peak.
Myth #2: Owning is always preferable to renting, because at least you build up some equity with your monthly payments.
While it is true that you build up equity when you own a home, there are other factors to consider.
- During the first 5 years of the typical mortgage with 10% down, about 85% of your mortgage payments go straight to the bank’s pockets as interest payments.
- If the price of your house falls by just 5% during those first five years, your equity in the house will be lower than your initial down payment, so you will have lost money despite the fact that you were supposedly building up equity.
- If your monthly payments to buy a house are 15% more than your monthly payments to rent something similar, you could rent at the lower monthly rate, save the difference in a money market account, and still come out ahead (in the absence of capital appreciation) by renting versus buying.
Myth #3: It’s okay to pay a high price for a house right now because interest rates are very low, reducing the monthly payments.
Actually, interest rates are not particularly low right now in real terms. The following graph shows the average interest rate on 30 year fixed mortgages, adjusted for inflation. Yes, nominal interest rates are very low right now, but that’s simply because inflation is very low. Real interest rates are about average for the past 15 years.
What does this mean? It means that while low nominal interest rates make monthly payments on a mortgage look cheap, it also means that the burden of your monthly payments won’t be eroded over time by inflation as much as it would if inflation were higher. Effectively, this means that you pay off less of your loan now, and more of it in the future. But the house is not any cheaper because of low nominal interest rates any more than a car is cheaper when you repay your car loan over 5 years instead of 3 years.
The fact that these commonly-held conceptions are wrong does not mean it’s never worth buying a house. In fact, it almost always still makes sense to buy a house if you’re going to be living there for several years. And even if it’s more expensive to own versus renting, there are non-monetary benefits to home-ownership that are not trivial. However, the points made above are important to understanding my next prediction...
Kash
Wednesday, January 14, 2004
Offered Without Comment
From the Washington Post (Mike Allen Reporting):
In the winter, Bush and his heartiest alpha aides burn the towering pyramids of cedar.
That may sound like a chore, but Bush would certainly rather be there than here. The early-rising president can get crabby and punchy if he doesn't hit the pillow by 10 or so at night. On Monday, Bush was not scheduled even to arrive at a dinner hosted by Mexican President Vicente Fox until 9:10 p.m. local time (10:10 Eastern).
Bush, who returned to the White House on Tuesday night, sounded tired and bored at the few public appearances during his 28-hour visit. His remarks had unusually long pauses. Cutaway television shots captured Bush glowering into space as other heads of state talked about "economic growth with equity to reduce poverty," "investing in people" and "democratic governance."
AB
How Much Oxygen is There in Mars' Atmosphere?
Here's what I think would be a really bold experiment that NASA could use to determine whether there's enough oxygen on Mars.
- Build another Mars Rover. Call it Spirit II (cost: about $500 million, assuming the second one will be cheaper than the first one):
- Fill it up with cash, large bills.
- Send to Mars.
- Conduct experiment: see if cash will burn on the surface of Mars.
__________________________________
??
If the money does not burn, then fire powerful missile at the cash.
- Repeat steps (1) through (4) as needed until need to waste money and unquenchable thirst for deficits are satiated.
AB
BTW, those are plus signs, though they could double as crosses, in which case they would represent the faith-based component of the Mars mission.
UPDATE: Dwight Meredith astutely observes that this proposal "bears an uncanny resemblance to the ethanol program here at home."
American Street Update
As Ezra K. at Pandagon quipped, the number of bloggers at TAS is "growing by the minute too ... Like liberal bacteria." Our latest paramecium contributor is Digby, of Hullabaloo, writing about Bush's credibility gap.
AB
UPDATE: Digby's post brings to mind this exchange from Brit Hume's interview of George Bush:
HUME: How do you get your news?
BUSH: I get briefed by Andy Card and Condi in the morning. They come in and tell me. In all due respect, you've got a beautiful face and everything.
I glance at the headlines just to kind of a flavor for what's moving. I rarely read the stories, and get briefed by people who are probably read the news themselves. But like Condoleezza, in her case, the national security adviser is getting her news directly from the participants on the world stage.
HUME: Has that been your practice since day one, or is that a practice that you've...
BUSH: Practice since day one.
HUME: Really?
BUSH: Yes. You know, look, I have great respect for the media. I mean, our society is a good, solid democracy because of a good, solid media. But I also understand that a lot of times there's opinions mixed in with news. And I...
Dollar up Sharply
Apparently, Kash knows what he's talking about. Two posts below this one, he predicted that the dollar's fall should stop. In the news today, Dollar Up Sharply:
In morning trading, the euro was at $1.2655, down from $1.2751 late Tuesday in New York. Sterling was also lower at $1.8350 from $1.8447, while the dollar rose against the Swiss franc to 1.2326 from 1.2227.
Theory number two is that the dollar traders are reading Kash's posts and making their trades accordingly.
AB
End of the Dollar's Decline?
