Democrats & Liberals Archives

Housing Still Hurting

Two key factors are holding back our economic recovery. No, it’s not Obama and uncertainty. It’s lack of consumer demand and the housing market.

One of the biggest if not the biggest economic drags from the overall troubled housing market can be seen in Housing Starts, or the monthly measure of new housing projects started. Look no further than this latest graphic of Housing Starts to see how bad this sector is hurting.

As you can see in the graph, every recession but this recent one has been followed by robust growth in Housing Starts. They're pretty important to overall economic growth:

Housing starts is important because it is a leading indicator. Sustained declines in housing starts slow the economy and can push it into a recession. Likewise, increases in housing activity triggers economic growth.

The overall effect of low starts might not be that obvious at first:

"Housing market challenges continue to serve as a drag on manufacturing growth in a number of ways, both direct and indirect. First and foremost, housing starts are down from 2.1 million homes being built per year a few years ago to around 600,000 today," said Chad Moutray, the chief economist for the National Association of Manufacturers. "That means less demand for building materials for construction, and appliances and furniture for furnishings. But it also means that we have that many fewer people employed in the construction sector_ all potential customers for manufactured goods."

Many folks point to quick recoveries in the past and use that to lay more blame at President Obama's feet for this sideways recovery. That is mostly off base but there is some blame to place. The President failed to significantly focus or follow through on the help for the housing market, seeking to increase economic activity in other sectors and to protect states from job losses instead.

Obama has started making the housing market trouble public again but it's a little too late since Republicans in the House refuse to pass any meaningful solution. Now one of his only remaining tools is to remind voters that he supports reforms that would boost the housing market but opposition by Republicans make those proposals D.O.A.

The sad truth is that when Republicans call Obama a failure on the economy they're hoping you aren't smart enough to know role the housing market has played in slowing the recovery and how little Obama can do to stop that. They don't want you to know either that what little Obama can do is all opposed by Republicans. That's our modern Republican Party.

Posted by Adam Ducker at November 18, 2011 7:34 AM
Comments
Comment #332154

Adam,
To put it yet another way, 28% of all mortgages are underwater. It will be literally years before we see a truly healthy economy again. Construction will not happen in the private sector. Refinancing won’t support the economy. There are few choices, other than spurring construction through government spending.

Portions of the market will continue doing well, especially the large corporations. It resembles the period between the first and second Bush recessions, a period of weak recovery, a jobless recovery.

The other key, and it goes hand in hand with job creation, is raising non-supervisory wages. Until consumers can spend more (without relying on debt), it’s hard to see anything as sustainable as the Clinton recovery occurring.

Posted by: phx8 at November 18, 2011 3:50 PM
Comment #332158

Guys

Like you and most American home owners, I lost big money on my house. This is the way things go. Nothing will give me my money back. It is gone. Some people made money by selling at the peak. Some people took money out of their equity and pissed it away. I lost and Obama cannot give it back.

What Obama has done, among other things, is propped up property prices at levels most people cannot or will not pay. He is extending the pain and spreading it. This is his mistake.

We can complain about how hard life is and how unfair the world has become. But the fact is that my house is worth less than it was in 2006 (i.e. I could sell it for less).

Is Obama planning to write me a check for the difference? Is he going to push the price back up? How?

Re the period between recessions. It is interesting that you call what happened in Bush’s first year in office Bush’s fault, and you call what has happened in Obama’s first three years in office Bush’s fault.

But between these recessions, unemployment dropped to 4.5%, almost exactly half of the best Obama can do. If only this was the case now.

There is a business cycle. Good times are followed by bad and bad times are followed by good. Obama seems to have found a way to stop the good times from coming. I suppose he can take credit not bringing bad times, because it doesn’t get much worse than the Obama doldrums.

Posted by: C&J at November 18, 2011 5:00 PM
Comment #332161

Here are the beginnings, durations, and ends of the most recent recessions:

July 1981 – November 1982: 14 months
July 1990 – March 1991: 8 months
March 2001 – November 2001: 8 months
December 2007 – June 2009: 18 months

The first Bush recession started shortly after Bush took office. At the time, it took several months into the recession for people to even realize one was happening. We entered that traditional form of recession with a balanced budget, and projections on the national debt that showed a $10 trillion surplus in ten years. Bush cut taxes, and the Republican Congress issued rebate checks to each and every taxpayer to the tune of several hundred dollars, because we were collecting too many revenues… The rest is history.

The second Bush recession was very different from the first one or other previous downturns. It was an asset deflation, a credit crunch, the worst kind of all. Other than the Japanese experience, there are no modern models suggesting the right solution for an economy the size of the American economy, and the Japanese solutions did not work very well for them (and cultural differences exacerbated the problem).

Obama played it safe. He rescued the financial sector, GM and others. Everyone else… well…

And let me repeat, the normal durations for recoveries from traditional recessions do not apply to this one. Again, it’s an asset deflation. It’s a credit crunch. It takes longer top recognize, goes deeper, lasts longer, and takes longer to escape.

As for the choices Obama made, there’s much to praise, and much to blame. We didn’t suffer another Great Depression, and that’s no small thing. However, this one still hurts, for sure.

It will be a long, long time before housing recovers. I’d guestimate 2017 or 2018 before it really recovers. It’s bad for most of us, me included. That doesn’t mean the economy cannot function or create jobs, just that a large portion of the economy will be unable to contribute, and that financing an economy through debt (in the form of two unfunded wars and tax cuts for the wealthy) will no longer be an option.

Posted by: phx8 at November 18, 2011 7:06 PM
Comment #332163

phx8

As far as you guys are concerned, nothing negative applies to Obama.

Look at your own figures. The recession according to you started in March 2001, two months after Bush became president and before Bush had much of a chance to do anything.

You guys always say that Obama avoided a depression, but nobody can really say if that it true or not. Obama and his people promised unemployment under 8%. No joy here. They called the summer of 2009 the summer of recovery. Didn’t work out. The Obama doldrums have been dragging on and on. Clearly, the Obama experts did not understand the economy. If they saved anything, it was just random chance.

