Friday, July 15, 2011

Weekend links

1---- The Euro; "an unambiguously right-wing project", Mark Weisbrot, Counterpunch

Excerpt: Since the point of all this self-inflicted misery is to save the Euro, it is worth asking whether the Euro is worth saving. And it is worth asking this question from the point of view of the majority of Europeans who work for a living, i.e., from a progressive point of view.

It is often argued that the monetary union, which now includes 17 countries, must be maintained for the sake of the European project. This includes such worthy ideals as European solidarity, building common standards for human rights and social inclusion, keeping right-wing nationalism in check, and of course the economic and political integration that underlies such progress.

But this confuses the monetary union, or Eurozone, with the European Union itself. Denmark, Sweden, and the UK, for example, are part of the EU but not part of the monetary union. There is no reason that the European project cannot proceed, and the EU prosper, without the euro.

And there are good reasons to hope that this may happen. The problem is that the monetary union, unlike the EU itself, is an unambiguously right-wing project. If this has not been clear from its inception, it should be painfully clear now, as the weaker Euro-zone economies are being subjected to punishment that had previously been reserved for low- and middle-income countries caught in the grip of the International Monetary Fund (IMF) and its G-7 governors. Instead of trying to get out of recession through fiscal and/or monetary stimulus, as most of the world's governments did in 2009, these governments are being forced to do the opposite, at enormous social cost. The insults added to injury, as with the privatizations in Greece or "labor market reform" in Spain; the regressive effects of the measures taken on the distribution of income and wealth; and the shrinking and weakening of the welfare state, while banks are bailed out at taxpayer expense – all this advertises the clear right-wing agenda of the European authorities, as well as their attempt to take advantage of the crisis to institute right-wing political changes.

The right-wing nature of the monetary union had been institutionalized from the beginning. The rules limiting public debt to 60 percent of GDP and annual budget deficits to 3 percent of GDP – while violated in practice, are unnecessarily restrictive in times of recession and high unemployment. The European Central Bank's mandate to care only about inflation, and not at all about employment, is another ugly indicator. The U.S. Federal Reserve, for example, is a conservative institution but it is at least required by law to concern itself with employment as well as inflation. And the Fed -- for all its incompetence in failing to recognize an $8 trillion housing bubble that crashed the U.S. economy -- has proved to be flexible in the face of recession and a weak recovery, creating more than $2 trillion as part of an expansionary monetary policy. By comparison, the extremists running the European Central Bank have been raising interest rates since April, despite depression-level unemployment in the weaker Eurozone economies.

Some economists and political observers argue that the Eurozone needs a fiscal union, with greater coordination of budgetary policies, in order to make it work. But right-wing fiscal policy is counter-productive, as we are witnessing, even were it to be better coordinated. Other economists – including this one – have argued that the large differences in productivity among the member economies present serious difficulties for a monetary union. But even if these problems could be overcome, the Eurozone would not be worth the effort if it is a right-wing project.

European economic integration prior to the Eurozone was of a different nature. Unlike the "race-to-the-bottom" approach of the North American Free Trade Agreement (NAFTA) – which displaced hundreds of thousands of Mexican farmers while contributing to reduced wages and manufacturing employment in the U.S. and Canada – the European Union made some efforts to pull the lower-income economies upward and protect the vulnerable. But the European authorities have proved to be ruthless in their monetary union.

The idea that the Euro must be saved for the sake of European solidarity also plays on an oversimplified notion of the resistance that taxpayers in countries such as Germany, the Netherlands, and Finland have demonstrated to "bailing out" Greece. While it is undeniable that some of this resistance is based on nationalist prejudice – often inflamed by the mass media – that is not the whole story. Many Europeans don't like to pay the bill for bailing out European banks that made bad loans. And the EU authorities are not "helping" Greece any more than the U.S. and NATO are "helping" Afghanistan – to take a somewhat analogous debate where those who oppose destructive policies are labeled "backward" and "isolationist."