This week’s Buttonwood column in The Economist is all about the prospects for further decline in the dollar. Buttonwood is starting to think that we’re near the end of the dollar’s fall. It’s worth a read, if the subject interests you. The column ends with some good questions without ready answers:
The dollar has already fallen a lot, but how much further does it need to fall to correct America’s imbalances? American assets are already a lot cheaper than they were, and thus, presumably, more attractive to foreign buyers. How long will European policymakers be content to see the euro rise so sharply when Asian currencies are not? Judging by comments from Mr Trichet and others, not that much longer, especially given that Europe’s recovery is a lot more fragile than America’s seems to be. And how long will Asian countries continue to spend money building up foreign-exchange reserves that earn next to nothing and carry the risk of currency losses, rather than use the money to invest in their own region, which seems set to grow an awful lot in coming years? Fund managers’ view of the dollar is at an all-time low—reason enough, one might have thought given their track record, for being a bit more bullish.Kash
Koufax Awards Update
I just noticed that Angry Bear was nominated for a third Koufax Award, this time in a category where Kash and I have a shot at finishing in the top ten: Best Expert Blog. Ok, so there are only fourteen nominees, but still. Right now, they're just taking nominations in order to narrow down the list; I'll update when the voting opens.
And speaking of contests, MoveOn has announced the winners of the Bush in Thirty Seconds contest, and my favorite ad, Child's Play (warning: sound), won.
AB
Tuesday, January 13, 2004
The American Street
Now available: Kash's first post, A Preview of Bush's Budget Plans, and my first post: Myths: Fiscal Responsibility and Irresponsibility.
AB
One Reason Why a Weak Dollar May Not Help the Trade Deficit
This morning the BLS released an interesting tidbit of data:
The price index for overall imports rose for the third consecutive month, rising 0.2 percent in December. From December 2002-December 2003, the index was up 1.9 percent, which followed a 4.2 percent increase over the previous year.Why is this interesting? Because the US dollar has lost around 15-20% of its value against its trading partners, which means that imports should have cost the US 15-20% more over the year. The fact that they only cost about 2% more tells us one thing: importers and/or foreign firms who sell in the US have substantially cut the price that they’re willing to accept, presumably in order to keep market share in the US.
Economists call this phenomenon “exchange rate pass-through,” and it is crucial to understanding if the weaker US dollar will help the US trade deficit. If firms selling imports in the US are accepting lower prices in order to maintain their market shares, as this report seems to suggest, then the weaker dollar will not reduce imports at all. That’s why the decline in the dollar may have less of an impact on the US’s trade balance than many think.
Kash
Previewing Bush's Budget
What do you get when you put together Bush's idea of a building a manned base on Mars, his stated intention of making the 2001 and 2003 tax cuts permanent, and his stated goal of halving the budget deficit by 2009? Take a look at this post on The American Street for the answer.
Kash
More on O’Neill
From Reuters this morning:
Speaking on NBC's "Today" show, the ex-Treasury Secretary said the documents were given to him by the Treasury's chief legal officer after he requested them to help former Wall Street Journal reporter Ron Suskind write a book on O'Neill's time in the Cabinet.A bit of perspective is probably called for at this point, too. Don’t be under the illusion that O’Neill is going to start doing ads for the Democratic party:
"I said to him (the general counsel) I would like to have the documents that are OK for me to have. About three weeks later, the general counsel, the chief legal officer, sent me a couple of CDs, which I frankly never opened," said O'Neill, who resigned under pressure a year ago in a shake-up of Bush's economy team.
He described the reaction to Suskind's book as a "red meat frenzy" and said people should read his comments in context, particularly about the Iraq war...Kash
Asked about his comment that during Cabinet meetings Bush was like "a blind man in a room full of deaf people," O'Neill said he regretted some of the language he used to describe his former boss.
"If I could take it back, I would take it back. It has become the controversial centerpiece."
Pressed whether he would vote for Bush in the November presidential election, O'Neill said he probably would, but he said the American people needed to demand more of their leaders.
The American Street
Is it possible that my earlier link to the latest and coolest group blog, The American Street, was somewhat self-serving? Visit The American Street throughout the day and find out!
AB
P.S. The list of contributors now includes Jeralyn Merritt, Dave Niewert, Colorado Luis, Skippy, Dave Johnson, Mary Ratcliff, Mark Kleiman, Kevin "The Organizer" Hayden, and an economist or two. And there's more to come, including at least one more of my personal favorites.
Monday, January 12, 2004
Rove's Payback Begins
Well, that didn't take long:
WASHINGTON (Reuters) - The U.S. Treasury has asked the U.S. inspector general's office to investigate how a possibly classified document appeared on Sunday in a televised interview of ex-Treasury Secretary Paul O'Neill, a department spokesman said on Monday.As you may know, O'Neill provided 19,000 documents to Suskind to help him write his book, some of which apparently appeared on the 60 Minutes interview.
I can't help but think that Rove chuckled to himself, just a little, when O'Neill said "I'm an old guy, and I'm rich. And there's nothing they can do to hurt me."