The recession ended, but there is no recovery. That is why we call them the Obama doldrums.

Posted by: C&J at November 18, 2011 8:28 PM
Comment #332172

“What Obama has done, among other things, is propped up property prices at levels most people cannot or will not pay.”

How has he done that?

“But between these recessions, unemployment dropped to 4.5%, almost exactly half of the best Obama can do.”

Yes, but it only rose to 6.3% and it still took 40 months or well over 3 years to reach it’s low point of 4.4%. I don’t understand the argument there.

“The recession according to you started in March 2001…”

That is according to NBER for the record. There has been a Republican push for a long time for NBER to revise the start date to be under Clinton’s term. Why? It doesn’t matter one way or another but it would make them feel good I guess.

“You guys always say that Obama avoided a depression, but nobody can really say if that it true or not.”

Sure they can. Economists build models all the time. To start to deny them the ability make qualified predictions and estimates about the economy would be to make a lot of data useless both inside and outside of economics

“Obama and his people promised unemployment under 8%.”

There was never a promise of 8%. Estimates made with disclaimers are not “promises” no matter how many people on the right say otherwise.

“The recession ended, but there is no recovery.”

Given the length and depth of the recession are you really expecting a quick, booming recovery?

Posted by: Adam Ducker at November 18, 2011 9:52 PM
Comment #332173

“They called the summer of 2009 the summer of recovery.”

To be accurate that was 2010 and what they called “Recovery Summer” was not “the summer of recovery” as the right has suggested but just a period of time that the administration used to highlight projects the recovery act was helping with:

The Administration today kicks off “Recovery Summer,” a six-week-long focus on the surge in Recovery Act infrastructure projects that will be underway across the country in the coming months – and the jobs they’ll create well into the fall and through the end of the year. The Recovery Act has already funded tens of thousands of projects and put about 2.5 million Americans to work, but summer 2010 is actually poised to be the most active Recovery Act season yet, with tens of thousands of projects underway across the country that will help to create jobs for American workers and economic growth for businesses, large and small.

Summer 2010 was the peak of stimulus spending that ramped up the end of 2009 and declined the beginning of 2011. There has been considerable right wing noise about the stimulus from the very start distorting what it was meant to do, pretending it fell short of goals that were never set, and stretching estimates into “promises” that can’t help but then be broken. Recovery summer is just one more example of this noise.

Posted by: Adam Ducker at November 18, 2011 10:02 PM
Comment #332177

Well said, Adam.

“The recession ended, but there is no recovery.”

Well, yes, there is a recovery. There has been a recovery. There has been a long string of consecutive months with job growth. Unfortunately, this job growth has been occurring at a rate similar to the job growth during the Bush #41 recovery. There’s just not enough going on to achieve escape velocity, but the situation now differs from the Bush #41 recovery, because this time, housing will not contribute. In addition, many many people have made a bitter observation: corporations are creating jobs, just not in this country…

Posted by: phx8 at November 18, 2011 11:44 PM
Comment #332179

Adam

Of course, Obama has not succeeded in doing the impossible of really keeping up prices, but he is always trying to “help” homeowners who have lost money. He has spent piles of money trying to do this. The effect have been to keep prices from finding buyers.

So you have a couple of choices. Does Obama want to “help” homeowners by keeping them from being underwater or losing money or is he willing to let prices reach a level where they will actually sell.

Since our president is seriously illiterate in economics, he thinks that government can control the market. So he is just messing up and going sideways.

re the recession of 2001

It is STILL the Clinton budget. You make a point of not blaming Obama for the economy he “inherited”. The actual time of the start is not all that important.

Obama has had three years to make things better. Whatever he is doing didn’t work. We need new ideas. Obama’s ideas are 1970 versions dressed up in new clothes. They didn’t work then and they don’t work now.

Re “recovery summer” sorry about my mistake. I lived through both 2009 and 2010. Neither was a good time.

In the summer of recovery unemployment was about 9.5%. Since that time is has lingered around 9%. not much of a recovery.

Phx8

Please see above. Nobody can be happy with this “recovery”. At this point in the Reagan recovery we were creating millions of jobs. It is very likely that unemployment will be higher on the day Obama leaves office (in January of 2013) than it was when he took over. Failure.

Posted by: C&J at November 19, 2011 6:24 AM
Comment #332181

“It is STILL the Clinton budget. You make a point of not blaming Obama for the economy he ‘inherited’. The actual time of the start is not all that important.”

Yes, Bush apologists love to tell us he “inherited” the recession of March 2001, the terrorist attack of September 2001. If people say Obama “inherited” this economy it’s only because the recession started in December 2007.

“…but he is always trying to “help” homeowners who have lost money. He has spent piles of money trying to do this.”

I would still like a specific example.

“Obama has had three years to make things better. Whatever he is doing didn’t work. We need new ideas.”

“At this point in the Reagan recovery we were creating millions of jobs.”

Technically, by this time in the Reagan recovery job growth has slowed to about the pace we’re creating jobs at now but it would increase again slightly before the 1990 recession. It was a strong, quick recovery, no doubt. It had strong spike in Housing Starts to help see to that though.

“In the summer of recovery unemployment was about 9.5%. Since that time is has lingered around 9%. not much of a recovery.”

Again, Recovery Summer was not supposed to be the “summer of recovery” so your statement is off base. We have been in recovery since the recession ended by definition. We have created millions of new jobs for a net increase of +1 million since the recession ended, a stock market near the pre-recession peak, GDP above the pre-recession peak, and retail sales above the peak. Unemployment being at 9.0% does not mean this is not a recovery, it just means the recovery is far from over.

“It is very likely that unemployment will be higher on the day Obama leaves office (in January of 2013) than it was when he took over.”

This was almost true of Reagan as well. Unemployment was 7.5% in January 1981 and 7.3% in January 1985. Had Reagan not won a second term I wonder would you have given him the same treatment you give Obama now as you hope he has only one term? The recovery took well into Bush’s 1st term to get to 5% unemployment. It took over 8 years to go from 10% to 5% and you want unemployment to go from 10% to 5% in 3 years under Obama, apparently?

