Hiring Up (or not) and Unemployment Down (sort of)

This one page article says it all:

'U.S. nonfarm payrolls expanded by a seasonally adjusted 431,000 in May, but virtually all the new jobs were temporary jobs at the U.S. Census, leaving private-sector hiring very weak in May, the Labor Department reported Friday. ... The unemployment rate fell to a seasonally adjusted 9.7% in May from 9.9% in April, according to a separate survey of 60,000 households. The decline wasn't particularly good news, however, because the drop was due to 322,000 people dropping out of the labor force.'

With fears of a double-dip recession continuing, and remaining volatility in the housing and stock markets, claims of steady economic recovery seem premature at best.

Perhaps the Vice-President Needs a Personal Fact-Checker

(or at least someone to stop him from rambling on and on).

Vice-President Biden's robust defense of the stimulus package yesterday, raised some eyebrows when the glowing report mentioned nothing of the myriad of complaints coming from those who are supposed recipients of the funding:

'Biden, Obama's chief stimulus cheerleader, proudly pointed to more than 2,200 highway projects Thursday funded by the program, but didn't mention the growing frustration among contractors that infrastructure money is only trickling out and thus far hasn't delivered the needed boost in jobs. ...

Transportation Department Inspector General Calvin Scovel said last month he will examine the Federal Aviation Administration's process for selecting programs for the $1.1 billion in grant money. His announcement came after his office discovered that the Obama administration used stimulus money to pay for 50 airport projects that didn't meet the grant criteria and approved projects at four airports with a history of mismanaging federal grants.

And Biden praised the more than 2,400 military construction projects paid for with stimulus money, but ignored the millions of dollars in savings the Defense Department lost because it hasn't competitively bid many of the jobs.

The Defense Department frequently awards no-bid work to small contractors for repairs at military bases under the stimulus, costing taxpayers millions of dollars more than when businesses compete for the work, an Associated Press analysis of 570 such contracts found.'

The problem is, the stimulus was supposed to be a quick shot in the arm to protect against rising jobless rates, and boost spending. While the rate of unemployment growth has fallen, total jobless numbers continue to rise, hitting 9.7% nationally by the end of August. And, as Biden himself acknowledged, the final implementation of the stimulus will be rather slow (stretching out over two years by most estimates). There doesn't seem to much point to a stimulus that doesn't stimulate in the short run. After that point, the economy would be expected to slowly recover on its own.

Debt, Deficit and the Health Care Debate

(I apologize for the extended posting delay - multiple ill family members (including myself) kept me away from the laptop along with frantic dissertation work. On to the topic at hand):

I'm refraining from posting anything about Sen. Kennedy. There is more than enough material out there, and it seems more fitting to leave his memory to those who knew him. Instead, we return to a familiar topic at The ModCon, deficit and the national debt, and in particular, their impacts on the health insurance/health care (depending on the week) debate. This post begins a series of discussions between BMG and a more liberal friend who will be posting counter-point (or at least, alternative ideas).

A recent article by David Gergen at the CNN AC360-blog site, was entitled "Deficits: Why they might threaten health reform - and what Obama might do." The implied question - "Can the President win the health reform debate given the dramatically increasing deficit and debt burden?' - is an excellent one. Putting aside the merits of particular aspects to the five bills circulating through the two houses of Congress, the very fact that the deficit and total national debt have grown so dramatically in the last eight months, is a large factor in much of the opposition to the proposals. The heart of Gergen's musings are laid out in four paragraphs:

'Yet even the Bernanke story cannot fully deflect attention from the other economic story engulfing the administration today: its official announcement of new economic projections – in particular, its acknowledgment that deficits over the coming decade will be even higher than it said only three months ago. Now, the administration is predicting that instead of $7 trillion in new deficits, the country will rack up a staggering $9 trillion in new deficits for the 2010-2019 period. (The Congressional Budget Office has published its own numbers today that are largely parallel.). Deficits of that magnitude would be extraordinarily dangerous and irresponsible for the country. They would double the national debt, risk much higher inflation, saddle future taxpayers with annual interest payments of over $900 billion, make us even more reliant upon China as a creditor, and over time would weaken us as a great nation. Talk about trend lines that are unsustainable! ... In view of all this, President Obama has a choice. He can push forward with health reform efforts, giving short shrift to these deficit concerns. If so – if he continues to insist that Washington is just too “wee-weed up” — he will find that some of his strongest allies will become more reluctant on a big health reform bill this year. Or he can come to grips with these grim forecasts and present to the nation a credible, comprehensive plan for reining in long-term deficits before Congress acts on health reform. The second path demands more courage – and is also the one of real leadership.'

