It's Still The Economy, Stupid

Friday, April 25, 2003  

Dwight Meredith of PLA on Krugman vs. Luskin:

In a recent column, Paul Krugman derided the President’s $726 billion proposed tax cut. The President claims that the tax cut is needed to create jobs. Krugman asserts that the costs of such job creation are too great:

Did you know President Bush's economic plan will create 1.4 million jobs? Oh, and did I mention that the plan will create 1.4 million jobs? And don't forget, the plan will create 1.4 million jobs.

Republican politicians are obviously under instructions to push that job number. On the Sunday talk shows some of them said "1.4 million jobs" so often that it sounded like an embarrassing nervous tic…

Still, let's pretend the Bush administration really thinks that its $726 billion tax-cut plan will create 1.4 million jobs. At what price would those jobs be created? …

The average American worker earns only about $40,000 per year; why does the administration, even on its own estimates, need to offer $500,000 in tax cuts for each job created?

If the purpose of the Bush tax cut is to create new jobs (and that seems to be their public position) and if Krugman is correct that each job created will cost $500,000 in revenue, then the Bush plan simply makes no sense.

Conservatives are often stung by Mr. Krugman’s criticism of the administration. Conservatives respond by challenging Mr. Krugman’s credibility so as to dampen his influence. It was not surprising, therefore that Donald Luskin, in National Review On-Line wrote that Krugman is lying about the effects of the President’s tax cut proposal on job growth.

At the core of Luskin’s claim is the idea that the President’s tax cut proposal will create only 1.4 million jobs. [more]

posted by MB | 5:37 PM |

Matt Yglesias asks the question!

Is It the Economy, Stupid?

The Democrats make their case against George W. Bush as the president campaigns in Ohio:

"Ohio has lost 167,800 jobs, or more than 3 percent of its total work force, since Bush was sworn in," Democrats on the House Government Reform Committee said in a statement. "More specifically, the Canton metropolitan area has lost 6,300 jobs (3.43 percent of its work force) and the Lima area has lost 2,500 jobs (3.18 percent of its workforce) since Bush took office."

I think that just might be a persuasive argument. It seems to me that all the effort that goes into political posturing on fiscal policy issues is a bit misplaced. People don't really care whether or not the president implements an economic policy they agree with, what they want is an economic policy that makes them better off. If the country continues to bleed jobs over the next year, I don't see what Bush is supposed to say that's going to convince people that his policies really have worked. [more]

I don't happen to fully agree with Matthew - obviously, or this blog would be irrelevant, but I will cut him some slack, seeing that he probably doesn't remember much about the last time a presidential campaign was run during and economic downturn.

posted by MB | 3:00 PM |

Recent visitors to It's Still the Economy, Stupid might notice that it's now become a team blog, with the addition of Matt Stoller of To The Point- in fact, the two articles below the most recent one are Matt's. (In case he hasn't republished them yet so the signature is his.) We hope to add other members in the upcoming months.

posted by MB | 2:45 PM |

Over at Wampum this week, I obsessed focused on a recent interest, state unemployment figures:

Singin' the Red State Unemployment Blues

I've been thinking a lot about the unemployment rate, but not only the big picture, but what it might mean in the nitty-gritty of election strategy next year. For that, I think one needs to look more intently at the state-by-state unemployment levels, particularly in relation to where they were when George Bush II took office in January 2001.

For the past three months I've been gathering the numbers and ruminating over them. After a number of different sorts and groupings, I decided to look first at those states which were essentially close races for Bush, that is, states where the margin of victory or loss to the combination of Gore and Nader votes was plus or minus seven percent. [more]

posted by MB | 2:18 PM |

Thursday, April 24, 2003  

What's up with the yield curve?

The typical line about the long-term deficit is that it will drive rates much much higher. Brian in the comments area of Brad DeLong's site brings up an excellent counterpoint:

Given the dire nature of the comments, can anyone speculate as to why the yield curve doesn't budge?

Good question. That is, why don't professional bondholders recognize the situation and drive rates higher? I don't know. Here's one response, though it's not entirely satisfying because it basically just says that the bond market is irrational and won't/can't countenance a fiscal doomsday scenario.

The horrific implications are too large to be addressed by bond purchasers. If we were looking at a return to moderate deficits, the future abundance of government bonds might raise interest rates. A rational investor might believe that such deficits were likely to happen, and modify her strategies accordingly. But if we are looking at catastrophic, long-term, economy-wrecking deficits, who knows what effect it will have. Not in the sense of, "what will happen to the US economy?", that's easy to predict. Rather, in the sense of, "if things get that bad, should I consider stockpiling guns, food, and high-value tradeable goods?"

Many economists, CEOs, and analysts have already said the administration's fiscal policies are dangerous and stupid. What investors refuse to believe is that any sane person could ever let the government finances and the economy totally melt-down. Even as it is happening in front of them.

