The Recession... The Recession.... 1/23/08

The recession is coming... The recession is coming... Or so they say, but of course economists have collectively predicted 9 of the last 5 recessions...

The NYT Editorial Board weighs in with an interesting little tidbit. Unfortunately, the Board falls victim to the crying wolf recession doomsday reporting, which seems mandatory in the mainstream media. I swear that I once heard that consumer and investor confidence were critical to a market based system... well just scare the shit out of everyone why don't you with drivel like this:

The economy has fallen into recession each of the four times the national index slipped into the red since 1979. Recessions have started in the month in which the state indexes were declining in half the 50 states and rising in the other half. In October, eight were down. In December there were 13.
If this trend continues, it suggests a recession could be on the way.

(Emphasis mine). Seriously, how many conditionals can fit into a single sentence that really doesn't say anything of value? I could point out that only one of the last five recessions started in an even numbered year, or that no recession after WWII has started in January or February... but this would be of similar integrity, and a little silly. I could also make a sly remark about the fact that each of the last 7 recessions has started with a Republican in the White House, but that may seem partisan. Well... it is the truth.

Another, much better, Op-ed piece appeared today. Authored by Nobel Prize winner Stiglitz, the theme is a quick infusion of cash could help significantly -- but we should consider other long-term options as well. He highlights the concept of truly redistributing wealth by pushing more cash into the unemployment insurance system (where it will get spent) and also mentions aide to State and Local governments...

We should begin by strengthening the unemployment insurance system, because money received by the unemployed would be spent immediately.

The federal government should also provide some assistance to states and localities, which are already beginning to feel the pinch, as property values have fallen. Typically, they respond by cutting spending, and this acts as an automatic destabilizer. Federal assistance should come in the form of support for rebuilding crucial infrastructure.

The importance of keeping state and local governments afloat is important, as since the Reagan years these entities have had a significant increase in services provided without federal monetary assistance. Many of poorest and needy people rely on this state/local system for support. Additionally, this redistribution could help ease the pain in the truly hard hit areas of the country (e.g. Michigan) where the citizens wouldn't believe there is going to be a recession -- they think it's been here for two years.

Burman, from the Urban-Brookings Tax Center also has an op-ed today
discussing the recession (maybe?). I don't believe I've heard of him before, but this column definately intrigued me. He also argues for getting cash into the hands of those most likely to spend it, and additionally brings up the Bush tax cuts as a method of stimulating the economy... not by extending them, but by making them go away sooner.

It’s true that more tax cuts this year could help head off a recession in the short run. Washington could send taxpayers rebate checks or give businesses temporary breaks for new investments in equipment. President Bush is likely to propose both as part of his $150 billion package of emergency measures.

Similar efforts in 2001 and 2002 had mixed results at best, but so long as the tax breaks are temporary, they wouldn’t do much long-term economic harm either. That said, the president’s proposal would leave out 37 percent of households because they do not earn enough to pay income taxes. A credit against payroll taxes or, better still, increasing transfers to the low-income families most likely to spend the money — say, by temporarily increasing food stamps — would do more to energize the economy.

Burman also discusses the concept and value of moving the sunset for the Bush Tax cuts up from 2011 to 2009. This is rarely argued for, especially during an impending recession (maybe?). I hope this argument gets some traction and we can begin having a serious debate, not just about how to help stave off a recession now, but how to fix our government's fiscal condition going forward.

Best of all, this is one stimulus proposal that would reduce the deficit — the single largest threat to the economy’s long-term health. And that long-term benefit wouldn’t depend on our getting the timing and amount of stimulus right, something policymakers are notoriously inept at.