The CBO's economic projections for the next decade were grim to begin with, and have been revised further downward over the last month. Spending $1 trillion on overhauling 1/6 of the economy, when the debt has been revised upward to $9 trillion (and the deficit to $1.6 trillion) and within months of TARP 2, the stimulus package and the largest budget in US history, is going to be a tough sell even to supporters.

Many of the Congressional leadership, and in the Administration, seems completely unwilling or incapable of accepting that much of the anger expressed in the Town Hall meetings is not about racism, gasping conservatism, or even plain contrariness, but rather a deep, abiding dislike of governmental creep and stratospheric debt. Dan Gerstein, a former adviser to Sen. Lieberman, recently published a telling article in Forbes.

'In the best-case scenario, the cumulative toll of all this spending and intervening would test most voters' tolerance for another major government expansion on health care. But for many already anxious Americans, it has rapidly resuscitated their skepticism about government and its competence in managing one-sixth of the economy. The fact that so much of what has come out of Congress is every bit as partisan and one-sided as the last eight years is only compounding those doubts--particularly for swing voters.'

The concept that the President and Congress are trying to sell, that one will lower the long-term deficit and debt by increasing government involvement and spending, is ludicrous to most voters. They're well-aware that increasing spending, and increased involvement leads to increasing debt, and therefore the increased need to pay for that debt. There are only two ways to pay the bill: increase taxes, decrease spending. The latter is the principle reason there is so much concern over rationing and a loss of Medicare benefits. The former is already being floated by multiple Administration officials. The more sordid aspects (cronyism and favoritism in particular) of pushing a bill this large are not helping sweeten voter temperaments. Neither is the 'tone-deaf' aspect of the sales pitch coming from the President. Until 'listening' to these real concerns becomes important to the Administration and Congress, the people are going to continue to push back. They desperately need a new tact and fresh ideas; in fact, they should scrap all the current bills under discussion and begin anew. I doubt they have the sense, guts or humility enough to try.

UPDATES: President Obama's Address on the Economy at Georgetown University

UPDATE 1: Full text of the speech can be found here.

Standard intro's and thanks, with plenty of ums and uhs before spitting out names.

"... even our critics will agree that we've been busy."

"... I want to explain our strategy as clearly as I can. ... Each policy we pursue is driven by a ... vision ... that will generate 'good jobs...'" (what's a 'good' job?).

"This recession is different. ... This recession was caused by a perfect storm of poor-decision-making."

At least he briefly holds home-buyers also responsible for bad decision-making, as well as lenders who offered bad loans, before moving on to the standard 'bad guys' list.

"We had no choice but to attack all fronts of our economic crisis simultaneously. ... My Administration boosted demand by passing the largest economic recovery plan ever [I'll say] ... "
He went on to make the 3.5M jobs claim again, and that the stimulus is not responsible for increasing the deficit and debt (huh?). He then stated that dealing with the long-term deficit (a contradiction in terms; deficit refers to annual negatives not to long-term accrual of debt) and national debt is all about getting health care costs under control, not about actual government spending. What a bizarre argument.

The President is claiming that the 'nationalization argument' doesn't work (implying that no nationalization is occurring), because it would cost more in the long-run. But then argues that intervention and forced restructuring is OK (and apparently isn't nationalization). I'm not sure if he sees the internal contradiction. If borrowers can't repay TARP funds when they want and in full, than the government is regulating that as well. If we're nationalizing, we should at least admit to it and deal with the fallout. Case in point, he's just started discussing requiring new business plans from GM and Chrysler.

Ahh, on to the G-20. "All agreed to [stronger] regulatory reforms ... and to triple [lending by the IMF] ... This is not charity because America's success depends on our ability to [export]."

