Americans believe the economy is in a recession. But is it true?
Just how bad is the U.S. economy? Who's asking? More important, who's answering?
The conventional wisdom is not always wrong. But because it depends so much on emotion, it can often mislead. As a result, it is in times like these that economic fundamentals become so important. Rather than dwelling on the bad news coming from the financial and housing sectors, we believe it is important to look at the underlying drivers of the economy. And those look very solid.
Back in 2002-03, the household measure of civilian employment was much stronger than the payroll survey, signaling economic recovery. However, at the time, many prominent economists, including Alan Greenspan, (wrongly) argued that the payroll survey was right about the economy, not the household survey.
Then, in late 2007, the household survey was weaker than payroll growth, signaling slower growth and gaining some adherents now that it was showing weakness. But in the past few months, the household survey -- which we have followed closely all along -- has turned up strongly. In the first four months of 2008, when the payrolls survey shows a loss of 65,000 jobs per month, the household survey shows a gain of 179,000 per month.
Look for more positive economic data in the months ahead, as the most predicted recession in U.S. history never comes to pass.
As of spring 2008, we're probably just a third of the way through the unfolding debacle in the housing, credit, and financial markets. In political and regulatory terms, the ultimate problems and remedies have only begun to define themselves.
We're not just looking at an ordinary recession. Since the 1970s, the United States has redefined itself from a manufacturing nation to a financial economy built on debt, leverage, and a considerable ratio of speculation. Both political parties have been complicit in this, and the downturn now beginning will be unusual and potentially tragic.
The lesson of history is that previous leading world economic powers, from Rome and Imperial Spain to the Netherlands (back when New York was New Amsterdam) and early 20th-century Britain, have been unable to reform themselves in time to avoid decline. Politics has failed in the face of entrenched interests. In the process, excessive debt and dependence on finance rather than production has been front and center. New nations move to the head of the line -- and these days we can see Asia smiling.
A transport truck is buried under a mountain of corn headed for the ethanol production plant.
Washington's love affair with corn-based ethanol may be cooling, but President Bush and Congress are heatedly clashing over who is to blame for delays in responding to skyrocketing gas and food prices. Bush on Tuesday defended ethanol production, saying "it's in our national interest that our farmers grow energy, as opposed to us purchasing energy from parts of the world that are unstable or may not like us."
Ethanol production has driven up the prices of corn-fed livestock, such as beef, chicken and dairy products, and products made from corn, such as cereals. As a result of higher demand for corn, other grain prices, such as soybean and wheat, have risen dramatically. The fact that the U.S. is the world's largest grain producer and exporter means that the ethanol-induced higher grain prices will have a worldwide impact on food prices.
It's easy to understand how the public, looking for cheaper gasoline, can be taken in by the call for increased ethanol usage. But politicians, corn farmers and ethanol producers know they are running a cruel hoax on the American consumer. They are in it for the money. The top leader in the ethanol hoax is Archer Daniels Midland (ADM), the country's largest producer of ethanol. Ethanol producers and the farm lobby have pressured farm state congressmen into believing that it would be political suicide if they didn't support subsidized ethanol production. That's the stick. Campaign contributions play the role of the carrot.
If the current measure passes Americans will shell out billions of dollars for farm subsidies that wreak havoc on our land and diets. These payments irresponsibly promote the consumption of cheap fatty foods, the depletion of soil and air through overuse of pesticides, and destructive farming practices.
Like farm bills past, this one also advances the removal of small farms, eroding the spirit and finances of rural communities across the U.S.
Instead of upholding these mega-farm subsidies, let's invest the public's money in sustainable growing practices, organic foods, and small and mid-sized farms that form the bedrock -- both economically and socially -- of communities throughout America's heartland.
Hardly a romantic nod to the past, such an overhaul is a practical investment in the future. As global warming heats up, we can't afford a system that guzzles 100 billion gallons of oil each year in pesticides and the long-distance transit of packaged foods.
Even the wealthy are feeling the pinch of $4 a gallon gas.
Paying for gasoline easily tops the list of economic woes facing families in the United States, according to a survey on how changes in the economy have affected people's lives.
In America, drivers are fuming and politicians are demanding explanations because gasoline has hit about $3.50 per gallon. That's less than half the price being paid by motorists in most industrialized countries. High to us is low to them. Then there are the oil refiners. Relative to the $120 price of crude, $3.50 for gasoline is so cheap that their margins have virtually disappeared. So "high" in Cambridge, Massachusetts and Oxford, Mississippi is "low" in similarly named cities in the UK, and "high" for motorists is "low" for refiners. It depends where you live, and at which point in the supply chain you find yourself.