Posted by: Adam Ducker at November 19, 2011 8:45 AM
Comment #332183

It’s been 24 months since unemployment peaked at 10.1% for Obama and it is now 9.0%. In the same span it went from 10.8% to 7.2% under Reagan. I agree that’s great, and a whole lot better. It’s just that the same things the fueled expansion then do not apply now because of the nature of the this recession and it has nothing to do with what Reagan did versus what Obama did.

Posted by: Adam Ducker at November 19, 2011 8:54 AM
Comment #332185

Adam

Your last sentence contains a lot of truth. Preidential actions have a lot less to do with the economy, especially in the short term, than we like to admit.

But I am playing on your field. Liberals blames Bush. They blamed Reagan until things started to work much better. They said Obama was going to fix things.

If we admit that government really does not create jobs, in the net sense, then why piss away all that money on supposed job creation and why claim that you have created or saved jobs?

The Obama folks have this coming. They are hoisted on their own petards. He who lives by unreasonable economic promises dies by them.

By standards of Obama promises, Obama is a failure.

What a honest candidate/president should say is something like this:

“We has a world boom in credit and an asset bubble, followed by a bust. Economists will never figure out exactly what happened, but it has to do with the rise of BRICS, too easy credit and a change in the real prices of commodities such as metals and fuels.

“In the short run, there is nothing a president can do to create or save significant numbers of jobs. In fact, aggressive action by government will probably exacerbate the problems.

“We have to work through this bubble. There is little government can do directly to ease this. The prices of many assets went too high. We cannot sustain these prices, but adjusting to the new prices means that almost everybody has lost money. Government cannot give you this money back. Your home is worth less than it was in 2006. Your stock portfolio has not grown. You will have to work harder to get back to where you were - sorry.

“Government in the longer run can create the conditions for prosperity by prudent policies and predictable regulation. In other words, we (government) can help create conditions for YOU to create wealth. But we cannot do it for you.

“But IF I as president/candidate promise to create or save jobs, I am lying to you. “

I would like to hear a candidate say that, but I know that they cannot and hope to be elected. Nevertheless, it is true.

Posted by: C&J at November 19, 2011 9:16 AM
Comment #332187

“Presidential actions have a lot less to do with the economy, especially in the short term, than we like to admit.”

I agree but let’s not use that as an excuse to ignore the actions taken by our government to deal with the recession and financial crisis.

“If we admit that government really does not create jobs, in the net sense, then why piss away all that money on supposed job creation and why claim that you have created or saved jobs?”

I certainly didn’t say that. The combined actions by Congress, President Bush, and President Obama saved us from a depression. The ARRA alone created or saved 2.5 million jobs.

The ARRA wasn’t trying to create jobs directly anyway. It was designed to stimulate economic activity by giving tax breaks to consumers, funding shovel ready projects that would put people back to work, and protect jobs at the state and local level. It felt short in a few areas but it largely succeeded at it’s goals and it’s untrue to suggest otherwise.

Posted by: Adam Ducker at November 19, 2011 10:05 AM
Comment #332189

Adam

Government maintains a monopoly on the management of the monetary system and thus has responsibility to manage the finance system. They did the right thing by adding liquidity and protecting the system. This was part of their job.

The Obama stimulus did little to add to this. Mostly it just moved economic activities forward. In other words, Obama front end loaded the recovery. So maybe unemployment did not go as high as it did under Reagan, but it also has not recovered as fast for the same reasons.

Re “shovel ready projects” there weren’t any, as Obama admitted when he actually understood what he was promising.

http://www.cbsnews.com/8301-503544_162-20019468-503544.html

I don’t think Obama has bad intentions. He has just managed to avoid actual experience for his whole life until now. He just does not understand practical business or actually doing anything. He is a great campaigner, a great money raiser and a great talked.

In the new biography of Steve Jobs, he is quoted saying the danger to a firm is when the smooth talking salesmen take over from those who know the products and the firm. Obama is such a salesman.

I think he really believed that there were shovel ready projects. He wasn’t lying, just ignorant. I think he still really believes that he knows better how to invest than those firms who would risk their own cash. He is like a sophomore - which as you know means “wise fool”.

Posted by: C&J at November 19, 2011 10:36 AM
Comment #332201

C&J-
What you miss about the unemployment rate is that the job-killing recession destroyed most of the jobs and raised the unemployment rate before Obama’s decisions could even take effect.

You mention the unemployment rate, how it was at something like 4.5%, but that was before the recession started. It hit 5.0% when the recession started, and apart from a couple months, pretty much finished above it. What was the unemployment rate at year’s end? 7.3. That’s 2.3% increase.

Should we expect Obama to have fixed everything the moment he steps into the Oval office, at the end of January? It’s already up a half percent by the end of the month, to 7.8% So, in the last year of Bush’s Administration, Unemployment’s gone up 3.8%.

Should we include February? Wouldn’t make much sense, nobody can turn an economy going that fast downhill in the first month. February adds .4%, raising unemployment to 8.2%

You criticize him for letting it get past 8.5%, but at this point, was there anything he could do to stop it?

March adds .4% unemployment. His policies, which you blame for letting things get worse, aren’t even in place.

April will see a .3% increase. The first Obama stimulus policies come into play, as the economy reaches 8.9%

8.9%. That’s where we are before Obama intervenes. Unemployment has increased by 3.9% since the beginning of the recession.

Just 1.2% of the damage is yet to come, only a third of what’s already come so far. The recession breaks in June and July of that year, and though unemployment will peak at 10.1%, this is nowhere near the 11.5% that could have occurred, and by the end of his second year in office, we were essentially where he started. Given how far down into the abyss this economy was screaming, with an 8.9% annualized drop in 4Q 2008 and a 6.7% drop the very next quarter, the fact that second quarter figures would end up dropping by only .7%. By the third quarter we were growing again. We would have moderate growth for the next two years after that.

But now, we’re in something of a holding pattern. You may like to pretend that your side’s taking of the House represents some profound change in the dynamics of the economy, but we’ve pretty much hovered around 9.0% this entire year, and growth has been anemic.

