The REAL elephant in the room

January 8th, 2008

Barack’s huge sweep of Iowa looks to be continuing in New Hampshire, with independents swinging their large majority his way, and the pundits are losing their minds with projections; this is swallowing the oxygen from everything else and I will address this phenomenon in the weekly … meanwhile, I’ll weigh in on New Hampshire tonight, as results come in [that's my plan, but this area got trounced badly by tornado's last night, and electricity is on again, off again -- if you don't find me in your inbox, you'll know why.]

Today, we’ll look at our economic challenges — which are NOT being reported honestly, of course. Crude has come down a couple of dollars a barrel due to our recently reported unemployment figures, and fear of a US recession. We are not a closed system — we are part of a flat economic earth … and when a butterfly farts in China, yadda.

Here are a few reads on the economy, Bush’s same-old proposals, etc — Froomkin['s must read] addresses the current political spin, here: Crocodile Tears Over The Economy.

It’s worrisome — Paul Craig Roberts takes a particularly ruthless look at the statistics, below, which you will find disheartening … and Krugman warns against swallowing the Kool Aid.

Your bonus read — and well worth a peek — is at the bottom; Bush has, once again, spit in the eye of the Constitution with a “pocket veto” of the defense spending bill … for a guy that’s the first to trumpet “cruelty” in denying military spending, this cynical move speaks to the truth of his ambitions — he’ll have it his way, with the profits moving in the right direction, or not at all.

Jude

The Debate Over How and How Long
EDMUND L. ANDREWS, New York Times
January 8, 2008

WASHINGTON — If President Bush becomes convinced the economy is indeed headed toward a recession, he is likely to respond much as he did on entering office in 2001 with the economy on the verge of a downturn: lower tax rates for people at all income levels and provide tax breaks for businesses.

But this time around, Democratic leaders in Congress are planning to push back with a very different strategy. While many Democrats can be expected to favor at least some tax cuts, they will seek temporary measures that are aimed at low- and middle-income Americans.

In an election year, the big fight between Republicans and Democrats is not expected to turn on whether the government should stimulate the economy. It is not even likely to be over the relative merits of tax cuts versus bigger spending.

The real battle will probably be over short-term goals versus long-term measures.

As Mr. Bush suggested in his speech on Monday, his top economic priority remains extending the tax cuts he began in 2001 and 2003 well beyond 2010, when they are scheduled to expire.

“In a time of economic uncertainty, we don’t need to be taking money out of your pocket,” Mr. Bush told business leaders at the Union League Club of Chicago. “The smartest thing we can do is to keep taxes low.”

By contrast, Democrats have a fundamentally different approach.

Though economists who support the Democrats are divided about whether the economy even needs a boost, they almost universally are talking about temporary moves to support the people most likely to be hurt by a downturn. Those could include an increase in unemployment benefits, food stamps or job-training assistance; a temporary cut in the payroll tax for Social Security; and a tax rebate for middle- and lower-income workers.

Democrats themselves are divided into separate camps. Some, including former top officials from the Clinton administration like Robert E. Rubin and Lawrence H. Summers, continue to place a top priority on fiscal discipline and shrinking the federal budget deficit.

But another camp argues that the Clinton wing is too fixated on budget-balancing. By contrast, this group supports a big expansion of public infrastructure spending on highways, bridges, airports and other capital projects.

Democrats also differ widely on the amount of money that Washington should throw at the problem. Mr. Summers, in a recent speech to the Brookings Institution, proposed measures that might cost $75 billion over the next six months or so. Others argue that a stimulus package should cost at least $250 billion if it is to have any real impact.

Mr. Bush said his administration is looking at options to help the economy through a downturn, but he has also said he will not decide on any proposals until his State of the Union speech at the end of this month.

On Monday, Mr. Bush devoted much of his speech to warning that Congress should make his tax cuts permanent. But that change would do little to forestall a recession, because the tax cuts do not need to be extended for another two years.

Martin S. Feldstein, a professor of economics at Harvard and an adviser to many Republicans, has warned that the risks of an actual recession are now greater than 50-50. Mr. Feldstein recently suggested that policy makers devise a “contingent” stimulus package that would be set in motion if the nation’s employment declines for three months in a row.