There are a lot of troubling aspects of this: moral hazard on the part of investors who are betting the economy is too big to crash, so they don't to act like it might; herd mentality among investors who are evidently fine being wrong as long as everyone else is wrong too (didn't the dotcom crash have much the same genesis); fear among in-house analysts of being labelled partisan if you suggest that perhaps the Bushies are screwing things up enough that your company ought to do something about the risks...

posted by Matthew | 8:41 AM |

Politics of the Tax Cut

Brad DeLong has a nice post about why Bill Frist essentially has no power and can't get anything more than a $350 billion tax cut without some external force compelling one of the two GOP holdout Senators to cave. The piece, dubbed 'Master of the Senate' in a subtle nod to Robert Caro's spectacular book about Lyndon Johnson's Senate career (just one in a larger series, actually, and very much worth reading), goes into some nitty gritty details about conference committees and the like. here.

posted by Matthew | 8:35 AM |

Swirling Currents: Factory Orders Up, Jobless Claims Climb More Than Expected

The stock market seems somewhat more stable, factory orders are up, but the economy continues to deteriorate on the labor front:

Jobless Claims Climb More Than Expected

First-time jobless claims rose by 8,000 to 455,000 for the week ended April 19, the Labor Department said. It was the highest level since the week ended March 30, 2002 and the tenth straight week that claims held above the key 400,000 level, regarded by economists as a sign of an unhealthy labor market. The gain far exceeded expectations. In a Reuters poll, economists forecast that jobless claims would fall to 425,000.

Good News for the Hard-Hit Factory Sector

Commerce said new orders for durable goods -- items designed to last three years or more -- rose 2.0 percent after declining 1.5 percent in February. It was the second increase in the last three months and a far better showing than the 0.5 percent decline economists in a Reuters poll had forecast.

posted by Matthew | 6:00 AM |

Monday, April 21, 2003  

More on the States' Budget crises

States, Facing Budget Shortfalls, Cut the Major and the Mundane

LINCOLN, Neb., April 18 — At a time when the governor of Missouri has ordered every third light bulb unscrewed to save money, when teachers are doubling as janitors in Oklahoma and working two weeks without pay in Oregon, when Connecticut is laying off prosecutors and Kentucky is releasing prison inmates early, the veterinarian crisis in Nebraska may seem like small potatoes.

Nebraska has dismissed two of its three state diagnostic veterinarians, meaning a rancher with a sick cow in Scottsbluff now has to drive the length of the state to see what's up with Nellie.

That cutback, the state equivalent of rooting for coins in a car ashtray, is a prime example of how far the pain of anemic state treasuries has spread — and not only in Nebraska, a state where almost 25,000 poor mothers have lost health care and where state college tuition has been raised 20 percent over two years.

Ranchers here have joined a chorus of wounded constituents pleading with state politicians to restore spending. From Lincoln to Honolulu, the reply has been the same: the till is empty.

The states are desperate, struggling with their worst financial crises since World War II. They have tapped rainy day funds, raided tobacco money that was supposed to have provided health care for children and taxed every possible vice.

Last year brought the storm warnings: some layoffs, the inconveniences of libraries closing early and roads without fresh asphalt. Now, as states scramble to find ways to cut nearly $100 billion this year and next from budgets that must by law be balanced, the cuts are much larger, and their effects profound.

Matt Yglesias has more to say on the subject.

posted by MB | 10:44 AM |

States? There are state budgets too?

Matt, at To The Point, joins the blogroll. His take on Free Lunch Syndrome (Blogger links are screwy, again):

The supply side nonsense of '1-1 = 4', or 'Free lunchism', or 'Free lunch syndrome', or 'Free lunch condition' (whose initials, FLC double nicely as 'False load of crap') works because it defrays costs of policies into the future while pulling the benefits forward into the now. We'll have horrendous inflation in 2006, but that won't matter because the election is in 2004. (The retort? Well, one White House staffer told a friend who pointed out the numerous problems with supply side economics that she wasn't thinking 'big picture' enough.)

However, this doesn't work on the local level. As far as I can tell, supply-siders believe three things:

1) Taxes are evil and should always be cut.

2) Spending is probably unnecessary, but it's not that important and if you have to increase it to get more tax cuts, then fine.

3) Deficits matter only inasmuch as they can help provide political capital for cutting taxes. Then they don't.

Cutting taxes while increasing spending and deficits relies on being able to borrow to cover operating costs. Bush is lucky to be in charge of the agency that has the best credit in the world: the Federal government. States and localities don't have great credit, but even those that do are often hamstrung by balanced budget amendments.

Now, Republicans at the local level, even if the Federal Free Lunchers can think 'big picture' (ie. wrong), are finding that their popular and tortuously argued supply side taxes are evil Free Lunchism doesn't work. The New York Times has two articles on the subject. The first talks about cities, the second about states. (more)

posted by MB | 8:17 AM |