It appears that much of the European left does not understand the right-wing nature of the institutions, authorities, and especially macroeconomic policies that they are facing in the Eurozone. This is part of a more general problem with the public misunderstanding of macroeconomic policy worldwide, which has allowed right-wing central banks to implement destructive policies, sometimes even under left governments. These misunderstandings, along with the lack of democratic input, might help explain the paradox that Europe currently has more right-wing macroeconomic policies than the United States, despite having much stronger labor unions and other institutional bases for more progressive economic policy.

2--Here's Why The Economy Feels So Bad, Credit Writedowns

Excerpt: The current economic recovery, following a severe credit crisis, is by far the worst recovery since the Great Depression and is nothing like anything experienced in the post-war period. Here's how we compare the current recovery to the last eight expansions that lasted at least two years.

1) The second quarter of this year will be the eighth quarter of recovery since the bottom two years ago. If the annualized growth in GDP is reported anywhere near 1.5% as the consensus expects, the average quarterly growth for the eight quarters will be only 2.7%. In the last eight recoveries the average growth in the first eight quarters was 5.2%----quite a difference.

2) Of the last eight quarters of the previous recoveries----comprising 64 quarters in all---only 17 registered growth below 3%. In the current expansion five of the eight quarters fell below that level. It is therefore not true that such pauses in growth are typical of recoveries. And keep in mind that long-term GDP growth is about 3%, and more than that is necessary to reduce the unemployment rate.

3--20% Drop in Housing to Cause Recession in 2012, Says Gary Shilling, Daily Ticker

Excerpt: Stocks rallied Wednesday after Federal Reserve Chairman Ben Bernanke suggested the central bank would go ahead with another round of stimulus -- aka quantitative easing -- if the economy continues to slump. In this scenario, the Federal Reserve would once again purchase assets to keep interest rates low in an attempt to support the economy and prop up asset prices.

So far, the Fed's actions have done more good for asset prices like stocks (see: S&P 500 chart since 2009) while doing less to help the economy (see: June jobs report). U.S. gross domestic product grew just 1.9% in the first quarter of the year. For 2011 as a whole, the Fed forecasts U.S. GDP growing at 2.7% to 2.9%, which is lower than the plus 3% forecast they made in April.

Gary Shilling, President of A. Gary Shilling & Co. and author of the Age of Deleveraging says another recession is brewing -- no matter what action the Fed takes. "Economic growth here and abroad is slipping, making a 2012 recession a distinct possibility," he writes in his July newsletter. And, "when you have slow growth it doesn't take much of a shock to throw you in negative territory."

Shilling says the shock to trigger the next recess is "another big leg-down in housing." (An asset class the Fed has not been able to reflate.) As those familiar with Shilling know, his forecasts are generally bearish. However, in his defense, Shilling was one of the few economists who correctly predicted the dangers of the subprime mortgage market and its impact on the broader economy.

The problem with the real estate market remains excess inventory. Based on Shilling's research, there are 2 million to 2.5 million excess homes in the country -- a supply that will take 4-5 years to work-off. The result: Housing prices will fall another 20% and underwater mortgages will balloon from 23% to 40%, he says.

With housing slumping again, Shilling says recession is coming to a town near you in 2012.

4--Mass psychosis in the US; How Big Pharma got Americans hooked on anti-psychotic drugs, Aljazeera

Excerpt: Has America become a nation of psychotics? You would certainly think so, based on the explosion in the use of antipsychotic medications. In 2008, with over $14 billion in sales, antipsychotics became the single top-selling therapeutic class of prescription drugs in the United States, surpassing drugs used to treat high cholesterol and acid reflux.

Once upon a time, antipsychotics were reserved for a relatively small number of patients with hard-core psychiatric diagnoses - primarily schizophrenia and bipolar disorder - to treat such symptoms as delusions, hallucinations, or formal thought disorder. Today, it seems, everyone is taking antipsychotics. Parents are told that their unruly kids are in fact bipolar, and in need of anti-psychotics, while old people with dementia are dosed, in large numbers, with drugs once reserved largely for schizophrenics. Americans with symptoms ranging from chronic depression to anxiety to insomnia are now being prescribed anti-psychotics at rates that seem to indicate a national mass psychosis.