Kevin A. Hassett, director of economic policy at the American Enterprise Institute, a conservative research group, argued that Congress should offer additional tax breaks for business investment and perhaps even lower the corporate tax rate.

During the last downturn, Mr. Bush supported “bonus depreciation” that let corporations deduct the cost of new equipment more rapidly, as well as a temporary measure that let small businesses immediately write off up to $125,000 in equipment spending.

“They’re reliable, they’re tried and true,” Mr. Hassett said, referring to tax cuts for business investment.

But Democratic lawmakers, who have majorities in both the House and Senate, are almost certain to insist on measures aimed at middle-income and poor families.

“It’s very important that a significant share of any tax reduction go to middle- and lower-income people,” said Douglas W. Elmendorf, an economist at the Brookings Institution who worked in the Clinton administration. “They are living closer to the edge than most people.

But also, tax cuts to them would have the most macroeconomic punch. You want to direct the tax cuts to people who are spending everything that’s coming in.”

Mr. Elmendorf, who will join Mr. Rubin at a Brookings conference on Thursday about stimulating the economy, said he was not yet persuaded that any special measures were necessary. But if they are, he said, they should be “timely and targeted and temporary.”

Several temporary measures could meet those criteria, and Democratic lawmakers are already starting to discuss them, according to Congressional staff members.

Almost any stimulus package is likely to include an extension of unemployment benefits, which normally end after a person has been jobless for 26 weeks. Similarly, lawmakers are likely to propose an increase in the food stamp program.

Democrats have long wanted to expand the Trade Adjustment Assistance program, which offers help to workers in factories that close down because of foreign competition. Others have suggested a new program of “wage insurance,” under which the government would temporarily compensate workers who are forced to take lower-paying jobs at different companies.

Democrats and Republicans are both likely to be drawn to tax rebates. Mr. Bush’s tax-cut package of 2001 included a one-time rebate to taxpayers that supporters said stimulated consumer spending at a time when unemployment was rising.

But many economists criticize one-time tax rebates, because people who are not in dire financial straits will typically save a portion of their tax rebate. Those with higher incomes tend to save more, so rebates to higher-income households have less immediate impact on economic activity.

Mark Zandi, chief economist at Moody’s Economy.com, estimated in 2002 that the measures aimed at lower-income households had the most “bang for the buck” in terms of stimulating demand.

Mr. Zandi estimated higher unemployment benefits had the biggest impact, generating $1.73 in demand for every dollar spent by the government. By contrast, he estimated, reducing marginal tax rates for all income levels generated only 67 cents of extra demand for every dollar in lower taxes.

In the last recession, Mr. Bush made it clear he was far less interested in temporary stimulus than in advancing his long-term agenda of extending lower tax rates indefinitely. R. Glenn Hubbard, then one of Mr. Bush’s top economic advisers, went so far as to avoid the word “stimulus” because it sounded too much like trying to fine-tune the economy.

Democrats now have a similar battle in their own camp between temporary and long-term measures.

A growing camp of Democrats, frustrated by the Clinton-Rubin focus on fiscal discipline, are pushing for a big, broad increase in spending on highways, bridges, mass transit and other infrastructure.

“It would mean much more of the stimulus actually goes to creating jobs,” said Sherle R. Schwenninger, head of the economic growth program at the New America Foundation, a policy research group dominated by Democrats.

Bernard L. Schwartz, a wealthy industrialist who has contributed heavily to the New America Foundation, has championed the idea as a way both to stimulate the economy and increase its long-term efficiency.

With a possible recession looming, Democratic leaders in Congress are beginning to talk about a mix of targeted tax cuts and new spending projects. But Congressional Democrats are constrained by their insistence on paying for new spending and new tax cuts with savings in other areas. Though lawmakers can waive the “pay as you go” restrictions to deal with an economic emergency, fiscal conservatives will be reluctant to do so.

In the end, even if Congress does manage to pass a spending package, Democrats may still find themselves in a stalemate with President Bush, who has already vetoed numerous bills that exceeded his spending limits.

From Hype to Fear
Paul Krugman, New York Times
January 7, 2008

The unemployment report on Friday was brutally bad. Unemployment rose in December, while job creation was minimal — and it’s highly likely, for technical reasons, that the job number will be revised down, showing an actual decline in employment.

