Tuesday, August 30, 2011

New CEA head and more...

Lots of criticism over the new Obama head of the council of economic advisers (CEA). People say he is too far to the left...

so did you expect Obama to appoint a Republican's economist to the post?

We have a BIG budget problem nothing should be off the table- no not even a national sales tax which Alan Krueger supports (a tax, by the way, that Democrats hate, Republicans despise and State Governors (and many mayors) abhor-all for different reasons. To Democrats the tax is too regressive, to Republicans it is too powerful, to Governors and mayors, sales taxes have been their exclusive province for 'fund raising')...

Cutting entitlements is 'job one' to get the deficits in line. But not job one through 'n.' All this Republican whining about taxes is misplaced. Tax reform and more taxes are almost surely part of a real workable solution. But enlightened tax reform, not vicious now-you-are-going-to-get-yours tax reform. America does not need class (or classless) warfare, Everyone should be paying taxes, everyone should pay their 'fair share.' The tax code already is progressive. suck it up and write the check but pare the obligation down to a workable profile that is American in nature. We are not the social welfare economy that Europe has become and is struggling to maintain.

Europe is no role-model for American

There is all too much spin doctoring about our problems and our dilemma and not enough willingness to take the bull by the tail and look the situation square in the err...'eye' and deal with it.

Deficits did not spring fully born out of the head of Obama as in some tale of Greek mythology. 'W' -remember him? ran TWO unfunded wars (cha-ching!) added a large drug benefit to medicare (Cha-ching!) and added a new cabinet post, Homeland Security (Cha-ching!). He handed over to the O-man an economy that was losing jobs at a pace of nearly 1-million PER MONTH ( Kur-Plunk!) in the early months of his nascent Presidency. The economy was not just weak, it was spiraling out of control. (here take the wheel I'm outta here....) While I do not give Obama good marks for his fiscal plans (or results!) I think we need to be careful where we put the blame and to whom we ascribe the bulge in the deficits. Hey is that a big deficit in your pants or are you just happy to see me? Let me be clear. Deficits emerge in response to something-something done or not done. They do not spring forth out of nowhere. The Obama deficits merged the context of great stress on the economy.

The Bush contributions to the deficit were all policy-induced and not executed in the midst of a crisis. His famed tax cuts propelled the economy to nowhere but are staunchly defended by the faithful. Choose the altar where you plan to worship carefully...Bush's tax cuts based on results were no success story. Still, this is no defense of Obama who, based on his current body of work, does not deserve reelection. (Has any Nobel Prize winner ever failed to be elected the very next time he faced the public?)

Only look to Europe to see what I call the quadriplegic strategy: Cutting and cutting will not really get you anywhere but stuck some place from which you cannot move. It's medicine is slow-acting. It is structural not counter-cyclical. We do not need to shrink government to free up up resources for the private sector: what to you call 9% unemployment if not free resources? We need enlightened minds in both parties and instead we have friggin ideologues ON BOTH SIDES OF THE AISLE.

We need to focus not on policies that will add former government workers to the ranks of the unemployed but on policies that will spur growth, add to output and add to job rolls. We do need hard core nonthinking redistribution plans from the Democrats or shrink-o-nomics from the Republicans.

So, here is an appeal to the religious right: God help us.

Monday, August 29, 2011

Learning from Irene

Irene good night,

Irene good night

Good night Irene

Good night Irene I’ll see you in my dreams (nightmares)

About Irene and what we can learn from her passage…

While Irene was a bust of disaster in most of Manhattan it did wreak some havoc in the surrounding areas, some very real property damage and five deaths are being reported. The New England States appear to have gotten hit hard.

The more general disruption of business from airlines to trucking to package delivery business and much more has been enormous. But some of the losses will be made up. Some will not. The storm’s hitting at month-end could mean August activity is reduced and September’s is boosted. Coming so late in the month we may still be seeing come recovery effects extended to the week of the 12th of September, the week that serves as the survey basis for the nonfarm jobs report. It could be artificially boosted. Municipalities, already short on funds, will be forced to spend monies they don’t have for needed repairs, tree removal and repair of damaged infrastructure and so on.