Kash
Follow-up to the Unemployment Rate Puzzle
AB pointed to a line of thinking that suggests that increasing numbers of people on disability may be contributing to the fall in the labor force participation rate (LFPR) that I pointed out the other day in a post on The Unemployment Rate Puzzle. Among the excellent comments on that post were some other suggestions, however. A longer-horizon graph provides us more information about their relative importance.
The most notable feature of this graph is the strong downward trend, which is the result of a) a slight trend toward men staying at home with kids, and b) a substantial trend of men retiring earlier than they used to. From this chart, it looks like the recent drop in LFP is exactly consistent with the long-term trend.
One other interesting and unexpected thing to note is what the graph does not show – a cyclical fall in the LFPR that corresponds with recessions. Instead, the LFPR typically falls in the middle of the expansion portion of the business cycle, not during recessions (which are shaded on the graph).
Put this graph together with two other tidbits: a) as dc pointed out in the comments to the Unemployment Rate Puzzle, the age group in which men are most significantly leaving the work force more than women is in the 45-54 year old category; and b) college-educated people are leaving the work force more (or earlier) than poorly-educated people. Combining these bits of data with the fact that the graph shows that men’s LFPR is simply returning to its trend rate, I come to the conclusion that early retirement is a major contributor to the recent fall in the LFPR. Men who are well-educated are leaving the work force at a younger age than they used to. Put another way, it looks like some men who had put off retiring during 1999-2002 have decided to finally do it, and have left the labor force. Together with the disability story, I think this accounts for a large portion of the unemployment puzzle.
Kash
UPDATE: Anne (regular contributor to the comments) reminded me of this relevant NYTimes story from the other day, about the trend toward early retirement. It's worth a read if you haven't read it yet.
Kash’s Call #3: A Financial Crisis in the US?
My third prediction: there will not be a major financial crisis this year in the US, a la Argentina.(*)
Why not? Many of the ingredients for serious financial problems are in place for the US right now: massive government borrowing with no realistic prospect of future fiscal responsibility; enormous borrowing from the rest of the world in the form of the current account deficit; corporations and individuals that are burdened with historically high debt burdens; eroding confidence in the dollar.
However, there’s one big difference between the US and an Argentina or Thailand: all of our domestic and foreign debts are denominated in our own currency. This means that if there’s a loss in confidence in the ability of the US to repay its loans, then foreign investors will stop investing in the US (and may withdraw some of their investments), long-term interest rates will go up substantially, the dollar will fall substantially… but that will be the end of it. There will be no follow-on effects to cause a general financial crisis such as typically happens in a developing country in the same situation.
Over the coming year there will probably be a significant tapering off of foreign investment in the US – in fact, we may already be seeing this happen, according to some. The possible exception is the Asian central banks – they may keep buying dollar assets to keep the dollar from falling further. But any net reduction in the foreign willingness to lend to the US will happen gradually, not in a sudden, dramatic shift. The result will be further erosion in the value of the dollar over the year, and a gradual but significant increase in long-term interest rates in the US. But no crisis.
The US is not at risk of being the next Argentina. But that doesn’t mean that the consequences of the US’s excessive borrowing from the rest of the world will be pleasant.
Kash
(*) Some might argue that it’s cheating a little to predict what won’t happen, but since many people have expressed concerns about the US heading for an Argentina-like crash, it seems fair game to me.
More Unemployment
In an earlier post Kash gave some data on declining labor force participation, a decline that is particularly sharp among men and people with a high school degree or more education. We don't really have an explanation for the pattern, though one theory is that people are going back to school -- basically building up human capital while waiting out the bad times (Matt Y. and a number of CalPundit commenters second this theory.)
The economists over at Economists for Dean have what is likely another big part of the explanation: rising disability claims. When a worker claims disability, they are not counted as part of the labor force, and disability claims are up a lot. Economists for Dean cite a recent NYT Op/Ed by Austin Goolsbee that addresses this point:
Research by the economists David Autor at the Massachusetts Institute of Technology and Mark Duggan at the University of Maryland shows that once Congress began loosening the standards to qualify for disability payments in the late 1980's and early 1990's, people who would normally be counted as unemployed started moving in record numbers into the disability system — a kind of invisible unemployment. Almost all of the increase came from hard-to-verify disabilities like back pain and mental disorders. As the rolls swelled, the meaning of the official unemployment rate changed as millions of people were left out ... From 1999 to 2003, applications for disability payments rose more than 50 percent and the number of people enrolled has grown by one million.
AB
Sunday, January 11, 2004
If Only
For Eagles fans and more importantly, for those who dislike Rush Limbaugh, be sure to click here and then watch the "Frank's Picks: Divisional Playoffs" video segment. Watch to the end.
Via Atrios, who I suspect is very happy today.