It’s the latest piece of bad news about an economy in which the employment situation has actually been deteriorating for the past year.

It’s no longer possible to hope that the effects of the housing slump will remain “contained,” as one of 2007’s buzzwords had it. The levees have been breached, and the repercussions of the housing crisis are spreading across the economy as a whole.

It’s not certain, even now, that we’ll have a formal recession, although given the news on Friday you have to say that the odds are that we will. But what is clear is that 2008 will be a troubled year for the U.S. economy — and that as a result, the overall economic record of the Bush years will have been dreary at best: two and a half years of slumping employment, three and a half years of good but not great growth, and two more years of renewed economic distress.

The November election will take place against that background of economic distress, which ought to be good news for candidates running on a platform of change.

But the opponents of change, those who want to keep the Bush legacy intact, are not without resources. In fact, they’ve already made their standard pivot when things turn bad — the pivot from hype to fear. And in case you haven’t noticed, they’re very, very good at the fear thing.

You see, for 30 years American politics has been dominated by a political movement practicing Robin-Hood-in-reverse, giving unto those that hath while taking from those who don’t. And one secret of that long domination has been a remarkable flexibility in economic debate. The policies never change — but the arguments for these policies turn on a dime.

When the economy is doing reasonably well, the debate is dominated by hype — by the claim that America’s prosperity is truly wondrous, and that conservative economic policies deserve all the credit.

But when things turn down, there is a seamless transition from “It’s morning in America! Hurray for tax cuts!” to “The economy is slumping! Raising taxes would be a disaster!”

Thus, until just the other day Bush administration officials were in denial about the economy’s problems. They were still insisting that the economy was strong, and touting the “Bush boom” — the improvement in the job situation that took place between the summer of 2003 and the end of 2006 — as proof of the efficacy of tax cuts.

But now, without ever acknowledging that maybe things weren’t that great after all, President Bush is warning that given the economy’s problems, “the worst thing the Congress could do is raise taxes on the American people and on American businesses.”

And even more dire warnings are coming from some of the Republican presidential candidates. For example, John McCain’s campaign Web site cautions darkly that “Entrepreneurs should not be taxed into submission. John McCain will make the Bush income and investment tax cuts permanent, keeping income tax rates at their current level and fighting the Democrats’ plans for a crippling tax increase in 2011.”

What “crippling” tax increase, which would tax entrepreneurs into submission, is Mr. McCain talking about? The answer is, proposals by Democrats to let the Bush tax cuts for people making more than $250,000 a year expire, returning upper-income tax rates to the levels that prevailed in the Clinton years.

And we all remember how little entrepreneurship there was, how weakly the economy performed, during the Clinton years, right? Oh, wait. (I’ve put some charts comparing job performance during the Clinton and Bush years on my Times blog, krugman.blogs.nytimes.com. It’s pretty startling how comparatively weak the Bush era looks.)

Never mind. The whole point of scare tactics is that they can work even in the face of inconvenient facts.

And what I’m not sure about is whether the Democrats are ready for the fight they’re about to face.

Not to put too fine a point on it, Barack Obama won his impressive victory in Iowa with a sunny, upbeat message of change.

But there’s a powerful political faction in this country that understands very well that any real change will create losers as well as winners. In particular, any serious progressive reform of health care, let alone a broader attempt to reduce middle-class insecurity and inequality, will have to mean higher taxes on the affluent. And members of that faction will do whatever it takes to scare people into believing that change means disaster for the economy.

I don’t think they’ll succeed. But it would be a big mistake to assume that they won’t.

‘The Urgency of Now’: Our Politicians In Economic Denial
Danny Schechter, Smirking Chimp
January 7, 2008

Why The Economic Crisis Has To Become ‘The’ Political Issue for 2008

Barrack Obama’s Iowa win has forcefully put the words hope and change on the national media agenda. His dynamic personality and uber-organized charismatic campaign galvanized attention and support even as his positions on issues seemed less clear.

The primary marathon continues with a retinue of pollsters and pundits trailing behind a diminishing number of candidates. They never lack in inane commentary or a barrel full of predictions that are rarely as accurate despite sounding so authoritative.