"The actions are starting to generate ..." work, jobs (cited the Fire Station House that has screamed that gov't. funds had nothing to do with the stoppage of their lay-offs), credit, etc.

Concluding the first part with calling for regulatory reform (it sounds like he's bought into the notion that bad regulation is the real reason for the recession), new education, clean energy (says that we're behind other nations on this. Hmm - like France (nuclear), Britain (oil), Spain (oil), etc.?), etc. In other words, the only way to stop a recession from coming again is to spend, spend, spend (but apparently only the government because he mentioned moving to a saving and spending society), and regulate everyone and everything. I'm hearing no details here, just a restatement of his goals that have been out there since the campaign. Used the parable of the house on the rock vs. the house on the sand, to say that moving on his agenda will put America's house on the rock.

Major points ("pillars of our new foundation"):
1. Regulate Wall Street much more toughly
2. 20% higher college graduation rates; tax credits for college-attendees; teacher-performance pay; movement of students into fields that cause them to 'make things' (what - are you going to dictate degrees?)
3. Green energy. "We've allowed a lot of other countries to outpace us ... the investments we've made in the recovery act will double America's supply of renewable energy in the next three years." Big claim! Sticking with cap and trade on carbon.
4. Stop "sky-rocketing [health] insurance premiums," move to electronic records, make "quality healthcare affordable for everyone." "We've made a committment to fully fund health care reform without [raising costs]." Pure BS, that one. Efficiencies won't fund what you're proposing.
5. Get rid of the debt after economic recovery. Mr. President, by the time recovery comes around, we'll be so deeply in debt, it won't be paid for three generations! Tinkering with savings on the margins isn't going to cut it.

He wants us to focus on the "... medium and long-term budget picture." He's basically making the arguement that investment and spending now will eventually pay off. How do we know this? I've yet to see anyone on his economic team present data that shows why their projections would work, and there's nothing on the recovery.org site that gives this either. He slams entitlement programs (but includes the defense budget in that -huh?), and says we "... will need to get serious about entitlement reform ... by getting serious about health care reform." He's not letting go of that bone. Says that SS-reform and shutting down tax loopholes along with health care reform will balance out the budget long-term.

"That is the house upon the rock: proud, sturdy, and unwavering ..." The American Dream is now the House Upon the Rock - just a leeetle bit out of the context.

The Problem is Us

The Planet Money segment on yesterday's Morning Edition (NPR) had one of the most succinct, accurate and chilling descriptions of why we're in our current economic mess, and what we'll have to do to fix it. You can read the transcript at the title link, and listen to it here, but I've pasted in the most salient portion of the discussion below.

"That chart is the most striking piece of evidence that I have that what is happening to us is something that goes way beyond toxic assets in banks. It's something that has little to do with the mechanics of mortgage securitization, or ethics on Wall Street, or anything else," Beim says. "It says: The problem is us. The problem is not the banks, greedy though they may be, overpaid though they may be. The problem is us."

We have overborrowed, Beim says: "We've been living very high on the hog. Our living standard has been rising dramatically in the last 25 years. And we have been borrowing much of the money to make that prosperity happen."

In other words, the problem the banks are facing is the problem we, as a society, are facing: We all have too much debt. And getting rid of it is going to be painful.

If you want a solution in which those who bear the most guilt for the financial crisis pay the most to fix it, while the innocent don't have to pay anything, that's not going to happen.

It seems that the U.S. economy is way past that point. Americans are going to spend a lot of money. The government may bail out some banks that some people wish it wouldn't. There is no magical solution where the U.S. gets out of this mess without any pain.

While they might disagree on who will bear the brunt of that pain, all the experts interviewed for this report say the longer the U.S. waits, the worse it will be for everyone.

If only we'd all be willing to face the fact that this mess isn't just about corporate greed, poor regulation, too much regulation, or failure to help out the 'little guy.' It's about our national addiction to easy credit, an economy based solely on debt, and our love of spending. Until we come to grips with that, we'll never solve our problems.