Republicans, by being very effective blockers of policies they don’t like, have given us a prime demonstration over the last year of what the meaning of their success has been. If we’re fair to them and measure the full year, we’ll find that we’re no more than a few tenths of a percentage point away from where we were at the start.

If you look at where we were in Feb. 2009, when we lost 726,000 jobs, and then look forward one year later, we only lost 35,000. Better yet, March 2010 sees 192,000 jobs added. Next month sees 277,000 jobs gained. Next month after that sees 458,000 jobs added, the most that we’ve seen the entire decade.

That this happens coincidentally just about the same time they have this little thing called the Stimulus.

None of the things the Republicans have done or forced has since equaled the growth or the dynamic of the Obama policy.

So when you criticize Obama’s policy, that’s the grain of salt I take it with. You say he’s a big showman who doesn’t understand the product. Well, so far, Republicans haven’t produced the growth they promised, especially not from laying off so many public employees. If they hadn’t been laying off hundreds of thousands of employees, if the government had been allowed to offer the states aid to deal with that, the unemployment rate could be much lower, and the job creation rate much higher. Public worker layoffs have been one of the biggest drags on increasing employment, and one wonders whether the problem the Republicans are trying to solve would more easily get resolved if they did absolutely nothing.

So far, the austerity plans of the world have made up for what they lack in effectiveness with their misplaced moralism. It’s the logic of a loanshark, only without the accompanying intent of rendering the target a slave to their debt, making it all the more pathetic a failure. Economic growth must come before austerity, because their must be something to subtract from, lest the intensity of the austerity cripple the government’s ability to draw revenues.

Republicans don’t want to admit they have a revenue problem, they want to make it a spending problem. If we all sacrifice(at least 90-99% of us) they reason that the belt tightening will resolve the excess that was overheating our economy driving inflation…

…except there is no inflation, and having an overheated economy is not the problem. It’s like putting a hypothermic patient in a meat locker in this case. We don’t need to slow down, we need to speed up, so growth helps us recover all those jobs we lost! If we slow down, the economy’s taking all those jobs with us, and everything the Republicans are asking us to do, from laying off public workers, to cutting government spending at all levels, and intensifying the already historically high inequalities through current or potential tax policies, we’re only going to make the problems bedevilling us worse.

Republicans are bleeding our economy like Washington’s doctors bleed him, having diagnosed a rather anemic economy as one with too much blood in it. Or, perhaps, the idea is to make it pre-emptively anemic, with the sense it could get too sanguine if you allow it.

We really ought to treat the problems we have, not anticipate a problem whose effects are not even in the pipeline yet, much less a pressing concern.

Posted by: Stephen Daugherty at November 19, 2011 9:25 PM
Comment #332207

Stephen

Obama’s key advisers said that w/o his program unemployment would go above 8%. WITH his program, it went way above 8% and stayed there. Then he says that it was worse than he thought. His advisers talked about the summer of recovery. When it didn’t happen, they told us it was just worse than they thought.

It looks like Obama is worse than we thought.

I am not really very fond of “austerity”, but I would like to get the spending in line so that Obama cronies don’t steal or piss it away. Obama has spent more than any leader any time in world history. What did we buy.

Think of the opposite case. The Germans more closely balanced their books and spent less. Their economy actually recovered.

I am not calling for just cuts. I want us to do a good job. Obama just doesn’t know how to lead the nation.

I read an interesting analogy the other day. It postulates three choices when you run out of money. You can spend less, earn more of just go to the ATM more often. Spending less means budget cuts. Earning more means the economy produced more. Obama has just decided to spend more time at the ATM.

Posted by: C&J at November 20, 2011 6:45 AM
Comment #332208

“Obama’s key advisers said that w/o his program unemployment would go above 8%. WITH his program, it went way above 8% and stayed there.”

The interesting thing about the source of the 8% figure is how that seems to be the only thing about the report conservatives repeat. They don’t repeat the part about how Obama’s key advisers wrote in a footnote:

Forecasts of the unemployment rate without the recovery plan vary substantially. Some private forecasters anticipate unemployment rates as high as 11% in the absence of action.

They suggested it would stay below 8% with stimulus or peak at 9% without. If you consider they thought 11% may be the high mark then staying around 10% isn’t off the mark.

What I find confusing is that it appears you want us to believe the stimulus made unemployment go higher. Is that what you believe?

One thing to note is the reference week for February 2009 was the week containing the 12th day. Unemployment was 8.1% (Revised to 8.2% later) the week the bill was passed and it became law the week after. Unemployment was higher than 8% before it even became law.

Also from the report:

First, the likely scale of employment loss is extremely large. The U.S. economy has already lost nearly 2.6 million jobs since the business cycle peak in December 2007. In the absence of stimulus, the economy could lose another 3 to 4 million more. Thus, we are working to counter a potential total job loss of at least 5 million.

Revisions to data show we had actually lost about 3.6 million by the time the report was released instead of 2.6. Just like how unemployment was already above 8% when the stimulus became law, we had already lost 5.14 million jobs by the February reference week. There is no way around the fact that by the time the stimulus was law we had already exceeded the high marks predicted in the report conservatives like to pass off as a set of promises.

Posted by: Adam Ducker at November 20, 2011 9:42 AM
Comment #332209

C&J,

Stephen likes the word ‘austerity’ because it sounds terrifying and horribly mean. It evokes emotion designed to counter logic and fact.

The notion that the US is anywhere near discussing any kind of ‘austerity’ is laughable at best. Especially since the argument that is bringing both parties to blows is about how much to increase spending… No one in any kind of power has discussed any kind of decrease in spending.

Posted by: Rhinehold at November 20, 2011 10:56 AM
Comment #332210

Adam

Re unemployment - I believe that the stimulus was done sloppily. It swished money all over the place. But it did probably reduce unemployment rates in 2009.