It is anything but a coincidence that the explosion in antipsychotic use coincides with the pharmaceutical industry's development of a new class of medications known as "atypical antipsychotics." Beginning with Zyprexa, Risperdal, and Seroquel in the 1990s, followed by Abilify in the early 2000s, these drugs were touted as being more effective than older antipsychotics like Haldol and Thorazine. More importantly, they lacked the most noxious side effects of the older drugs - in particular, the tremors and other motor control problems.

The atypical anti-psychotics were the bright new stars in the pharmaceutical industry's roster of psychotropic drugs - costly, patented medications that made people feel and behave better without any shaking or drooling. Sales grew steadily, until by 2009 Seroquel and Abilify numbered fifth and sixth in annual drug sales, and prescriptions written for the top three atypical antipsychotics totaled more than 20 million. Suddenly, antipsychotics weren't just for psychotics any more.

5--Why the US won't leave Afghanistan, Pepe Escobar, Aljazeera

Excerpt: It's raining trillions

A recent, detailed study by the Eisenhower Research Project at Brown University revealed that the war on terror has cost the US economy, so far, from $3.7 trillion (the most conservative estimate) to $4.4 trillion (the moderate estimate). Then there are interest payments on these costs - another $1 trillion.

That makes the total cost of the war on terror to be, at least, a staggering $5.4 trillion. And that does not include, as the report mentions, "additional macroeconomic consequences of war spending", or a promised (and undelivered) $5.3 billion reconstruction aid for Afghanistan.

Who's profiting from this bonanza? That's easy - US military contractors and a global banking/financial elite.

The notion that the US government would spend $10 billion a month just to chase a few "al-Qaeda types" in the Hindu Kush is nonsense....

The record since 9/11 shows that's exactly what's happening. The war on terror has totally depleted the US treasury - to the point that the White House and Congress are now immersed in a titanic battle over a $4 trillion debt ceiling.

What is never mentioned is that these trillions of dollars were ruthlessly subtracted from the wellbeing of average Americans - smashing the carefully constructed myth of the American dream.

So what's the endgame for these trillions of dollars?

The Pentagon's Full Spectrum Dominance doctrine implies a global network of military bases - with particular importance to those surrounding, bordering and keeping in check key competitors Russia and China.

This superpower projection - of which Afghanistan was, and remains, a key node, in the intersection of South and Central Asia - led, and may still lead, to other wars in Iraq, Iran and Syria.

The network of US military bases in the Pentagon-coined "arc of instability" that stretches from the Mediterranean to the Persian Gulf and South/Central Asia is a key reason for remaining in Afghanistan forever.

6--Financial Crisis Panel Commissioners Leaked Confidential Information To Lobbyists, Report Alleges, Huffington Post

Excerpt: Republican commissioners on the panel created by Congress to probe the roots of the financial crisis leaked documents to partisan allies and shared confidential information with influence peddlers, according to a Wednesday report by Democrats on a Congressional oversight committee.

The House Oversight and Government Reform Committee, led by Republican Rep. Darrell Issa of California, sought to investigate allegations that the bipartisan Financial Crisis Inquiry Commission was mismanaged by its Democratic majority, misused taxpayer funds, was compromised by conflicts of interest and colluded with Democrats in Congress as they sought to pass a financial reform bill.

Instead, the 400,000 emails and documents obtained by the investigative committee show that Republican commissioner Peter Wallison broke confidentiality rules by leaking documents to Ed Pinto, a colleague of his at the American Enterprise Institute, a prominent right-leaning Washington-based research and policy organization.

The misconduct did not stop there, according to the report. The assistant of Bill Thomas, the panel's vice chairman and another of the four Republican commissioners, shared information about the commission's hearings, targets and investigative direction with one of Thomas's colleagues at law firm Buchanan, Ingersoll, and Rooney, one of Washington's top lobbying shops. In one case, Thomas's colleague, Alex Brill, asked Thomas's assistant in a March 31, 2010, email about an upcoming hearing on Citigroup for his "friend who represents Citi." The bank was concerned it would be unfairly singled out at its hearing, wrote Brill, who is also the chief executive of economic and political consulting firm Matrix Global Advisors.