AB
Completely and Utterly Damaging
And depressing, too (but unlikely to be devastating.) That's my take after watching Leslie Stahl interview former Treasury Secretary Paul O'Neill and author Ron Suskind. It looks like O'Neill gave Suskind every document he had, including transcripts of cabinet and NSC meetings. Other anonymous top officials apparently followed suit. The forthcoming book (available Tuesday), The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O'Neill, should be a must-read. Now the question is what the political fallout, if any, will be from this.
Another interesting question: who are White House sources other than O'Neill? Christie Whitman comes to mind, but who else?
It's not there yet, but I expect Josh Marshall to have the most reliable predictions, assuming he makes any. Stay tuned.
AB
The American Street
Check out the latest group blog, The American Street. The proprieters are unveiling the contributors all week, but so far they have Dave Neiwert from Orcinus (who just had his 1-year blog anniversary), Jeralyn Merritt from TalkLeft, Skippy the Bush Kangaroo, and Kevin Hayden/Cowboy Kahill, with more to come. Should be worth keeping an eye on.
AB
UPDATE: Add Luis Toro (Colorado Luis) to the list of contributors.
Friday, January 09, 2004
60 Minutes Sunday
Should definitely be worth watching; Leslie Stahl will be interviewing former Treasury Secretary Paul O'Neill (who was basically fired) about his time in the White House. Here's the lead from CBS's teaser:
President Bush was so disengaged in cabinet meetings that he "was like a blind man in a roomful of deaf people," says former Treasury Secretary Paul O'Neill in his first interview about his time as a White House insider.It looks like O'Neill's tale will comport with John DiLulio's recounting of the Mayberry Machiavellis. Via Brad DeLong
AB
Conservatives Against Republicans
The American Conservative Union is launching a campaign against Republican fiscal policy. I never thought I would see such a thing.
Republican Congress on a Wild Spending SpreeOf course, this doesn’t mean that they’ll be supporting fiscally responsible Democrats to replace irresponsible Republicans, but it’s still fun to see.
Federal government spending is out of control. Despite the Republican Party hegemony - control of the White House and both houses of Congress - federal spending is increasing at a rate that is unacceptable.
The American Conservative Union has launched a special project: Stop the Spending! The project's objective is to reverse the Washington spending spree, return fiscal discipline to Congress, and lay the groundwork to shrink government and its increasingly intrusive role in the private lives of average Americans.
By the way, if you want to see what a non-partisan, thoughtful, and well-respected organization fighting for fiscal responsibility looks like, check out The Concord Coalition.
Kash
Kash’s Call #2: The Economic Recovery
My second prediction: the recovery will continue apace for another few months... but will start to die out by summer 2004.
Why? Put simply, I think that the bulk of the economic growth that we’re experiencing right now is due to the credit card binge that AB so aptly described yesterday. And that credit card binge will be coming to an end soon, without any source of economic growth to replace it.
We can divide the economy into four pieces, and consider each in turn.
1. Government taxing and spending (G and T, for those of you who've taken a course in macroeconomics): We haven’t quite maxed out on our national credit cards yet, but we’ve probably reached the peak of the current round of expansionary fiscal policy. Bush says he now wants to seriously rein in spending (though we'll see about that). For sure, the tax cuts have largely come and gone by now. If the budget deficit starts to shrink mid-way through 2004 as it’s projected to, that implies a fiscal drag on the US economy. So G and T will start slowing the economy after the summer of 2004.
2. Consumer spending (C): Consumer spending has been rising like gangbusters (relative to everything else) over the past couple of years. But consumer debt is now at record levels (even if you look at payments/income instead of the gross level of debt), credit card defaults are at record levels, people have mortgaged their houses up to the hilt and already spent the proceeds, and the tax rebates and cuts will have been largely spent by May. That leaves one source for possible increased consumer spending: current income. But since my prediction is for a slowdown in the economy this summer, that implies a slowdown in consumer spending, too. So C doesn’t help the economy, and probably starts hurting it later this year.
3. Business spending (I): Yes, there’s a bit of pent-up demand for business spending to replace old equipment, but not much. The things that worry me hear are 1) corporate debt, which is still historically very high (though not quite as high as in 2001); and 2) excess capacity. Firms are wallowing in tons of excess capacity. Until that starts to get used up, businesses will not undertake further major expansions. So I will not provide a sustainable source of economic growth in the next year.
4. Foreign trade (X and M): Here we have the one real possibility for help. Thanks to the falling dollar, we may see some pick-up in exports. However, I don’t expect it to be a big one, for a couple of reasons. 1) It takes a long time for a fall in the dollar to translate into a major change in trade – like 2 or 3 years; 2) US exports depend not only on prices, but also on how much income the rest of the world has. With pretty sluggish economic growth around the world, there’s a big question mark about that; 3) Fundamentally, the US is not going to have an improving trade balance until it starts saving more and spending less as a country. In the absence of the latter, the fall in the dollar will just be offset by an increase in export prices and a fall in import prices, keeping US trade about where it is now. So X and M will not provide a big stimulus to the US economy this year.
