I’ve never really been the auto bailout enthusiast that some of my colleagues on the left were. America’s car-oriented industrial policy has been very bad for the environment, and as you can, see just because car companies owe their existence to political risks President Obama took on their behalf doesn’t mean they’re going to ease up on this:
Detroit’s major automakers are ready for Round Two in their battle with the Obama administration over fuel economy standards, and this time, they’re hoping new leverage will give them the punching power they need.
And so it goes. You can hardly blame them. A car company’s got to lobby for the interests of car companies. And in their defense, tighter fuel efficiency standards are hardly an optimal policy. I’d much rather see higher gasoline taxes. But of course you can guess who would lead the lobbying charge against that, too.
In what Matt Yglesias called “a move that I think you can only interpret as a testing of the waters for a presidential run,” Rep. Paul Ryan (R-WI) delivered a foreign policy speech last night to the Alexander Hamilton Society in Washington, DC. Seeing that he is the House Budget Committee chairman, Ryan started off his speech by noting that America’s debt is a national security problem. Interestingly though, the Wisconsin lawmaker specifically excluded military spending as a source of this predicament:
Our fiscal crisis is above all a spending crisis that is being driven by the growth of our major entitlement programs: Social Security, Medicare, and Medicaid. In 1970, these programs consumed about 20 percent of the budget. Today that number has grown to over 40 percent.
Over the same period, defense spending has shrunk as a share of the federal budget from about 39 percent to just under 16 percent – even as we conduct an ambitious global war on terrorism. The fact is, defense consumes a smaller share of the national economy today than it did throughout the Cold War.
If we continue on our current path, the rapid rise of health care costs will crowd out all areas of the budget, including defense.
First, the percentage of what the U.S. government spends on what over time has nothing to do with the curent debt and deficit. The reason defense spending has decreased as a percentage of the budget is not because the U.S. is spending less on defense, it’s because national priorities have shifted over time.
Military spending actually makes up 20 percent of the federal budget — not 16 as Ryan said — and it comprises 50 percent of discretionary spending. But the over all point is that just because military spending has decreased as a percentage of the federal budget doesn’t mean much. In fact, military spending has increased, significantly, since 1970. Total defense spending in real dollars is now higher than at any time since World War II, and DOD’s baseline budget nearly doubled in the last 10 years.
Moreover, Ryan said the “fiscal crisis” is driven by entitlement programs like Social Security. Yet Social Security does not contribute to the debt and deficit. It is a self-sustaining program.
Our guest blogger is Heather Boushey, senior economist at the Center for American Progress Action Fund.
Manufacturing is important to the economy and, especially, to the economic recovery. From its most recent low point in December 2009, manufacturing has added nearly a quarter of a million (243,000) new jobs. But not this month: In May, manufacturing shed 5,000 jobs.
One month of bad data isn’t typically something to write home about. The severe weather in the Midwest and South and the lingering supply chain effects of the Japanese tsunami might have played a role (although the Bureau of Labor Statistics says that’s not likely).
But combined with other news, this is a sobering statistic. Earlier this week, the Institute for Supply Management reported that while the index of economic activity in the manufacturing sector expended in May for the 22nd straight month, the index was sharply lower than in April. And, in May, auto sales were down by 3.7 percent year over year. Combine that with too-low economic growth, and the picture gets a bit grimmer.
What will it take to revive U.S. manufacturing? Well, a good place to start would be to have a plan. A good plan would encourage domestic production and make investments in new technologies that will be the future of manufacturing, like green energy.
For months, Republicans have been playing games with the nation’s debt ceiling, threatening to not raise it unless they receive various items off of an ever-shifting list of demands, including cuts to Social Security or cockamamie Constitutional amendments. The GOP even held a sham-vote on increasing the debt limit this week, explicitly designing it to fail and then using that failure to up their calls for concessions on the part of Democrats.
As we’ve been documenting, failure to raise the debt ceiling could have several adverse consequences, including threatening the fragile housing market and wiping out economic growth (depending on the duration of the stalemate). On that note, CAP’s Michael Ettlinger and Michael Linden found that failing to raise the debt limit for two months could cause a bigger GDP drop than that experienced during the Great Recession of 2008:
To see just how much, imagine that this debt limit crisis happened last year. The budget deficit last August and September was $125 billion. If the government had been unable to finance that deficit, it would have been forced to cut $125 billion from its spending during those two months—which if translated into a decline of that magnitude in economic activity would have resulted in GDP dropping by 2.3 percent, in nominal terms, from the previous quarter.