“Coulda, Woulda, Shoulda” – Friedman 11/14/07

Today’s column by Friedman on energy policy should be mandatory reading for all political candidates. The basic premise of the opinion is that America has failed to act in a coherent manner with regards to energy (i.e. oil) policy. Specifically, Friedman points out the drastic increase in oil prices from September 2001 through November 2007 (350%), which can largely be attributed to the increased global demand for oil. This increased global demand is significantly related to America’s failure to reduce its’ demand and developing nations (e.g. China and India) adopting the American developmental model with respect to energy policy (see 11/9 post). The real underlying issue Friedman has with the current policy is that America has blindly relied on market forces to guide energy policy, but in a situation as complicated as energy policy the market fails to consider all the costs and benefits of a transaction. In a completely free market there is no obvious incentive to the individual driver or company to reduce oil reliance because the benefits that accrue from such decreased reliance are to the nation-state and society at-large and not the discreet economic unit. The societal costs of additional pollution is not part of the transaction, nor are the implications on geopolitical stability and sustainability calculated (directly) into the spot price of West Texas sweet crude.

The question is how do we get these costs considered in each transaction? One method would be to get individual consumers to price in these costs on their individual consumption behavior. Though laudable, the aggregate effects of this change will likely be nominal due to the overwhelming costs of an educational drive and also due to the low participation rate in such a program. The low participation rate is economically understandable, because there is no rational economic disincentive to the behavior in question. This is where a second method of regulating the market comes in: taxes. Of course using taxes to modify behavior is never very politically palatable, but this is when a truth telling politician (don't laugh) is needed. Friedman argues we need a candidate (a Democrat in his mind, and probably the only hope at all) to speak to this issue in a clear and truthful manner.

“DEMOCRATIC CANDIDATE: “Yes, my opponent is right. I do favor a gasoline tax phased in over 12 months. But let’s get one thing straight: My opponent and I are both for a tax. I just prefer that my taxes go to the U.S. Treasury, and he’s ready to see his go to the Russian, Venezuelan, Saudi and Iranian treasuries. His tax finances people who hate us. Mine would offset some of our payroll taxes, pay down our deficit, strengthen our dollar, stimulate energy efficiency and shore up Social Security. It’s called win-win-win-win-win for America. My opponent’s strategy is sit back, let the market work and watch America lose-lose-lose-lose-lose.” If you can’t win that debate, you don’t belong in politics.”

The likelihood of any serious candidate making this kind of statement is slim, but just because the current political actors aren’t willing to say it does not mean it is without value (an argument could be made that precisely for this reason it has value) Americans need to realize that continued (over) consumption of oil has a number of negative externalities coming to bear on each additional barrel of oil imported from abroad. It is my opinion that the best method to address these concerns is through a fuel tax. I understand that this tax would be inherently regressive, but this could be addressed through a phase-in and/or a temporary (I know this is hard to do) fuel tax income tax credit. Taxes have their place, and though modifying individual behavior may be the most desirable, sometimes a little government intervention can get the ball rolling.

Take this as my personal call to arms for a Geopolitical Social Cost Benefit Analysis of US Energy Policy. There has already been an outcry for including a tax on oil that would incorporate the social costs of pollution, but I argue here that we must consider the geopolitical consequences of continue reliance on foreign oil from unstable regions. An extension of the current policy, leads to America in a showdown of increasing demand with China and/or India for a stagnating world oil supply.

“Wobbled by Wealth?” – Krugman 11/5/07

Are the Democrats becoming corrupted by the influx of cash from wealthy supporters? This question is becoming more pertinent in the Democratic Party, as for the first time in recent history; the Democrats have raised more cash than the GOP from the business world. Are the Democratic officials selling out their progressive base by accepting the largesse of corporate America, or are they taking advantage of a political opportunity to broaden the power base?