Add it all together, and what do you get? Continued growth for a few more months, perhaps, but tapering off in the second half of the year.
Kash
The Unemployment Rate Puzzle
This morning’s release of December’s unemployment data by the BLS contains the same puzzle that’s been dogging this economy for months. Why has the unemployment rate continued to fall over the past 6 months, even though jobs have not been created?
The answer is that people are dropping out of the labor force. The BLS conducts a survey every month and asks about 60,000 households whether they are working, and if not, whether they are actively looking for work. The number of people who have responded that they are not working but are actually looking for work (and thus are technically unemployed) has fallen from about 9.2 million in June to 8.4 million in December. That’s good. Unfortunately, they apparently haven’t stopped working because they’ve found jobs, since the number of jobs in the US economy is still below where it was a year ago. (See the graph in this post to see what I'm talking about.) They’ve stopped working for some other reason.
This makes me curious. Who is it that’s dropping out of the labor force and giving up on the search for work? And why are they no longer looking for work? The following graphs give some interesting information about this, though they don't provide the answer.
The first one shows the “labor force participation rate” (LFPR), which counts the percentage of the total population that is either employed or actively looking for work. As you can see from the brown line, it has fallen quite a bit over the past couple of years, and shows no sign of picking up yet. The blue line shows the LFPR for women only. It rose a lot during the 1990s, and interestingly, hasn’t fallen. That gives us one piece of information about who’s leaving the labor force: they're men, not women.
The second graph breaks the labor force into education categories. The brown line shows the LFPR for all people who are over 25 years old but never completed high school. The blue line shows people over 25 who have a college degree. The results really surprise me, but there they are: more poorly educated people are working, while more college educated people are dropping out of the labor force.
What's the explanation? I honestly don't know. Maybe this reflects a boom in low-skill jobs and a dearth of high-skill jobs in the US economy? Or maybe it's a reflection of the growing income inequality in the US -- well-educated (and thus wealthier) families have gotten so rich that can afford to have one member of the family stay home, while families who earn relatively little are being forced to work more to maintain their income. Or maybe it reflects a shift in preferences -- perhaps some well-educated people are deciding that their families are more important than finding a new job?
If anyone has another good theory to explain these facts, I’d love to hear it.
Kash
A Surprising Unemployment Report
The BLS reported this morning that the US economy created a net grand total of 1,000 jobs in December, according to the Department of Labor’s survey of businesses. That’s pretty bad. Surprisingly bad, in fact. According to the less reliable household survey, the US economy lost 54,000 jobs in December.
The good news is that the unemployment rate went down to 5.7%. That’s less bad. But since jobs aren’t being created, the only reason the unemployment rate is falling must be people dropping out of the labor force. Which is probably also bad.
Kash
Mission to Mars
This NYT story must mean that Saddam hid the WMD on the Moon, the Red Planet, or perhaps both: Bush to Announce Ventures to Mars and the Moon, Officials Say.
AB
UPDATE: It looks like Calpundit came up with the same theory, but a bit earlier.
Another Koufax Nomination!
Who knew that two constituted a "group"? Kash and I are now nominees in the "Best Group Blog" category in Wampum's ongoing Koufax Awards. Once again, we are being resoundingly trounced, but it's an honor just to be nominated (no, really, it is).
AB
Giant, Happy-Fun, Credit Card Party
Mark Kleiman points to and excerpts a piece, Sustained Budget Deficits: Longer-Run U.S. Economic Performance and the Risk of Financial and Fiscal Disarray, by Peter Orzag (Brookings), Robert Rubin (Citigroup), and Allen Sinai (Decision Economics). (Synopsis here; full paper here.) I could blather on about the importance of inflation expectations, as well as consumer and investor confidence, to the smooth functioning of financial markets and the economy in general. But instead I'll try an analogy.
If I were willing to max out my credit cards, I could have a really wild two or three week bender in Las Vegas. Not Dollar Bill Bennett style by any stretch, but a great time nonetheless. Until the supply of credit dwindles and the bills come due, at which point the good times cease.
If only there was some way I could pass the bills off to someone else, say my children and yours, and I didn't particularly care about the well-being of those children, then everything would be fine and I could have my Las Vegas bender. This plan, in a nutshell, is precisely the economic policy of Bush and the Congressional Republicans.
AB
Thursday, January 08, 2004
Compassionate Conservatism?
What Army bureaucrat thinks that this is reasonable behavior for a civilized society?
Amanda Bolduc on Wednesday was holding on tightly to her 3-month-old son, taking advantage of every last minute, memorizing his every feature -- she won't see him again for a very long time.Chalk it up as another cost of this war.
The young mother, a 2nd Lieutenant in the Army National Guard, has been deployed to Iraq. She will have to leave Brayden behind for the next 18 months while she serves with the 133rd Engineering Battalion.
Kash
Kash’s Call #1: China and the Yuan
I’ve gone back and forth on this one a bit, but this is my first prediction: China will maintain the yuan’s peg to the dollar throughout 2004.