There are three factors involved. First is the necessary job of maintaining the financial system. IMO, this was done very well. Bernanke might have avoided a Great Depression style downturn. He studied the Depression and understood that the big contributor to the Depression was the Fed actually withdrawing liquidity. He did not make this mistake. Good. The TARP that lent money to financial firms, most of which they have now paid back, is also good.

But the way the Obama stimulus was done and the big money spend did not create or save jobs. It just moved the incidence. So it works like this analogy. We face a shortage of food. So Obama opens the granaries and feeds us more today. But some of the food we ate was from the seed grain. So now we are having a weaker recovery because Obama front-end loaded the benefits. This may be useful, BTW. But a stimulus is not w/o cost. It should be used with great care.

IMO - this is the Obama modus vivendi. The grabs it up front. He got the accolades of the world before his achievements, for example. He did the same with the economy.

The way that I understand the economy is that government spending can move activity, but does not create it. What government can do is create long-term conditions that allow the people to create wealth. This is a essential government task that our governments often do not do. One of the most important thing a government can do is to maintain water and sewer systems, for example. Politicians tend to avoid these sorts of things because they have high up-front costs and payoffs down the road. They are also usually literally underground and out of sight.

So we have three things, as I wrote above.
1. Government helped save the currency and financial systems. Good
2. Obama stimulus moved spending forward, lessening the pain in 2009 at the expense of recovery now.
3. Government should create infrastructure of prosperity. Obama talked a lot about this, with his shovel ready rhetoric, but didn’t do it right.

Expanding on point #3. America has the world’s best freight rail system, but a poor passenger rail system. We should put more investment in freight to maintain and expand our capacity. High speed rail, which is very easy to see, is a distraction from this good work.

Posted by: C&J at November 20, 2011 11:01 AM
Comment #332211

Rhinhold

Re austerity - you are right. What we are usually talking about are cuts to GROWTH of programs, not actual cuts at all.

Posted by: C&J at November 20, 2011 11:02 AM
Comment #332212

As a side point to the conversation…

Goldman Sachs economists Ben Broadbent and Kevin Daly, surveying the data of 44 large fiscal adjustments across the globe since 1975, concluded in a 2010 report that cutting annual spending by 1 percent triggers a net 0.6 percent in economic growth. As we will see below, this is a good deal compared to the $1.10 reduction in GDP we get for each $1 spent by the government to stimulate the economy. Lower spending reduces the fear of higher taxes, which leads to an increase in consumer and business demand and growth. The notion that austerity is bad and stimulus is good rests on the Keynesian theory that if government spends a lot of money, that money will create more value in economic growth. This purported increase in gross domestic product is what economists call the “multiplier effect.” It’s a nice story, but like most fairy tales, it has scant basis in reality. In a 2010 paper published by George Mason University’s Mercatus Center (where I work), economists Robert Barro and Charles Redlick showed that in the best-case scenario, a dollar of government spending produces much less than a dollar in economic growth—between 40 and 70 cents. If that was the rate of return on our private-sector investments, America would soon cease to be a leading economic force. Barro and Redlick also looked at the economic impact of raising taxes to pay for spending increases. They found that for every $1 in tax-financed spending, the economy actually shrinks by $1.10. In other words, greater spending financed by tax increases damages the economy. The stimulus isn’t working, because the economic theory it is based on is fundamentally flawed.
Posted by: Rhinehold at November 20, 2011 11:05 AM
Comment #332213

Gnah… I’ll try again so it is readable…

Goldman Sachs economists Ben Broadbent and Kevin Daly, surveying the data of 44 large fiscal adjustments across the globe since 1975, concluded in a 2010 report that cutting annual spending by 1 percent triggers a net 0.6 percent in economic growth. As we will see below, this is a good deal compared to the $1.10 reduction in GDP we get for each $1 spent by the government to stimulate the economy. Lower spending reduces the fear of higher taxes, which leads to an increase in consumer and business demand and growth.

The notion that austerity is bad and stimulus is good rests on the Keynesian theory that if government spends a lot of money, that money will create more value in economic growth. This purported increase in gross domestic product is what economists call the “multiplier effect.” It’s a nice story, but like most fairy tales, it has scant basis in reality.

In a 2010 paper published by George Mason University’s Mercatus Center (where I work), economists Robert Barro and Charles Redlick showed that in the best-case scenario, a dollar of government spending produces much less than a dollar in economic growth—between 40 and 70 cents. If that was the rate of return on our private-sector investments, America would soon cease to be a leading economic force.

Barro and Redlick also looked at the economic impact of raising taxes to pay for spending increases. They found that for every $1 in tax-financed spending, the economy actually shrinks by $1.10. In other words, greater spending financed by tax increases damages the economy. The stimulus isn’t working, because the economic theory it is based on is fundamentally flawed.

Posted by: Rhinehold at November 20, 2011 11:08 AM
Comment #332217

No jobs, no recovery. Its the economy stupid…. its the economy……

Cut jobs, cutting pay and benefits dont give consumers confidence to spend….. so to big business….if you want to keep going down … keep doing what you are doing and then NOBODY will have money to buy your product and the 1% wont sustain your businesses…..

By the way, if the purpose of sending jobs to china was to be more competitive… how come the prices havent gone down but the quality has? Double dipping arent we - not only is it cheaper to make, they are making crap……..with lead paint for kids toys, toxic drywall, bogus drugs with toxic fillers…..

Welcome to the republiCON world…… the 99% get screwed…..

Posted by: Mistrgekko at November 20, 2011 2:38 PM
Comment #332222

Mistergekko

I don’t think anybody who writes here is a member of the 1%.

I suppose that we all agree that Obama has messed up.

Posted by: C&J at November 20, 2011 3:43 PM
Comment #332259

C&J, Rhinehold-
You don’t like the word austerity? Tough. That’s the proper term for raising taxes, cutting spending, raising fees, and other measures that leave the public either getting less economic support from their government, or giving more to the same out of their pockets.

Why is that word inappropriate? Aren’t you telling people that the government has to tighten it’s belt? Isn’t austerity a fancy word for belt tightening?

Ah, but of course, austerity is becoming associated with the continued disasters over in Europe, because it’s not working, because its deepening economic crises, rather than solving them as promised. So maybe it’s getting a bad reputation.