To put that kind of drop in perspective, consider that the biggest quarter-to-quarter drop in nominal GDP since 1947, when official statistics began, was 2 percent from the third to fourth quarter of 2008—the middle of the Great Recession, when we lost nearly 2 million jobs. In other words, had the government been unable to borrow last summer, it could have resulted in an economic contraction worse than we experienced during the depths of the Great Recession.
Some Republicans have posited that such a shock to the economic system could actually be a good thing. “By defaulting on the debt, in the short and long term, it could benefit us to go through a period of crisis that forces politicians to make decisions” on major policies that affect the budget, said Rep. Devin Nunes (R-CA).
Back in 2010, with the expiration of the Bush tax cuts closing in, Republicans were very fond of claiming that the pending expiration was creating vast amounts of “uncertainty” that was holding back the economy. “The number one reason out there why jobs aren’t being created: Uncertainty,” said House Majority Whip Kevin McCarthy (R-CA). “The message from the election is that the uncertainty connected with the tax rates was a primary issue,” House Majority Leader Eric Cantor (R-VA) said in late November.
The tax deal that was cut in December extended all of the Bush tax cuts for two years. And even though the expiration of the current round of Bush tax cuts is not scheduled until January 2013, House Ways and Means Chairman Dave Camp (R-MI) is already reviving the uncertainty talking point, claiming that businesses aren’t hiring because the cuts might expire two years from now:
Some might find comfort in the fact that the December tax relief package prevented an immediate tax hike on job creators organized as pass-throughs who pay their taxes at the individual rate. These employers are primarily small businesses. But that relief will be fleeting as they again face higher taxes in less than two years unless Congress acts. The uncertainty surrounding their future tax rates makes it even harder for them to plan, invest and create jobs.
That the GOP preferred a two-year extension of all of the Bush tax cuts over a permanent extension of the middle-class cuts alongside permanent expiration of the high-end cuts revealed this talking point for the canard that it is. They don’t want tax certainty; they want low taxes on the rich, as the tax deal proved. But it seems like the GOP is going to have no qualms about playing the same “uncertainty” card again and again, even with the scheduled Bush tax cut expiration still a long way off.
Here from Matt Cameron are a couple of charts to illustrate the nature of the conservative recovery. First off, is socialism holding back the private sector? Nope:
Ask yourself if you genuinely believe that additional public sector layoffs would be replaced at a greater than 1:1 ratio by private sector hiring. If yes, you’re well-positioned to attack the Obama administration’s macroeconomic stabilization policies from the right. But how will that work?
And where’s it happening? Mostly at the local level:
The federal government should have stepped in when the recession hit with generous bailouts to states and municipalities to help stabilize their budgets. Instead, an austerity-minded congress has been letting state governments sink. Then a new crop of budget cutting governors came to office determined to slash spending while trying to avoid responsibility for unpopular cuts. The result was to push a lot of budget pressure downward onto local government, where we’re seeing huge cutbacks even thought he population continues to grow.
[I]n any year in which the budget bill is not passed by the Legislature by midnight on June 15, there shall be no appropriation from the current budget or future budget to pay any salary or reimbursement for travel or living expenses for Members of the Legislature during any regular or special session for the period from midnight on June 15 until the day that the budget bill is presented to the Governor. No salary or reimbursement for travel or living expenses forfeited pursuant to this subdivision shall be paid retroactively.
California Comptroller John Chiang announced yesterday that the legislature has not yet complied with this provision, thus its members will lose their pay in two weeks if a new budget is not enacted. And, frankly, the federal government would be much improved if it took a page out of California’s book.
Earlier this year, the federal government came within inches of an economically catastrophic shutdown because right-wing lawmakers refused to fund the government unless they could exact some concessions from President Obama. This summer, the GOP could blow up the entire U.S. economy by forcing us to default on our debt unless Obama signs economically crippling spending cuts into law. Meanwhile, there is nothing in the U.S. Constitution or anywhere else in federal law that penalizes lawmakers who fail to complete must-do tasks like funding the government or raising the debt ceiling.
California’s pay-docking provision is a good idea, but it probably doesn’t go far enough. Many modern constitutions are designed to make it next to impossible for a government to cripple itself via inaction. Canada, for example, recently had to dissolve its entire government and hold a new election because it’s previous legislature failed to pass a budget.
But, in the United States, Speaker John Boehner, Rep. Paul Ryan (R-WI), and their follow extortionists will suffer few personal consequences if they force us into the impossible choice of either killing Medicare or defaulting on our debts. Their jobs are guaranteed for two full years, and they can always retroactively pay their own salaries in the event of a shutdown. Worse, if Tea-drunk members of Congress bring us within inches of blowing up the nation’s economy, our Constitution contains no fail-safe to prevent catastrophe.