Why? The key is China’s banking sector. I know, “the banking sector” sounds like an incredibly boring answer, but for better or worse it’s often the lynchpin of the whole economy. So let me explain. No, there is too much. Let me sum up.
Think of it this way. If China revalues (changes the exchange rate so the yuan is stronger), that will depress exports, reduce inflation, and cause holders of dollar assets in China to take a significant capital loss. On the other hand, if China holds the exchange rate constant, exports continue to boom and inflation rises.
But a bit of inflation is exactly what China wants right now. China has been flirting with deflation for a couple of years, and as fester reminded us yesterday, China now has a potential banking crisis to contend with. China’s banks are groaning under the weight of loans that borrowers can’t repay.
This sounds eerily like the situation in Japan in about 1990 or 1991. To cap off the analogy, note that China is also experiencing a housing market bubble, just like Japan at that time. Japan’s nemesis throughout the 1990s became deflation, which makes banking problems much worse. (It’s easier for borrowers to repay fixed loan amounts when prices – and hence their revenues – are rising rather than falling.)
China’s policymakers are aware of this. That’s why they will welcome some inflation – both to keep out of the deflationary spiral that ensnared Japan, and also to help improve the solvency of their banks. China is under significant pressure to turn its banks around fast, by the way, because according to WTO rules China must open its banking sector up to foreign competition by 2006. A bit of inflation would make the job that much easier. By contrast, a revaluation that causes banks to lose money on their dollar assets would make it that much harder.
One last note: As I already predicted back in August (remember, I get to remind you of those predictions I’ve made that were right), what China does with the yuan has become increasingly important, both politically and economically. That’s why my first 2004 prediction has to do with the value of the yuan. Economic events in China will have a bigger impact on the US than events in any other country. As a result, almost all of my other predictions depend on this one. So I’m going to start off the year guessing that China will hold the yuan where it is.
Kash
p.s.: I’m sure lots of you will disagree with me on this one, as well as my other calls; I'm looking forward to finding out why!
The IMF Criticizes Bush's Economic Policy
Yesterday the IMF released a paper called “U.S. Fiscal Policies and Priorities for Long-Run Sustainability.” In it, the IMF delivers a surprisingly sharp criticism of the Bush administration’s fiscal policy. It’s the first time that I’m aware of that the IMF has criticized US policy in such strong terms. You can find the paper here, but I’ll give you a few highlights:
- The stimulus effect of current fiscal policy will taper off and be replaced by higher interest rates, crowding out of investment, and therefore lower productivity growth in the US: “In one simulation, for example, the tax cuts would eventually lower U.S. productivity—in terms of labor output per hour—by ½ percent in the long run.”
- This harmful increase in interest rates will affect the rest of the world, too: “Simulations reported in Section II suggest that a 15 percentage point increase in the U.S. public debt ratio projected over the next decade would eventually raise real interest rates in industrial countries by an average of ½–1 percentage point.”
- The US is racking up a dangerous amount of foreign debt: “The United States is on course to increase its net external liabilities to around 40 percent of GDP within the next few years—an unprecedented level of external debt for a large industrial country (IMF, 2003b).
- Social security is at serious risk: “The fiscal imbalance [over the next 75 years, including future entitlement liabilities] is as high as $47 trillion, nearly 500 percent of current GDP... Closing this fiscal gap would require an immediate and permanent 60 percent hike in the federal income tax yield, or a 50 percent cut in Social Security and Medicare benefits.”
This is all old hat to readers of Angry Bear, I'm sure. So what may be most significant about this report is simply that the IMF was willing to be so critical of the Bush administration’s fiscal policy management. The IMF is traditionally directed to a fair degree by the US Treasury Department, and rarely (never?) criticizes the US, as a result. I guess that tradition didn't hold true this time.
Kash
Ready for 2004
I’m finally back at my desk, after a couple of weeks of some play and some more work. After clearing off enough mail so that I can now actually SEE it (my desk, that is), I’m now ready to write again. One of the first things I’ll be doing is giving you some predictions for the year 2004. You just have to promise me that by December of 2004 you will have forgotten all of them. That way I can just remind you of those predictions that turned out to be right on the mark. Otherwise it doesn’t work. Deal?
By the way, thanks to fester for his help over the last couple of weeks. (The timing of this post worked out curiously well as a virtual handoff, don't you think?) I'm looking forward to catching up on his writing.
Kash
Fester's Last Guest Post
I would like to thank Angry Bear and Kash for allowing me to guest blog for the past two weeks here at Angry Bear. I have had a wonderful time learning from your comments and reactions to my writing. I greatly appreciate the opportunity to write before such a large and diverse audience of serious policy wonks, economists, casual bloggers and innately curious people. This has been a fun challenge and I would like to be able to do this again sometime in the future, but right now I am out of anything that I recognize as a good idea worthy of a post here on Angry Bear, so I'm pulling back to writing over at my blog, Fester's Place.