From my vantage point on the Upper Wet Side (former Upper West Side) of Manhattan, it was a lot of rain and not even that much wind. It might have been too much wind to fly a kite but it was not blowing of a worrisome sort. All my neighborhood stores closed and the subways did not run. I was officially stranded. I took pictures both up and down West End Avenue with NO TRAFFIC at all, just like in a Sci-Fi movie. It was Sci-Fi except no Zombies- just rain. My local grocery store (soon to be renamed Wet-side Market) did more business on Saturday as the storm approached than it may ever have done ever before (in my estimation). Going through the store when it managed to open with a bare-bones crew on Sunday morning I had never seen such bare shelves. Moral: some kinds of businesses benefited.

I was amazed on Saturday as stores were shuttering ahead of the pending subway shut down, that a high end women’s shoe store in the neighborhood was still open… Never underestimate the need for more shoes (with very high heels) as rain and the threat of flooding gets real. Fashion is never to be discounted (except at Loemann’s).

The church on the corner of West End Ave and 77th put up notices on Saturday that there would be no Sunday service. Meteorologists scared the Hell into people that day; that is the moral of that story. In the end, Sunday was a fine day on the Upper West Side of NYC despite the fact the 8AM was supposed to be the time of the storm’s closest reach to my neighborhood. By 10AM the sun was out and instead of disaster we had a very fine day.

We cannot say the same for the states North and East of us or for the economy as a whole. This was a very odd event. Is this more of the effects of ‘global warning’ that many seem to not believe in? On balance is it another warning shot (a warming shot?) about the future? And it is another blow to property and casualty insurance companies. Have the winds of change really shifted so much?

If nothing else it is a good lesson of the role that expectations play. I do not criticize the Mayor or the Governor for their actions. NY it seems was ‘spared;’ the storm’s true severity has been amply demonstrated tough its impact on the suburbs. As it went through our area and did worst damage North and East of us as well as south of us. And the greater NY area took enough of a pounding for it to be a real wakeup call about future prospects. But people acted as though and were forced to act as though things would be worse. My local church sure could have held services. Few people in the neighborhood take the subway to their local church. But no one knew. So when you look at the economy let this be a lesson about how people act on their expectations and how risk aversion interacts with those expectations.

The economy’s poor performance since Barack Obama has been President stems in no small measure from his decision to have run as the ‘Yes we can candidate’ but to govern as the ‘what the heck was that’ President. I believe his desire was to see that Republicans were blamed for the bad economy he inherited (knowing full well that that was what he was getting). He even set himself up as an economic know-it-all in contrast to John McCain who admitted he was not an economic expert in the campaign for office, so don’t cut Barack too much slack here. Meanwhile, Obama has been out-maneuvered by savvier Republicans who saw he was President and knew where the buck would stop for a too-weak economy. Economists were pessimistic from the get-go forecasting a double dip before we had even a single–scoop. We had a perfect storm of soured expectations and it has played out that way in the real world, almost as it did on the Upper West side of NY this weekend when the subways were closed. Doing that killed it even for the optimists as well as for those who were in in denial. People could not get to work; stores were closed and it was a ghost town.

This economy as been an example of what partisan politics can do to the economy when each side pursues its own agenda at the expense of the economy and at the expense of the welfare of the American people. It’s as though our politicians shut down the subway without the threat of a storm. Our government can isolate us. It can also help us. Ronald Reagan made the phrase, ‘I’m from the government and I’m here to help you, into a laugh line. Government is powerful. It needs to be mindful of its power when it flexes its muscle. Now government itself is in the middle of the debate about the economy. Has IT been the problem? As it been new policies and restrictive rules that have hammered growth, or has it been mostly the conduct of public officials killing off optimism? How much of it is still the lingering effects of financial crisis with tis complex bi-partisan causes? Unfortunately, this debate is not like tropical storm, It does not pass and the sun does not automatically come out. There is still a bitter taste in the mouths of politicians from both sides. Each side still smells the other’s blood in the water- not even the storm washed that away. And there is so much more politicking to do. Yet the economy is need of near term help. What will it be? More government or less? Who will win? The answer is not an easy one. Neither side will capitulate. So be afraid, Be very afraid. ‘This' is not over, this political storm has more damage yet to wreak.

Sunday, August 14, 2011

Deficits turn policy upside-down and calls for hard choices

I have two recent articles published elsewhere you may wish to read:

CNBC on the pluses and minuses of a national sales tax