The partisan bent of the report, its findings and the investigation that led to it lends credence to the central criticisms that have long dogged the panel: A commission led by former politicians rather than prosecutors and economists would never get to the bottom of the financial crisis, and its findings would inevitably be viewed as a political report rather than as an objective look at the companies, policies and practices that caused the most punishing downturn since the Great Depression.

7--Job Cutters May Reap What They Sow, Kathleen Madigan, Wall Street Journal

Excerpt: For an individual company, keeping down labor costs is a smart move. But the U.S. economy as a whole suffers when weak labor markets hold back consumer spending. The same companies that are laying off workers today will soon wonder why they have no customers later on.

Two years into the recovery, and it still feels like recession in the U.S. labor markets. Job growth — which in turn generates more income for consumers — can only gather a head of steam if two trends are in place: layoffs diminish and businesses go on a hiring spree.

The latest data casts doubt upon both.

The U.S. Labor Department said Tuesday that the number of job openings stood at 3 million in May — the same lousy number posted in each month since February. Hiring stood at 4.07 million in May, but, again, that number hasn’t improved at all this year.

Without better labor demand, it is no wonder the jobless rate is stuck around 9%.
As economists at Credit Suisse note, “Even if all job vacancies were filled overnight, almost 11 million workers would still be left unemployed.”

And others will be joining the crowded ranks of the unemployed. Tech-equipment leader Cisco Systems Inc. plans to cut up to 10,000 jobs to revive its profits, Bloomberg News reported Tuesday. And Campbell Soup Co. plans to return to profitability in part through cost savings–which usually means job reductions. The company said in late June that it would eliminate positions at its Camden, N.J., headquarters.

The increase in merger activity also means less labor demand ahead.

In announcing its takeover of software company Radiant Systems Inc., NCRCorp., maker of ATMs and cash registers, said some of the cost savings of the merger will come from a reduction in work force.
One small exception to weak labor demand comes from the small-business sector. The National Federation of Independent Business said Tuesday that while small business owners were less optimistic in June, their hiring plans ticked up and a higher percentage of them, 15%, were finding it hard to fill certain positions. Even with the improvement, however, the jobs numbers “are still at recession levels,” says the NFIB.

The U.S. labor markets are stuck in low gear. It is hard to see economic growth accelerating if job growth doesn’t.

8--Great Depressions, Streetlight blog

Excerpt: Coming across stuff like this is exactly why I've been reluctant to even pick up the newspaper (metaphorically) in recent weeks:
The U.S. Treasury will not default.

Despite all the rhetoric and posturing we see in the media and in Washington D.C., it is safe to say categorically that the U.S. Treasury will not default on its debt after August 2nd, even if the debt ceiling is not raised. Not only will the Treasury be able to pay interest on U.S. debt obligations, but there is money for other essential programs as well. However, there will be some serious cutting that has to happen because spending clearly exceeds revenues.
Yes, quite. In fact, some specific numbers are provided in this column: federal spending would instantly have to be reduced by about $100bn per month. By the end of 2011 federal spending would be about $500 bn lower for the year than it would have been otherwise.

I've made this point before, but for numbers that large, anyone who wants to pretend to have some understanding about the economy has to think about macroeconomic effects. In particular, spending cuts of that sze would reduce the US's 2011 GDP by multiple percentage points. The Q3 and Q4 GDP growth rates wold probably be on the order of between -5% and -10%. Recall that during the recession of 2008-09, GDP only fell by about 4% in total. The unemployment rate would be likely to rise by several percentage points from its current level of 9.2%, to perhaps 15% or more of the US population. Recall that at its worst, the unemployment rate during the Great Recession only reached 10%.

So when you read someone blithely writing that the federal government will not default in the absence of a debt ceiling deal, and instead will merely have to trim excess spending, remember that what they're really advocating is a new and deliberately caused Great Depression. And not just in economists like me.