But assume that prices are "high", which indeed they are by historic standards. We are mistaken when we think these "high" prices are causing inflation. High oil prices can force consumers to spend more on gasoline and heating oil, at the expense of other purchases. Ask any suffering restaurateur or clothes retailer if you doubt that. But high oil prices can't trigger a rise in the general price level -- inflation -- unless someone pumps money into the economy so that, to use an oldie but goodie from the economists' lexicon, there is more money chasing the same amount of goods.
If you want something to blame for inflation, don't look at oil prices, look at the billions the Federal Reserve Board's monetary policy gurus and their confederates at the U.S. Treasury are pouring into the economic system. The cost to taxpayers of saving the financial services sector from ruin is not only making good any collateral the Fed has accepted that might prove worthless, but the run-up in the rate of inflation.
High gas prices are not an economic or political problem. They are the result of the natural workings of markets. There is nothing wrong with the market -- and no reason, other than self-preservation and the false appearance of being able to do something, for politicians to intervene. Supplies are decreasing -- both temporarily through unexpected refinery shut-downs and permanently through stock depletion.
Demand is increasing -- both in the U.S. and worldwide. Both of these will cause gas prices to rise and that's good. If gas prices don't rise, we will consume gas even faster and run out sooner. Higher gas prices encourage conservation and encourage investment in alternatives. High gas prices might be uncomfortable while we search for viable long-term solutions, but they're more comfortable than the alternative: no gas and no solutions.
Deficit hawk John McCain is making the case for the stimulating effect of tax cuts.
Republican John McCain said Sunday that cutting taxes and stimulating the economy are more important than balancing the budget, and accused both Hillary Clinton and Barack Obama of supporting tax hikes that would worsen the impact of a recession.
The proper way to prepare to meet the entitlement challenge consists of three essential elements: Change entitlements to slow their cost growth; eliminate all nonessential spending in the remainder of the budget; and, most important but often overlooked, adopt policies that promote economic growth. The greater the economic growth, the larger the economic pie, and the greater the public and private resources available to finance entitlement obligations and other national priorities.
Last year's federal budget illustrates the importance of economic growth to the federal budget's overall health. The federal budget deficit was recorded as 1.2% of GDP, half its average level over the past four decades. This modest deficit occurred despite the fact that Congress has been on a decade-long spending binge; despite the fact that not a single entitlement program has been significantly reduced since the late 1990s and two entitlements, Medicare and farm support payments, have been significantly increased; and despite the fact that we are in the midst of costly but necessary wars in Iraq and Afghanistan.
The consensus that tax increases are needed for fiscal balance is wrong. The next president can fund our defense priorities, maintain tax cuts, and balance the budget. A tax-increase consensus blurs the basic debates over our budget priorities in 2008 -- and severely limits our choices in 2028.
The federal deficit halfway through this budget year is at an all-time high, the Treasury Department announced Thursday, and the national debt is growing as well. But before we blame Washington politicians for their irresponsibility, stupidity and cowardice -- and we should -- we may want to look at another culprit: the American people. We, too, bear some responsibility for our $9 trillion federal debt and $50 trillion in governmental promises of future benefits.
Yes, cutting taxes and increasing spending is irresponsible, as is allowing Medicare and Medicaid costs to rise so quickly, as is failing to achieve a long-term fix for Social Security and retirement security, as is developing (and protecting) a Byzantine tax code and dysfunctional budget process, as is pork. Yada yada yada. Washington deserves a lot of blame for the growing national debt, despite some genuinely thoughtful and courageous leaders, and must take the lead in solving the nation's fiscal problems.
But we share the blame. We want lower taxes but more government services. We go to great and morally questionable lengths to avoid paying the taxes that we now owe. We want to stop working as early as possible and draw retirement benefits for as long as possible.
President Bush, strolling near the Rose Garden, announced a climate change plan today.
Revising his stance on global warming, President Bush today proposed a new target for stopping the growth of the nation's greenhouse gas emissions by 2025. President Bush also called for putting the brakes on greenhouse gas emissions from electric power plants within 10 to 15 years.
Mr. Bush doesn't intend all the catastrophic consequences of his simple decision to offer legislation to regulate carbon emission. But then, by this point he should be quite familiar with the concept of unintended consequences. And he needs to recognize that he cannot pass "sensible "legislation. (I have serious doubts that any legislation on this topic could be sensible.)
All he can do is set the stage for next year's legislation, by giving away the rhetorical store and weakening the already modest backbone of Republican legislators. The liberal world order will not let go of their global-warming assault on free economies until hell freezes over -- by which point, obviously, the global-warming theory will be visibly disproven.
It took so long for Bush to even acknowledge the human role in global warming that whenever he even mentions the topic, some people act like it's big news.
But in an era where a consensus has emerged that forceful action is required to save the planet, Bush's essentially empty words are not very different from silence. And to the extent that their intent is to subvert sincere attempts to find solutions, they're actually worse.
Bush's trick on climate change is to wait until others are about to embrace mandatory limits on greenhouse gases, then make a major speech about goals and process, without any specifics on measures or penalties.