Of course, that doesn’t help you if you want to tell people it’s only right to cut spending now, and do nothing else but that to help undo the deficit. Problem is, you have no desire to do anything about ending the tax cuts for the rich, one of the biggest deficit and debt creators we have. That ended up leaving your super committee proposal short of Democratic support, but also short of actual deficit reduction!

Just admit what your policies are really doing: putting more and more of the burden of government on the backs of people, while shifting more and more of its benefits up the food chain.

As for your source? Your source was wrong. Austerity didn’t work. The nations remained in debt, the economic fortunes went down, as many would predict, and the situations, in fact got worse.

How many times do we have to recapitulate Hoover to understand that in this kind of situation, putting debt reduction ahead of jobs and economic growth is asking to provoke a new recession if not a depression. If the Keynesians were wrong, then why aren’t things improving in Europe, where they’re applying austerity the way you’re asking us to?

Posted by: Stephen Daugherty at November 21, 2011 2:12 PM
Comment #332260
Why is that word inappropriate

Because increased spending is not austerity. Even the ‘draconian cuts’ that are to trigger from the predicted breakdown of talks of the supercommittee will result in INCREASES in spending, not decreases.

This chart provides an example.

As for Hoover, how many times do I have to prove to you that your view of Hoover is completely wrong? Oh sure, it sounds good for slogans, but the real life facts are a different matter altogether.

As for Europe, what makes you think they are applying ‘austerity’ the way *I* am asking you to do? I can assure your they are not.

But then, you already know that, don’t you?

Posted by: Rhinehold at November 21, 2011 2:26 PM
Comment #332261

OH, btw, you’re saying that Clinton was the greatest perveyour of ‘austerity’ in recent history then? Just want to make sure we are talking the same talk here…

Posted by: Rhinehold at November 21, 2011 2:38 PM
Comment #332265

Stephen

European countries like Greece need to have more austerity because they did the opposite too long.

I am advocating smart spending. We need to cut some.

Consider the antonyms of austerity such as - elaborate,extravagant, indulgent, spending

Obama programs have indeed been elaborate, extravagant, indulgent and have spent way too much. We really don’t have much choice in getting away from his profligate ways.

Posted by: C&J at November 21, 2011 5:25 PM
Comment #332267

Rhinehold-
Programs need slight increases every year just to keep up with inflation. You don’t do them, it’s no different than keeping the price of a product the same, even as inflation raises the costs of production. Can you provide me with a satisfactory explanation for why government budgets should not account for inflation in dealing with their expenses?

If you think your austerity measures will have no effect, Just read this. Ironically, people will end up charged more in taxes because of the provisions written into the agreement.

You have your problems backwards. Solving our economic problems first would mean pumping more revenue into the budget, which in turn would reduce long term deficits and slow the accumulation of debt. Meanwhile, folks will be less dependent on programs like unemployment and other government assistance programs, and less likely to retire early in order to get on Social Security or Disability.

The problem here is that you treat government as if it’s a black hole for money, rather than a part of the economic equation. This is not about being needlessly extravagant, but investing in targeted ways to promote this nation’s good fortunes.

As far as Hoover goes? Hoover went for your idea, letting the banks fail, letting charities take on the problem of helping the poor, etc. He did some relief programs, but that didn’t help enough. FDR went in, looked at the situation, and kicked the relief into overdrive, and the economy rebounded, improving until he himself caught the austerity bug, and tried to rein in spending and raise taxes. The economy went back into recession.

See, the problem we were in then, and are in now, is a nation of people whose ability to pay for goods has been seriously and sharply curtailed all at once, with a positive feedback loop of vicious consequences for employment and economic growth coming on the heels of that. If you think that throwing people off of programs or cutting the economic activity of the government towards the public will set things right, you’re wrong, because somebody has to be able to pay for something before the businesses will come back.

It’s not a matter that businesses lack cash. They’re practically swimming in it. The problem is, if they invest now, the lack of demand means they invest at a loss.

We are stuck in a rut here, and you’re trying to pry us out of it in the wrong direction, towards even less economic activity, which the businesses aren’t stepping up to make up for.

As for Europe? Look, they are cutting programs left and right, and they are doing all they can to soak the poor and middle class, just like many of your like-minded people have suggested.

And oddly enough, people are still not rallying to improve economies, nor are the debts getting paid off. those places are going into recession, rather than improving, and the recession’s hurting revenues, and putting strain on anti-poverty programs (without which things would get even worse)

C&J-
They don’t need austerity, austerity is killing their economies, making it even more difficult to pay off their debts. It’s also creating a social resistance to further such programs which will make it difficult to keep those things implemented.

As for Obama programs? Why don’t you show me the numbers that back up your raiding of the thesaurus for synonyms of excess. It was your profligate ways that created most of this deficit. You won’t admit that your policies don’t work the way you think, and that’s why you still haven’t learned your lesson as a party despite three tax cuts that created worsening deficits in their wake. The main thing that makes the Obama deficit worse is the economy your President left behind.

Quit dodging responsibility.

Posted by: Stephen Daugherty at November 21, 2011 6:36 PM
Comment #332284

Stephen, so you are saying that the rate of inflation will be over 3% each year for the next 7 years? That’s *AFTER* the ‘austerity’ measures of the supercommittee would kick in if they fail to come up with a deal. Do you think that matches up with history and reality of what we see now?

The problem here is that you treat government as if it’s a black hole for money, rather than a part of the economic equation.

Some facts:

in the best-case scenario, a dollar of government spending produces much less than a dollar in economic growth—between 40 and 70 cents.
cutting annual spending by 1 percent triggers a net 0.6 percent in economic growth
for every $1 in tax-financed spending, the economy actually shrinks by $1.10

Your plan is to kick the can down the road to our children. The *INTEREST* on the debt we have now is increasing 180% over the next 7 years. That is what is keeping the money from going where you think it should go, if we don’t stop it and pay it back it will get worse and worse and eat up more and more of the money we make in the private sector.