9--How the Bubble destroyed the middle class, Rex Nutting, MarketWatch)

Excerpt: A lot of people say they are deeply puzzled by the slow recovery in the U.S. economy. They look at the 9+% unemployment rate and the mediocre growth in national output, and they scratch their heads and wonder: Where is the boom that inevitably follows a deep bust, such as we experienced in 2008 and 2009. But there is no mystery. What other result would you expect from the financial ruin of the once-great American middle class? And make no mistake, the middle class has been ruined: Its wealth has been decimated, its income isn’t even keeping pace with inflation, and its faith in the American economy has been shattered. Once, the middle class grew richer each year, grew more comfortable, enjoyed a higher living standard. It was real progress in material terms. But that progress has been halted and even reversed. In some respects, the middle class has made no progress in a generation, or two.

This isn’t just a sad story about a few losers. The prosperity of the middle class has been the chief engine of growth in the economy for a century or more. But now our mass market is no longer growing. How could it? The middle class doesn’t have any money. There are a hundred different ways of looking at the economy, and a million different statistics. But if you wanted to focus on just one number that explains why the economy can’t really recover, this is the one: $7.38 trillion. That’s the amount of wealth that’s been lost from the bursting of housing bubble.... Leverage is an amazing thing: When prices go up, the borrower gets all the gains. And when prices go down, the borrower takes all the losses. Some families lost everything when the bubble collapsed, others lost very little. But, on average, American homeowners lost 55% of the wealth in their home.

Most middle-class families didn’t have much wealth to begin with — about $100,000. For the 22 million families right in the middle of the income distribution (those making between $39,000 and $62,000 before taxes), about 90% of their assets was in the house. Now half of their wealth is gone and it will never come back as long as they live. Of course, rich folk lost lots of wealth during the panic as well. Their wealth is mostly in paper not bricks -– stocks, bonds, mutual funds, life insurance. The market value of those assets fell further than home prices did during the crash, but they’ve mostly recovered their value now. The S&P 500 SPX -1.81% lost 56% of its value when it crashed, but it’s doubled since then. Stocks are down about 13% from peak.

The rich recovered; the rest of us didn’t.

If losing half your meager life savings weren’t bad enough, the middle class has also been falling behind in terms of income for decades. Families in the middle make most of their money the old-fashioned way: Working their fingers to the bone for 40 years for wages and a modest pension. The middle class has been getting a smaller and smaller share of the pie over the past 40 years. Their wages have been flat after adjusting for inflation. In the late 1960s, the 20% of families right in the middle were earning almost their full share of the pie: they had 17.5% of total income. Their share has been falling steadily ever since. Now, that 20% is earning just 14.6% of all income. Meanwhile, the top 5% captured a growing share, going from 17% in the late 1960s to 22% today...

10-- A Divided FOMC, Tim Duy, Fed Watch via Economist's View

Excerpt: The FOMC minutes were simply fascinating. The discussion of the economic situation was markedly downbeat, even before the latest employment report, yet the final outcome of the meeting – the FOMC statement and Federal Reserve Chairman Ben Bernanke’s subsequent press conference – seemed to clearly indicate that, barring an outright return to the threat of deflation, the Fed saw its job as done. How can we reconcile these two positions? Presumably the faction leaning more toward additional easing is relatively small, while the majority believes either they have already gone too far or that further policy is ineffectual. Bernanke seemed to place himself in the latter category during the press conference. Is that really where he stands? This apparent divergence of views on the FOMC will bring extra attention to Bernanke’s testimony today on Capitol Hill....

Why the downgrade? The list is long:

This judgment reflected the persistent weakness in the housing market, the ongoing efforts by some households to reduce debt burdens, the recent sluggish growth of income and consumption, the fiscal contraction at all levels of government, and the effects of uncertainty regarding the economic outlook and future tax and regulatory policies on the willingness of firms to hire and invest.

As if this is not enough, the risks are all downside risks:

Moreover, the recovery remained subject to some downside risks, such as the possibility of a more extended period of weak activity and declining prices in the housing sector, the chance of a larger-than-expected near-term fiscal tightening, and potential financial and economic spillovers if the situation in peripheral Europe were to deteriorate further....