But there’s another barrel to consider that’s a lot less fun. It won’t take us over the falls but, in fact, may lead us to a fall. That’s the rise in the price for a barrel of oil and a set of deep economic pressures that will affect the country, the world, and every political race as unemployment goes up along with rising prices.

So far, none of the debates are focusing on solutions for the growing squeeze. It’s easier to denounce immigrants or even corporations in the abstract. The business press is now debating when the recession will hit, or whether or not we are already in one. The optimism one sensed on the night Barrack’s last name was spelled BAM in the headlines is slowing giving way to trepidation that any new Administration will have to revive an economy that may, before November, be on the ropes.

There is a reason that American Dialect magazine chose “subprime” as 2007’s Word of the Year.” Bear in mind that for the first seven months last year, the problem was downplayed, ignored, and minimized. It was only when the markets melted down in late July that the press and the pols took note. Even then, there was denial-and in our media and political discourse, there still is among those who have yet to feel the sting.

There may be a reason for that too because most of the progressive world has been more engaged with the war than issues of economic justice so there has been little activist pressure on most politician. Except for a speech here or a policy paper, economic issues are not on the top of their lists. Bear in mind also that main industries still funding our political races are-surprise, surprise-real estate, finance and insurance.

So even as the media reports on inflation and foreclosures, they often do so as, the International Herald Tribute put it,” with a “bad news is good news scenario.” The paper quotes a Bear Stearns executive with comparing the current U.S. housing crisis to a recent natural disaster.

“Areas like Florida and Las Vegas are devastated,” he said. “It is like Hurricane Katrina.”

And, like refugees of that whirlwind of destruction, the subprime victims will simply pick up stakes and make new lives elsewhere: “People will move out to areas like Alabama and Idaho, where there are jobs and there is growth and there is not enough housing. So they will build more and that will add to economic growth.”

This naive silver[lining thinking is riddled with illusions. Avinash Persaud, chairman of Capital Intelligence, an investment advisory firm in London calls the housing bust is a catastrophe. "American consumer boom was financed with real-estate debt: Americans have spent 130 percent of their income over the past five years. "They borrowed money against their property," he said.

And now as a many as 2.6 million families face foreclosure, that's going, going, gone.

Many advocates are up in arms. Jesse Jackson, now holding a Wall Street Summit in New York is leading a national movement calling for the jailing of "subcrime" white collar criminals. He is planning a march on the Federal Housing Administration at HUD in Washington on January 22, the day of the State of the Union address and the day after the Martin Luther King holiday. He told the Summit that Dr. King, on his birthday in 1968-the year he died-was planning a new March on Washington for Economic Justice. He is demanding government action to "restructure loans, not repossess homes."

Others present like Congressman John Conyers plans to pressure the Justice Department for action while Congresswoman Sheila Jackson-Lee, (who appears in my film In Debt We Trust) is organizing town hall meetings. Lisa Madigan, the Attorney General of Illinois described her investigation into discriminatory and predatory lending practices by Countrywide. David Patterson, the Lieutenant Governor of New York called for an investigation into the failure of regulators and the Federal Reserve Bank.

John Taylor, CEO of the National Community Reinvestment Coalition denounced rapacious "greed" and revealed that former Fed Chairman Alan Greenspan is now saying that the federal government has to act with a major financial intervention.

Jackson quipped, "why wasn't he saying that when he helped cause these problems?"

Housing is not the only crisis. Credit card balances are at a record high along with interest rates and fees. There are growing defaults on car and student loans. This will get worse with more job losses and less access to credit.

When you read the press outside the US, there is even more alarm. The Telegraph, a conservative newspaper in London reports:

"As the credit paralysis stretches through its fifth month, a chorus of economists has begun to warn that the world's central banks are fighting the wrong war, and perhaps risk a policy error of epochal proportions."

"The central banks are trying to dissociate financial problems from the real economy. They are pushing the world nearer and nearer to the edge of depression. We hope they will eventually be dragged kicking and screaming to do enough, but time is running out."

~ Bernard Connolly, global strategist at Banque AIG.

"The kind of upheaval observed in the international money markets over the past few months has never been witnessed in history," says Thomas Jordan, a Swiss central bank governor."