As far as Hoover goes? Hoover went for your idea, letting the banks fail, letting charities take on the problem of helping the poor, etc. He did some relief programs, but that didn’t help enough. FDR went in, looked at the situation, and kicked the relief into overdrive, and the economy rebounded, improving until he himself caught the austerity bug, and tried to rein in spending and raise taxes. The economy went back into recession.

Some more actual facts for you:

Did Hoover really subscribe to a “hands-off-the-economy,” free-market philosophy? His opponent in the 1932 election, Franklin Roosevelt, didn’t think so. During the campaign, Roosevelt blasted Hoover for spending and taxing too much, boosting the national debt, choking off trade, and putting millions on the dole. He accused the president of “reckless and extravagant” spending, of thinking “that we ought to center control of everything in Washington as rapidly as possible,” and of presiding over “the greatest spending administration in peacetime in all of history.” Roosevelt’s running mate, John Nance Garner, charged that Hoover was “leading the country down the path of socialism.”
Within a month of the stock market crash, he convened conferences of business leaders for the purpose of jawboning them into keeping wages artificially high even though both profits and prices were falling. Consumer prices plunged almost 25 percent between 1929 and 1933 while nominal wages on average decreased only 15 percent - translating into a substantial increase in wages in real terms, a major component of the cost of doing business. As economist Richard Ebeling notes, “The ‘high-wage’ policy of the Hoover administration and the trade unions … succeeded only in pricing workers out of the labor market, generating an increasing circle of unemployment.”

Hoover dramatically increased government spending for subsidy and relief schemes. In the space of one year alone, from 1930 to 1931, the federal government’s share of GNP soared from 16.4 percent to 21.5 percent. Hoover’s agricultural bureaucracy doled out hundreds of millions of dollars to wheat and cotton farmers even as the new tariffs wiped out their markets. His Reconstruction Finance Corporation ladled out billions more in business subsidies. Commenting decades later on Hoover’s administration, Rexford Guy Tugwell, one of the architects of Franklin Roosevelt’s policies of the 1930s, explained, “We didn’t admit it at the time, but practically the whole New Deal was extrapolated from programs that Hoover started.”

Again, you can subscribe to the myths if you want, but the facts are there for people to read and learn from. We can’t learn anything from myths other than how to repeat our mistakes.

Posted by: Rhinehold at November 22, 2011 12:58 AM
Comment #332293

Stephen

If the Greeks, Italians etc don’t need “austerity” what do they need? They cannot continue to spend, since they are running out of other people’s money.

Austerity has NOT yet been applied, so I cannot see how that is killing their economies. Maybe it is the extravagance and profligacy that has done them in.

Re “admitting the problem” - Bush grew government too much. I have written this to you dozens of times. The solution to this problem would not be more of the same.

The wars in Iraq are winding down. We are “saving” that money. Will that balance the budget? The “Bush” tax cuts were set to expire. Obama and the Democratically controlled congress renewed them. Why? Maybe they thought they were good and necessary. Take responsibility.

Personally, I like to spend money. I can spend more than I have - like Obama does. But eventually I would have to pay the bill - like Obama does. I could blame others, maybe my predecessors - like Obama does. But no matter what, it would be my problem - like is is Obama’s.

Posted by: C&J at November 22, 2011 5:41 AM
Comment #332312

C&J-
You know, this has bothered me for a long time, but could please answer this question: after recreating the deficits we had licked under Clinton, what business does the Republican Party have coming back and moralizing to the rest of us about fiscal matters?

The truth is, the Republican Party just is too in love with tax cuts and keeping them, too insanely focused on maintaining that policy to the exception of any other option, too drunk on the idea that if they don’t hold the line we’ll all drown in taxes, to actually rationally sit down and consider a sustainable tax policy.

Americans don’t need us throwing more people out of work, and tightening belts already tight around the hipbones. What you’re suggesting is basically economic anorexia, an attempt to impose starvation as a penance for your party’s reckless spending and tax cutting.

What you’re talking about is economic self-flagellation. It may make some feel better, but it won’t make us truly better. It’ll just perpetuate an obsession with watching the government’s weight, rather than maintaining it’s healthy operation.

The question should be what we consider to be worth our money, and that will always have two parts: what we want, and what we’re willing to pay for.

Economic stimulus is no different, though the payment is deferred. The question is, is it cheaper to wait for decades if not more for the economy to recover, or is it cheaper to stimulate? And if we stimulate, what’s the most effective means of stimulation?

Quit moralizing, and start writing policy that makes sense in the real world.

Posted by: Stephen Daugherty at November 22, 2011 6:10 PM
Comment #332316

Stephen

Clinton AND the Republican congress did this. Plus the good fortune and the end of the Cold War. Newt did as much as Bill to make this happen and big contributors were those who helped end the Cold War.

A Democratic Congress hasn’t balanced the budget since, I think it was 1969 and LBJ did that by sweeping independent budgets into the main one. I think that is why Republicans can tell Obama what to do.

Beyond that, Bush messed up by spending too much. Obama did much more spending. So whether it is Republican or Democrat, they remedy is the same.

What makes the most sense is to spend wisely, but not piss it away, as Obama has.

I know Democratic congresses are not up to the job. I don’t think Obama is either. Maybe we will have better luck next time.

Posted by: C&J at November 22, 2011 6:37 PM
Comment #332317

“I know Democratic congresses are not up to the job. I don’t think Obama is either. Maybe we will have better luck next time.”

We may get a new Democratic Congress at the rate their approval is climbing and the GOP is falling.

Posted by: Adam Ducker at November 22, 2011 8:04 PM
Comment #332318
We may get a new Democratic Congress at the rate their approval is climbing and the GOP is falling.

That may be true, but what will the result be? More spending, as they did before just like the Republicans did.