So what’s the bottom line here? On one hand, the “watch and wait” mode could be viewed as understandable given the multitude of temporary factors in play. That said, temporary factors aside, the overall tenor of the meetings appears to have been very depressing. There is a clear sense the economy is firing on only a handful of cylinders, yet FOMC members cannot completely explain why. And perhaps more importantly, it appears members are operating without consistent theoretical or empirical frameworks. They all seem to be looking at the same set of data through very different lenses. There is no agreement that policy has been effective or ineffective. There is no agreement if inflation risks are high or low. There is no agreement if structural impediments are real or imagined. Given the lack of agreement, it is difficult to see how policy does anything but remain in a holding pattern until a clearer picture emerges. Good news for those worried the Fed would soon tighten. Ongoing weak job reports practically guarantees the Fed will not step on the breaks. Bad news for those looking for more. Until the inflation fears shift back to deflation fears, there looks to remain strong resistance to additional asset purchases.

11--I Hate to Keep Making This Point, But It Needs to Be Said, David Beckworth, Macro and other musings

The question then is how to change the dreary economic outlook that is causing households, firms, and financial institutions to hold relatively large shares of money and money-like assets. The best way to do it would be for the Fed to adopt a level target, such as a nominal GDP level target. It would go a long ways in appropriately shaping nominal expectations and in bringing aggregate demand back to a more robust level. Finally, ignore all those naysayers who say it cannot be done in a balance sheet recession or who say there is no magic lever that can revive the economy. They don't know their history. It worked for FDR in 1933-1936 and could work now too.

Excerpt: The anemic economic recovery can be tied to the ongoing elevated demand for safe and liquid assets. Paul Krugman and Brad DeLong refer to this phenomenon as a liquidity trap; I like to call it an excess money demand problem. Either way the key problem is that there are households, firms, and financial institutions who are sitting on an unusually large share of money and money-like assets and continue to add to them. This elevated demand for such assets keeps aggregate demand low and, in turn, keeps the entire term structure of neutral interest rates depressed too....

Again, the weak aggregate demand can be traced back to the elevated demand for money and money like assets. Here is one figure that is consistent with that claim. This figure shows monthly job openings for the U.S. economy along with monthly money velocity, an indicator of the demand for money. The relationship is surprisingly strong and is consistent with the implications of the figures shown in my previous post. ...

12--Nearly 5 workers for every available job, New York Times

Excerpt: More bad news on the job market front: the number of jobless workers per job opening stayed flat at 4.7 in May, according to a new report from the Labor Department. That is more than twice the average ratio seen during the boom years that preceded the Great Recession....

Part of the problem with the labor market is that there is so little churn; that is, companies aren’t hiring partly because no one is leaving. Hopefully having more separations will give companies reason to ramp up hiring, and hopefully that will lead to having more jobs on net. I realize, though, that that’s a lot of hopefullys.

13--Global monetarism strikes back,Triple Crisis

Excerpt: ...In this sense, the main risks associated with the current recovery are the incapacity of private demand to create the conditions for a self-sustaining resurgence of demand and the early withdrawal of fiscal and monetary stimulus, in particular in developed countries that, together with the ongoing financial deleveraging process, imply that growth will remain subdued. The return of fiscal austerity and a more contractionary monetary stance, what we may call Global Monetarism, has reasserted itself before the economy got back on its own feet. The return of the master (Keynes) proved to be too short-lived, and that is the real danger faced by the global economy.

14--Gauging the effect of the Great Recession, FRBSF

Excerpt: In the mid-2000s, an enormous speculative housing bubble emerged in the United States. An accommodative interest rate environment, lax lending standards, ineffective mortgage regulation, and unchecked growth of loan securitization all fueled an overexpansion of consumer borrowing. An influx of new and often unsophisticated homebuyers with access to easy credit helped bid up house prices to unprecedented levels relative to rents or disposable income. Equity extracted from rapidly appreciating home values provided households with hundreds of billions of dollars per year in spendable cash, significantly boosting consumer spending. The consumption binge was accompanied by a rapid increase in household debt relative to income and a decline in the personal saving rate (see Lansing 2005).