"Where will it end? A fresh study by Morgan Stanley warns that the big banks face a further $200 billion of defaults in commercial property. On it goes."

On it goes, true, but, its not an issue that's going on TV much herem or being raised in political debates. That's why activism is needed. We need a national organizing and education effort. We need to be reminded of Dr King's phrase: "The urgency of now."

The Big Betrayal
No Jobs for the New Economy (or the Old)
PAUL CRAIG ROBERTS, CounterPunch
January 8, 2008

December did not bring Americans any jobs. To the contrary, the private sector lost 13,000 jobs from the previous month.

If December is a harbinger of the new year, it is going to be a bad one. The past year, hailed by Republican propagandists and "free trade" economists as proof of globalism's benefit to Americans, was dismal.

According to the Bureau of Labor Statistics' nonfarm payroll data, the US "super economy" created a miserable 1,054,000 net new jobs during 2007.

This is not enough to keep up with population growth--even at the rate discouraged Americans, unable to find jobs, are dropping out of the work force--thus the rise in the unemployment rate to 5%.

During the past year, US goods producing industries, continuing a long trend, lost 374,000 jobs.

But making things was the "old economy." The "new economy" provides services. Last year 1,428,000 private sector service jobs were created.

Are the "free trade" propagandists correct that these service jobs, which are our future, are high-end jobs in research and development, innovation, venture capitalism, information technology, high finance, and science and engineering where the US allegedly has such a shortage of scientists and engineers that it must import them from abroad on work visas?

Not according to the official job statistics.

What occupations provided the 1.4 million service jobs in 2007?

Waitresses and bartenders accounted for 304,200, or 21% of the new service jobs last year and 29% of the net new jobs.

Health care and social assistance accounted for 478,400, or 33% of the new service jobs and 45% of the net new jobs. Ambulatory health care and hospitals accounted for the lion's share of these jobs.

Professional and business services accounted for 314,000, or 22% of the new service jobs and 30% of the net new jobs. Are these professional and business service jobs the high-end jobs of which "free traders" speak?

Decide for yourself. Services to buildings and dwellings account for 53,600 of the jobs. Accounting and bookkeeping services account for 60,500 of the jobs. Architectural and engineering services account for 54,700 of the jobs. Computer systems design and related services account for 70,400 of the jobs. Management consultants account for 88,400 of the jobs.

There were more jobs for hospital orderlies than for architects and engineers. Waitresses and bartenders accounted for as many of last year's new jobs as the entirety of professional and business services.

Wholesale and retail trade, transportation, and utilities accounted for 181,000 of 2007's new jobs.

Where are the rest of the new jobs? There are a few scattered among arts, entertainment, and recreation, repair and maintenance, personal and laundry services, and membership associations and organizations.

That's it.

Keep in mind that the loss of 374,000 goods producing jobs must be subtracted from the 1,428,000 new service jobs to arrive at the net job gain figure. The new service jobs account for more than 100% of the net new jobs.

Keep in mind, too, that many of the new jobs are not filled by American citizens. Many of the engineering and science jobs were filled by foreigners brought in on work visas. Indians and others from abroad can be hired to work in the US for one-third less. The engineering and science jobs that are offshored are paid as little as one-fifth of the US salary. Even foreign nurses are brought in on work visas. No one knows how many of the hospital orderlies are illegals.

What a super new economy Americans have! US job growth has a distinctly third world flavor. A very small percentage of 2007's new jobs required a college education. Since there are so few jobs for university graduates, how is "education the answer"?

Where is the benefit to Americans of offshoring? The answer is that the benefit is confined to a few highly paid executives who receive multi-million dollar bonuses for increasing profits by offshoring jobs. The rest of the big money went to Wall Street crooks who sold trusting people subprime derivatives.

"Free traders" will assert that the benefit is in low Wal-Mart prices. But the prices are low only because China keeps its currency pegged to the dollar. Thus, the Chinese currency value falls with the dollar. The peg will not continue forever. The dollar has lost 60% of its value against the Euro during the years of the Bush regime. Already China is having to adjust the peg. When the peg goes, Wal-Mart shoppers will think they are in Neiman Marcus.