Thank you and adieu.
Whore of The Year
I'll admit that my first thought was "Tim Russert by a mile" for his idiotic performance with Dean back in August, his idiotic first interview with Clark, his idiotic interview of Hillary Clinton, and general hackery and whoreishness.
But as Horse points out, David Brooks is making a strong if somewhat late run for the title, and Charles Krauthammer is always a top contender:
Until today, it appeared as though Dr. Chuckles Krauthammer would emerge as the anti-Russert should several of the other minority contenders fade, but officials have informed us on the condition of anonymity that new internal polling shows the January Surprise in today's New York Times - a bizarre piece by dark horse David Brooks that claims neocons and PNAC and their exhaustively documented crackpot schemes are figments of Bush opponents' imaginations - may pose a serious threat to both the Chuckles and Tim-meh candidacies.
For details on Brooks' last-minute surge, see Tuesday's Daily Howler; for the best-case scenario for the Washington Post's Krauthammer's candidacy, see this Daily Howler.
Still, the contest is for whore of the year, not hack of the year. Krauthammer is a long-acknowledged Republican hack. David Brooks has long been known as a conservative but until his twice-a-week NYT gig, Brooks apparently didn't publish often enough to fully reveal the extent of his servility.
Russert, on the other hand, has the distinction of having spent many years building up a solid reputation as a tough-but-fair interviewer and moderator before prostrating himself before Republicans in control of the elected branches of government and a surge in the popularity of conservative media. For his willingness to -- nay, talent for -- shimmying and writhing for a few conservative nickels, Russert remains by far the strongest candidate for Whore of the Year.
AB
TNR Jumps the Shark
I can only hope that two of my favorite writers, two people rarely far off in their analysis of domestic policy, John Judis and Jonathan Chait, were not part of the "by the editors" group at The New Republic that today officially endorsed Joe Lieberman. This article by Chait suggests that he likely did not second or third, nor fourth or fifth, the endorsement. Judis' coauthoring of The Emerging Democratic Majority with Ruy Teixiera suggests that he is also an unlikely endorser of Lieberman. So I can continue appreciating their work while still being dismayed at TNR's foolishness.
In a nutshell, TNR's reasons for the endorsement appear to be that (1) Lieberman supported the Iraq War and has not let intervening discoveries (e.g., the lack of WMD) change that view; (2) He advocates policies that the Democratic base doesn't like ("Only Lieberman--the supposed candidate of appeasement--is challenging his party, enduring boos at event after event, to articulate a different, better vision of what it means to be a Democrat". Also courageous was Lieberman's "denouncing [of] Clinton on the Senate floor"); and (3) Only Lieberman believes in the Clinton/New Democrat legacy of "Foreign policy hawkishness, free trade, and fiscal discipline." The last two are certainly parts of Clinton's legacy, but Clinton's foreign policy was "activist" rather than "hawkish".
Not addressed by TNR is how Lieberman can make a compelling general election campaign, much less get out the vote in swing states, from the message that he'll repeal the most regressive of the Bush tax cuts and otherwise do everything just like Bush, only slightly less so.
In fact, the endorsement is nearly as much an attack on Dean as it is promotion of Lieberman. A quick count reveals 24 instances of "Lieberman", 14 of "Dean" (*), 3 of "Clark", and 2 of "Kerry".
AB
(*) The mentions of Dean are particularly negative: "Dean and his supporters have embraced an analysis potentially even more damaging than that of the party leaders they seek to depose"; "The problem with Dean's vision of the Democratic Party is more than electoral; it is intellectual and moral; "Dean's opposition [to the Iraq war] suggests an old Democratic affliction."
CORRECTION: The story linked above as authored by Jonathan Chait is actually by Jonathan Cohn, so Chait may not be in the clear.
Wednesday, January 07, 2004
Don't Be an A**hole
WARNING: If you click the following link, there will be sound, words that you are likely to find quite hilarious but that your colleagues and bosses may find offensive. That said, here's a must-see parody of MoveOn's Bush in 30 Seconds campaign. (For the real thing from MoveOn, click here.)
Also note that I believe that the correct spelling of "Pusbag" is "Pussbag".
AB
Democrats in The House ...
The Democratic Congressional Campaign Committee (DCCC) is the main organization in charge of putting Democrats into the House of Representatives. As such, they are not surprisingly dismayed by the latest ruling on Texas redistricting. The DCCC has now issued an official statement; here's the highlight:
The Court’s decision will now be appealed to the United States Supreme Court. In the meantime, Mr. DeLay is sadly mistaken if he expects Democrats in Texas to roll over and play dead in the face of this new assault. The reality is that the Texas Democratic delegation is comprised of tough competitors, many of them with a proven record of competing - and winning - in majority Republican districts. They know how to raise money, and run hard-hitting campaigns that address issues about which Texas voters really care.
The DCCC page also includes similar statements by House Minority Leader Pelosi and several other Democratic Representatives.