The persistent rise in home values encouraged lenders to ease credit even further on the assumption that house price appreciation would continue. But when these optimistic projections failed to materialize, the bubble began to deflate, setting off a chain of events that led to a financial and economic crisis. The “Great Recession,” which started in December 2007 and ended in June 2009, was the most severe economic contraction since 1947 as measured by the peak-to-trough decline in real GDP.

The Great Recession triggered a dramatic shift in household spending behavior. Real personal consumption expenditures trended down for six quarters, the personal saving rate more than tripled from around 2% to over 6%, and households began a sustained deleveraging process that is still under way (see Glick and Lansing 2009).

This Economic Letter estimates the amount of consumption lost from the Great Recession by comparing the actual trajectory of real personal consumption expenditures to its pre-recession trend. The amount turns out to be quite large. From December 2007 through May 2011, foregone consumption per person was over $7,300, or about $175 per person per month....

Economic theory assumes that consumption is a key determinant of personal well-being. Many households became accustomed to the consumption trend established before the recession and expected it to continue. From that perspective, the amount of foregone consumption might be viewed as a measure of the recession’s cost for the average person. However, the pre-recession consumption trend was almost surely not sustainable because much of the household debt that helped finance that spending was collateralized by bubble-inflated housing values. Consumption was bound to slow sooner or later. Indeed, the average annual compound growth rate of real consumption per person since the recession ended in June 2009 is 1.15%, well below the 2% rate before the recession.

15---The President’s Jobs Plan (Not), Robert Reich's blog

Excerpt: What did the President do in response to last week’s horrendous job report — unemployment rising to 9.2 percent in June, with only 18,000 new jobs (125,000 are needed each month just to keep up with the growth in the potential labor force)?

He said the economy continues to be in a deep hole, and he urged Congress to extend the temporary reduction in the employee part of the payroll tax, approve pending free-trade agreements, and pass a measure to streamline patent procedures.

To call this inadequate would be a gross understatement.

Here’s what the President should have said:

This job recession shows no sign of ending. It can no longer be blamed on supply-side disruptions from Japan, Europe’s debt crisis, high oil prices, or bad weather.

We’re in a vicious cycle where consumers won’t buy more because they’re scared of losing their jobs and their pay is dropping. And businesses won’t hire because they don’t have enough customers.

Here in Washington, we’ve been wasting time in a game of chicken over raising the debt ceiling. Republicans want you to believe the deficit is responsible for the bad economy. The truth is that when the private sector cannot and will not spend enough to get the economy going, the public sector must step into the breach. Cutting the deficit now would only create more joblessness.

My first priority is to get Americans back to work. I’m proposing a jobs plan that will do that.

First, we’ll exempt the first $20,000 of income from payroll taxes for the next two years. This will put cash directly into American’s pockets and boost consumer spending. We’ll make up the revenue shortfall by applying Social Security taxes to incomes over $500,000.

Second, we’ll recreate the WPA and Civilian Conservation Corps — two of the most successful job innovations of the New Deal – and put people back to work directly. The long-term unemployed will help rebuild our roads and bridges, ports and levees, and provide needed services in our schools and hospitals. Young people who can’t find jobs will reclaim and improve our national parklands, restore urban parks and public spaces, recycle products and materials, and insulate public buildings and homes.

Third, we’ll enlarge the Earned Income Tax Credit so lower-income Americans have more purchasing power.

16--Time is of the essence, Lawrence Summers, Financial Times

Excerpt: Is there scope for adding fiscal measures that would contribute 1 per cent of GDP or more over the next year and a half? Absolutely. With economic demand constrained and in a liquidity trap where interest rates cannot fall further, fiscal policies have larger than normal effects. With even very conservative estimates of multiplier effects, a combination of continuing payroll tax cuts, maintaining support for unemployed workers, and accelerating infrastructure maintenance could add closer to 2 per cent of GDP growth over the next year and a half.

Usually the media and Washington take too short a view. Now is the rare time when all need to remember that you only get to the long run through the short run. Given the current weakness of the US economy what is most important is that any budget deal be pushed forward as soon as possible.

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