Just as Americans have been betrayed by "their" leaders in government at all levels, they have been betrayed by business "leaders" on Wall Street and in the corporations. US government and business elites have proven themselves to be Americans' worst enemies.

Bonus Read

The 'pocket veto' peril
Bush brushed aside the Constitution to veto a defense spending bill.
Robert J. Spitzer, LA Times
January 8, 2008

Pundits and pols who have been tracking President Bush's constitutional transgressions can add another to the list: his Dec. 28 "pocket veto" of the massive defense spending bill. Instead of issuing a regular veto, which allows Congress the opportunity to override if it can muster the votes, Bush stated that he needed to pocket veto the bill -- a power the Constitution says may only be used when "Congress by their Adjournment prevent [the bill's] Return.” Bush argued that he was “prevented” from “returning” the bill to Congress because the House had adjourned.

But Bush was being disingenuous. In fact, a pocket veto was neither necessary nor allowed in this case. In misusing his veto power, Bush was attempting to grab a power for himself and his office that the Constitution’s framers emphatically and repeatedly denied to the president: a nearly unlimited, absolute veto.

Let me explain. The Constitution requires the president to sign or veto any bill sent to his desk by Congress. In most cases, when a bill is vetoed, it is sent back to Congress, which then has the option to override the veto if it can achieve a two-thirds vote in both the House and the Senate. Under certain limited circumstances, however, the president may issue a pocket veto, a form of rejection in which he does not sign the bill or return it to Congress — and the bill dies after 10 days. Congress has no opportunity to override the veto.

Article I, Section 7 of the Constitution stipulates the two conditions necessary for a pocket veto. The first is congressional adjournment. The second condition is that bill return is “prevented.” These two linked conditions acknowledge the existence of adjournments when bill return is possible — and the current situation is just such a case.

Although it’s true that the House has adjourned until Jan. 15, it has designated its clerk to receive communications from the White House, including veto messages, meaning that bill return was possible. This little-known but routine mechanism has been used thousands of times for decades by Congress during long weekends, vacations and breaks (just as the White House’s Office of the Executive Clerk receives bills from Congress on behalf of the president when he is absent or indisposed).

The Senate, for its part, has not adjourned at all, technically; a few of its members have been holding brief sessions every two or three days to forestall Bush from making any recess appointments.

Congressional and presidential use of agents to represent their branches has met constitutional muster. As the Supreme Court said in 1938, “The Constitution does not define what shall constitute a return of a bill or deny the use of appropriate agencies in effecting the return.”

The founders inserted the pocket veto in the Constitution to prevent Congress from passing a bill and adjourning to prevent an anticipated veto. But they made it conditional so it would not be abused by the president; they emphatically rejected the idea that the president should have an absolute, monarchical veto that could not be overridden.

In this case, Bush tried to have it both ways. He pocket vetoed the bill as if Congress were entirely out of session — but then he did, in fact, return it to Congress by sending it and an outline of his objections to the House clerk. He did so, according to his veto message, “to leave no doubt that the bill is being vetoed.”

Bush’s dodgy veto gambit mimics similar action by his father, who claimed pocket vetoes of two bills that he also returned to Congress. In both instances, Congress rejected the president’s claims and instead treated the bills as “returned.” Neither was overridden.

In 2000, President Clinton tried the same thing three times, prompting leaders of both parties to object. All three were treated as return vetoes; these weren’t overridden either.

If this all sounds like constitutional arcania, consider the outcome if Bush’s faux pocket veto stands unchallenged: Presidents would have absolute veto power any time Congress is not actually in session, bestowing on the chief executive the very authority the founders sought to deny the office. And why did Bush use this veto gambit now? Maybe because the bill in question passed by veto-proof margins.

Regardless of the motive, the Constitution does not allow presidents to pick the kind of veto they wish to use, and it certainly does not condone a pocket veto just because an override is likely. The existing regular veto is plenty potent, and Congress cannot be denied its constitutional right to review vetoes as long as bill return is possible. Congress should do what it did before: treat Bush’s action as a return veto because the bill was returned. And presidents should curb the impulse to play fast and loose with constitutional powers.

Robert J. Spitzer is a political science professor at SUNY Cortland. His books include “The Presidential Veto.”

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