The answer to this question will likely not come until sometime after 1/20/09, when a new president (likely Dem) will be able to develop an agenda for the nation. Will this agenda feature a more equitable tax structure with fewer loopholes and deductions for the rich? Will health insurance reform see the light of day? Will insurance reform to ensure that long-term policyholders aren’t dropped without cause become law? Or will hedge fund managers call on Mr. Schumer, drug companies on Hilary, and insurance on Mr. Dodd? Though this sounds a bit doomsdayish, the biggest concern I have is that progressives will fail to support the Democratic Party because they view it as the same as the GOP. Krugman hit the nail on the head on this point:

“O.K., some perspective. I sometimes hear people say that there’s no difference between Democrats and Republicans; that’s foolish. Look at the fight over children’s health insurance, and you can see how different the parties’ philosophies and priorities really are. All of the leading Democratic candidates are offering strongly progressive policy proposals; the Republicans are, if anything, running to the right of the Bush administration.

Perspective is key here, and I am not convinced that the Democratic presidential hopefuls are completely devoid of progressive principles. They have shown a willingness to at least espouse progressive ideals on the campaign trail. I am, like Krugman however, worried.

I have hope that opening the doors to business will generate immense electoral gains, arguably solidifying a governing coalition that can make a positive globalization effect for America into the future. I also have my concerns - Business is a bit of a serial monogamist, where nothing is forever. If the Democrats pursue this path of working closely with business, they may just cut some of the power out from under themselves were they to pursue a progressive agenda viewed as too extreme by the business community. Conversely, if they pursue an overly business friendly agenda, the possibility of losing unions, labor, and progressives is also real. I don’t believe in entrenched party lines, as they tend to make compromises more and more difficult as absolutes are embedded in party platforms. I do, however, find some cause for concern when the party that is stopping big boy hedge fund managers (all 150 of them) from being equitably taxed on their sizable income is the same party that for years has claimed to represent all the little guys out there.

“Generation Q” - T. Friedman – 10/10/07

On Wednesday, Thomas Friedman penned an op-ed piece that is quite appropriate for the initial post here on Donkey Behind The Times. The column focuses on college age and other young (I’m assuming up to about 35 here) Americans and their methods of influencing the world. Generation Q, according to Friedman, means “the Quiet Americans, in the best sense of that term, quietly pursuing their idealism, at home and abroad.” The main thesis is that though our generation is idealistic and optimistic, we are failing to become as engaged (and enraged) as we should be on the political scene. I have to agree that our generation is seemingly abandoning the political arena for the opportunity to affect social change at a more micro level. We are guilty of promoting our ideas, thoughts and networks via the internet (irony point for me), in lieu of the old-timer method of grassroots organizing (As in, we can all stand together on the same grass and conduct an in your face protest – not join a defunct-on-creation Facebook group). We are also caught up in “grassroots” social behavioral change, by which I mean to lower CO2 emissions we change to fluorescent bulbs at home and buy a Prius. These methods are commendable and essential parts of improving the world, but unfortunately the most prolific changes need to be implemented from the top. This is not to say that the idea should (or is likely to) come from the top, but engaging and influencing politics can get our generational values injected into public policy. I am aware that the term “our generation” tacitly implies that we are all on the same page politically, which I am 100% sure is untrue. I do, however, believe that we are failing to address issues that will affect each and every twenty-something for the rest of our lives. Friedman points to three questions that “Generation Q” needs to be asking of political leaders:

“What is your plan for mitigating climate change? What is your plan for reforming Social Security? What is your plan for dealing with the deficit – so we all won’t be working for China in 20 years? America needs a jolt of the idealism, activism and outrage (it must be in there) of Generation Q. That’s what twentysomethings are for – to light a fire under the country.”

Word to your moms, Mr. Friedman! These three questions should be at or near the top of our “to fix” list. I also have to admit that I found the deprecating term, “Greediest Generation,” applied by Friedman to his own cohort to be an interesting choice of terminology – of which I concur to a great extent. They have left us with many debts to pay; the longer it takes for us to influence action the more interest is accumulating.

• PS: If you happen to be in the “Greediest Generation,” please don’t take this as a personal affront, there are numerous reasons that these failed policies have been created and promulgated. Instead of feeling berated by the young, consider engaging us – we aren’t as stupid as you think we are.