Roots

Deep roots make for strong and durable trees, shallow root systems are what the ficus trees in my neighborhood have. Every time we have a tropical system, trees in our neighborhood are damaged. During Hurricane Wilma, most of the trees here were either knocked down or lost most of their limbs. Ficus trees are a pain; their shallow roots can make them dangerous and difficult to deal with. On the other hand, they're beautiful, regrow quickly and are easy to remove when they become diseased or over-topped.

The roots of the current economic crisis are multiplicitous. To listen to media and political rants over the previous few days, this crisis has eight to ten-year old roots. We hear that it began with the evil and to-be-maligned Pres. Bush first took office, or possibly when the GOP took control of the House and Senate, or when greedy Wall Streeters convinced the aforementioned evil-doers to shake of the regulatory yoke. These assumptions are certainly easy and self-comforting, and do nothing to either solve the problems or understand them. Most strong fiscal conservatives blame Pres. Clinton (the Community Reinvestment Act, 1977 was expanded under his administration) and the Democratic Congress (I have a link on a previous post from 2004 showing Barney Frank and others vehemently arguing against tighter regulation of Fannie Mae and Freddie Mac, and of course Sen. Obama is the second-largest Congressional recipient of money from these institutions). These arguments may also be too facile. While it's true that many of the Democrats who stood preened in front of the cameras yesterday took money and argued vehemently for looser lending standards, the CRA asset thresholds were adjusted again in 2007 (http://www.ffiec.gov/cra/default.htm).

I think the roots run deeper than either of these perspectives would have us believe, and that a failure of personal responsibility are part of those roots. It's true that greed exists on Wall Street, and that without certain regulatory checks in place, that greed can over-run common sense. It's also true that widespread individual greed exists, and that it can frequently over-run all bounds. How many of us had to have the latest car, a bigger house, the newest t.v., etc.? How many of us bought these on credit, without any real plan to pay off the bill in a timely manner (after all, we only owe a minimum each month)? How many of us (be honest) felt bad (or guilty) for people who live in small apartments in under-served areas, and pushed for the government to 'do something' by making housing 'more affordable?' It's so easy to push issues off on our respective 'bad guys,' and much harder to examine our own actions. The same kind of blame-game begins every time there's a large and growing crisis; climate change comes to mind.
We have to get away from a cycle of blaming everyone when we do not look at ourselves. If we fail to take ownership for some of these roots, we'll never deal successfully with the tree.

As to the 'Rescue' package, I see two options. Either we accept the plan (or a variant thereof), and hope that it works to stabilize credit and liquidity in global markets, and that stabilization ensures that small and medium-sized banks and businesses are able to conduct 'business as usual.' If we agree, as a nation, to do this, we also need to accept both personal and corporate responsibility and change that business as usual. We need to stop demanding credit for nothing, loans without the knowing how we'll pay them, and always having the biggest and best. Government needs to accept that ensuring that people have a safe place to raise their families does not necessarily mean an equal footing in all areas. Many people won't be able to have a house, buy a car, etc. There needs to be better problem-solving than insisting that under-served neighborhoods deserve looser standards due to their legacy of racism and poverty. These are no excuse for foolish decision-making. Investment banks need to accept limits on their ability to grow. All markets reach a saturation point, beyond which growth occurs only in small increments if at all. One of the reasons so many of these banks are facing collapse is their insistent demand on providing new growth opportunities - like security bundles that included bad mortgages. Finally, we all need to take a deep breath and stop the panic. Unemployment numbers look to edge into the high 6% range next week. While painful, this number is not even where we were in the mid-90s. A credit freeze would probably bump us in the 8% range - about where we were at times during the 1970s. This is not the Great Depression writ large (or even small).

The other option? Let the chips fall where they may. We (and the global economy) will probably take a major hit. Credit and lending will dry up. Many small and medium (and some large) businesses will fail, and the United States will lose its leadership position in the global economy for at least several years. This would be very painful, make no mistake. But, it might just lead us to a stronger position after a number of years. And it might lead us to a more rational, ethical and, yes, less-greedy, business-as-usual. We have survived many grave threats as a nation before, and not by relying on others to fix our problems. It may be time for us to survive this one, and emerge the wiser for it.