If you want a full rundown of the reaction in Texas to the ruling, and likely effects, Off the Kuff is the place to go (Charles Kuffner's extensive coverage of the Texas Redistricting Fiasco earned him a well-deserved "Best Series" nomination in the Koufax Awards.)
AB
Following up on Yuan Post
I am following up on the Yuan post because Anne is raising several good points and also some new information for me.
First, my primary concern as I stated in comments is not a raise in the value of the dollar against the Euro. Another 10-20% change in the terms of trade will not do a lot to the US economy because the Eurozone is reasonably self-sufficient (60%+ of their trade is internal trade) and we import and export reasonably similiar goods to each other. My primary concern with China is that the 3.3% drop in dollar valuation that it seems that the Central Bank is considering would be the start of a policy change where the Chinese Central Bank realizes that it is too expensive to hold onto the dollar peg even as a stronger yuan/weaker dollar will cost the Chinese economy significant jobs and the risk of significant political instability.
Now Teddy at It's Still the Economy, Stupid and a real economist instead of me who plays one on the blogs, has some of these same concerns. He is concerned that the Chinese banks are massively overrun with bad loans but to fix this problem the Chinese have to first pop a real estate bubble and then liquidate their dollar assets in order to gain flexibility and working capital. They have to do this at some time or another, but the real question is the timing. I am speculating that the yuan needs to appreciate relatively quickly, while others such as Garber are arguing that the integration of the Chinese labor force into the world labor market will allow for a neo-Bretton Woods fixed exchange rate system to exist for a generation.
Crossposted at Fester's Place
Texas Redistricting
The Republican redistricting of Texas crossed another threshold yesterday, when a three judge panel ruled that the DeLay Plan was politically, not racially, motivated and therefore legal:
"While heavily aware of the long history of discrimination against Latinos and Blacks in Texas . . . we are compelled to conclude that this plan was a political product from start to finish," wrote Judge Patrick Higginbotham of the U.S. Court of Appeals for the 5th Circuit, a Reagan appointee, and Judge Lee Rosenthal of the U.S. District Court for the Southern District of Texas, an appointee of the first President Bush.
Sadly, this result is unlikely to change -- there's really nothing in the US Constitution (other than race, and even that is covered by the Civil Rights Act, not an amendment) limiting states' ability to decide how to choose their districts. It will, however, be interesting to see whether the new districts can be delayed until after the 2004 election.
Now the question is when the heavily Democratic states will respond in kind. Should that happen, the Republicans may find that they have won the battle yet lost the war. Purely partisan redistrictricting requires total control of the state machinery. Most states are split in ways that rule out such redistricting, but the states where Democrats could someday push through a partisan plan contain many more people than the states where Republicans could do the same. The Republicans can redistrict Texas and Colorado, but after that the list shrinks: Montana, Wyoming, perhaps Utah. On the other hand, potential gerrymanders for Democrats include NY, CA, IL, and MI. This seems rather unlikely in the near term, but a distinct possibility over the next 10-15 years.
AB
Tuesday, January 06, 2004
I am worried about the US dollar. People far smarter than I are worried about the US dollar.
There is some speculation that the dollar will rapidly crash through the $1.35 mark against the Euro. Right now the US dollar is floating at $1.28 per Euro. The $1.35 mark is just another 5% away which is not far as the dollar has already declined from its high of costing only .84 cents to buy a Euro to today's values.
The dollar has not slid against the Yen and the Yuan as much for two reasons. First, it has seemed that the Asian central banks are treating the US dollar as a perfectly elastic good right now. They are willing to be the buyers of last resort of US dollars at almost any price in order to artificailly suppress the value of their home currencies in order to facilate export led growth. Secondly, the Chinees have been willing to defend the value of the yuan aggressively as they maintain a fixed peg against the dollar. Actually these are the same reasons.
This good news may come to an end soon. Stirling Newberry's Dkos diary links to a NY-Times article which indicates that the central bank of China is using its foreign currency reserves to began bailing out China's banks. The first bail-out package is consuming $45 billion dollars of hard currency which according to international economist is just a good start. The two banks in question are only having half of their bad loans liquidated and the banks have less than half of the market. Using simple logic we have a ground floor number of at least four times the current intervention as the amount that China would need to spend today to straighten out its banking sector.
The most interesting thing in this article is that the Chinese central bank are willing to allow the bailed-out banks to convert their dollars into yuan at 8 yuan/dollar instead of the current peg of 8.28/$. This is a minor revaluation of the yuan and weakening of the dollar, only 3.3% more purchasing power will flow to each yuan but the importance is not the magnitude of the change but the fact that there is a change in Chinese policy.
IF this Chinese policy change continues and it prompts the Japanese central bank to follow, then we will see a rout of the US dollar on the international market as we will see a rational currency weakening cascade. That will lead to high US interest rates, and the cut-off of international capital flows which have been keeping us afloat for the past decade.
It will not be pretty.
Crossposted at Fester's Place