We are screwing over our country and our children for the sake of political partisanship and trying to have it too good now. Our parents and their parents would spank us now if they saw what we have done to their country (if it were still legal to do…)

Posted by: Rhinehold at November 22, 2011 9:24 PM
Comment #332320

Stephen,

The deficit reduction came because of a private sector internet boon, y2k fixes and an inflated housing market. When those three things started to collapse, Clinton left office leaving us in pretty dire straights. Bush sought to fix that by propping up the housing market even more, lowering interest rates to near 0. No one wanted to deal with the real problems and everyone wanted more power instead. The result was an eventual collapse of the artificially propped up phony economy, followed by even more artificial propping, continuing to do what got us here in the first place. Both the Republicans and Democrats have caused this mess and neither one wants to do anything about it because they want to keep their power that they’ve worked so hard to get.

The only way to bring back real prosperity is to return the power to the people where it was always supposed to be and what got us to be what made us what we were.

Don’t expect any real solution or prosperity in this new authoritarian country we’ve allowed to be created, that is only for the power brokers to have now…

Posted by: Rhinehold at November 22, 2011 9:31 PM
Comment #332321

Adam

A Democratic congress will give us even more spending. The only reason we didn’t fall off the edge with Obama is that he ran into resistance. Otherwise we would be headed for Greek tragedies.

There are actual realities here. The voters can vote for more spending, but the government will indeed run out of other people’s money.

No government has been able to repeal the laws of supply and demand. Protesters want to move money around, but they do not create wealth.

There is an old Polish story about a village that had a shortage of sour cream every spring. So the village elders solved the problem by a name change, calling sour cream water and calling water sour creme. After that, there was never again a shortage of sour cream, but people noticed that water was sometimes in short supply. This is the kind of “wealth creation” government can manage.

Posted by: C&J at November 22, 2011 9:32 PM
Comment #332322

“That may be true, but what will the result be?”

Republicans unable to come to terms, committing suicide?

Posted by: Adam Ducker at November 22, 2011 9:55 PM
Comment #332323
Republicans unable to come to terms, committing suicide?

*sigh* So much for ‘changing the tone’.

Posted by: Rhinehold at November 22, 2011 10:22 PM
Comment #332324
A Democratic congress will give us even more spending.

No doubt, just look at the gnashing of teeth because the right wants to increase spending by just 2% less than the left…

Posted by: Rhinehold at November 22, 2011 10:23 PM
Comment #332327

“So much for ‘changing the tone’.”

I’m not telling them to or wishing it to happen. I just know the right wing tends to delude itself about these things and when the wheels come off it’s quite a crash. A Democratic congress and a 2nd Obama term would send a lot of Republicans over the edge. It’s a long shot of course but that Obama and Democrats are even in this thing is a tribute to how completely sad and pathetic the modern GOP movement has become.

Posted by: Adam Ducker at November 22, 2011 11:29 PM
Comment #332329

Adam,
Speaking of how sad and pathetic the modern GOP has become… I saw some of the GOP debate tonight. It featured questions from the AEI and Heritage. Imagine my surprise when Ed Meese popped up to pose a question! For those who don’t remember, Ed Meese was Reagan’s AG, and he was forced to resign. He was being investigated by special prosecutors for Iran-Contra, a corrupt deal with Bechtel for an oil pipeline in Iraq that was facilitated by Donald Rumsfeld, and another scandal that was just as bad in its criminality, Wedtech. Meese should be in jail; or, at the very least, homeless and broken and utterly disrespected, NOT showing up at a presidential debate in a suit and tie to ask a presidential candidate a question! David Addington also showed up. We have him to thank for pushing the theory of the “unitary executive,” in which the president is essentially a dictator. Addington also pushed torture and wiretapping. What a guy. Such devotion to the Constitution. And as if that weren’t bad enough, Paul Wolfowitz showed up too! Well, Wolfowitz… where to begin… Iraq and his gross incompetence? The World Bank and tossing tax-free quarter million dollar contracts to his Bushie friends? Shaha Riza? Heh.

Un-freakin-believable. These are people who should be in jail or abandoned in a gutter. These are terrible human beings. Yet they apparently earn money at AEI and Herigate, and represent some sort of forefront of conservative thinking. Yowzah!

Posted by: phx8 at November 23, 2011 1:31 AM
Comment #332343

phx8:

And just remember: On our side we have Dr. Steven Chu who wants to paint roofs a different color to save energy, Van Jones who was once a communist, and John Holdren who once co-authored a science text book that discusses forced sterilization and other forms of population control! Czars!! Just as corrupt!!! *snark*

Posted by: Adam Ducker at November 23, 2011 8:01 AM
Comment #332344

phx8:

Oh, and Geitner paid his taxes wrong once…

Posted by: Adam Ducker at November 23, 2011 8:02 AM
Comment #332383

The basic problem for Republicans these days is that the political tropes they rely upon should, by all measures, be discredited. The markets did not police themselves, and it took federal intervention to keep us out of a depression and a worldwide collapse. One, just one accident with an oil rig at extreme depth held the entire gulf coast hostage, and destroyed the livelihoods of many. Energy costs went up, not down after we deregulated the industry, and Iraq, Afghanistan, and the continued survival of Bin Laden, more or less cutted claims that Republicans were better on defense.

But jeez, Republicans can’t just give up on their ideas, can they? Problem is, they’ve got to get people believing again, despite everything.

That’s why they stepped up the red-baiting, with socialist this and socialist that. That’s why they’re screaming about freedoms and jobs lost, even as they cheer the beating and demonizing of OWS protestors and purposefully kill public sector jobs. That’s the whole point of the Tea Party.

Part of the point of all this insistence on debt reduction and all that is using the economic crisis as a pretext to beat down liberal institutions in government, but part of it also is to cover for the fact that their record of out of control spending far dwarfs the Democrat’s. Democrats are far more willing to pay for things, far more willing to compromise and cut spending when they have to. Republicans, though, want to give one tax cut after another, with the vague idea that they might cut spending later.

The truth is, Republicans are trying to recover from the collapse of their party as a serious policymaking party. They let various hardliners who took themselves very seriously and dismissed everybody else’s view hijack their policy, and now they’re committed to carrying out all that policy to the Nth degree, and because compromise or retreat from that is seen as an abandonment of principle, nobody can back down from it.

Posted by: Stephen Daugherty at November 24, 2011 9:02 PM
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