Our guest blogger is Heather Boushey, senior economist at the Center for American Progress Action Fund.
Today’s data from the Bureau of Labor Statistics provides little optimism for those entering the job market. While the pain is fairly widespread, this year’s crop of newly minted graduates will be finding fewer opportunities than they hoped when they started school.
While the overall unemployment rate is 9.1 percent, the unemployment rate among those aged 16 to 24 who are not enrolled in school was 18.7 percent for men and 16.5 percent for women. Even for those in this age group with a college degree, which would include most new graduates, the unemployment rate was 6.9 percent in May.
Here in Washington, policymakers often talk about not burdening today’s young people with large debts. But focusing on the future deficit, rather than today’s jobs crisis, obscures the reality that if we do not fix the labor market, today’s young workers will not get a solid start on their careers, which is a terrible burden to bear. The labor market consequences of graduating from college in a bad economy are large, negative, and persistent and the consequences may even more deleterious for those without a post-secondary degree.
For decades, wages and incomes for the American worker have been stagnant, even as productivity has increased substantially. Over the 2000 to 2009 period, workers experienced a “lost decade,” with incomes falling by nearly five percent and wages hardly growing at all. And according to Jed Graham, the last decade in terms of real wages was actually worse than the Great Depression:
The increase in total private-sector wages, adjusted for inflation, from the start of 2001 has fallen far short of any 10-year period since World War II, according to Commerce Department data. In fact, if the data are to be believed, economy wide wage gains have even lagged those in the decade of the Great Depression (adjusted for deflation). Over the past decade, real private-sector wage growth has scraped bottom at 4%, just below the 5% increase from 1929 to 1939, government data show.
Lack of wage growth has been a sad reality for too many Americans over the last decade and more. “I hadn’t seen a raise in 13 years,” Teresa Law, an Ohio home care attendant told ABC. “There was nothing new in your budget except for bills.” But during that time, bank CEOs made an average of $19 million per year. Those at the top of the income scale also did exceedingly well, and “the wealth of millionaire households in the U.S. could reach $87 trillion in 2020.”
Yves Smith commented on Graham’s data by saying, “there is a curious failure to mention why wage gains were higher in the Depression despite even higher unemployment. Funny how it does not occur them to mentions unions as helping give workers some bargaining power.” Indeed, as we’ve shown before, as union membership has declined over the last few decades, middle-class incomes have followed suit.
Tea Party freshman Rep. Joe Heck (R-NV) is furiously backpedaling today after he was caught on video calling Social Security a “pyramid scheme” that “isn’t working.” While speaking to a group of constituents about his approval for plans that would radically change beloved American entitlement programs, Heck had this to say about the country’s most important social safety net:
HECK: The kid who’s 18 years old — should that kid have to work to age 70? I don’t know but that could be a possibility to try to make this program work. Because look – Social Security started in 1935. … Fast forward to now. Full retirement age is 67 and the life span is 80. So when they first conceived Social Security they didn’t think they were going to be paying benefits for 13, 15 years. That’s one of the reasons why this pyramid scheme isn’t working.
Watch the video, courtesy of Americans United for Change:
Heck’s words touched off an instant uproar among his constituents, who immediately began shouting him down and challenging his disparaging characterization. He also falsely claimed at the outset of his remarks: “No one is talking about raising the retirement age.” Heck appears to be the latest Republican to take his talking points directly from the Tea Party group FreedomWorks, run by former House Majority Leader Dick Armey (R). At a conference for conservative activists, Armey called Social Security a “Ponzi scheme“ that steals people’s money “under false pretenses.”
Nevada journalist Jon Ralston reported that Heck has been trying to walk back his comments. Heck first said, “I regret that I misspoke” and added, “Those who have followed my position know that I am fully committed to protecting the promise of Social Security.”
Contrary to Heck’s opinion, Social Security has actually worked amazingly well since its inception, lifting millions of disabled and senior citizens out of poverty. It remains indispensable: the median income for senior households is $24,000, and Social Security provides the majority of income for two-thirds of our elderly.
Despite numerouspolls and an electoral upset that illustrate just how unpopular their position is, Republicans can’t seem to take the hint that Americans overwhelmingly like and depend on entitlement programs like Social Security and Medicare. After paying into them their entire careers, Americans expect these programs to remain intact to support them when they need it. There is simply no appetite for Republican efforts to abolish them, or tolerance for lawmakers who disparage them. Yet congressional Republicans remain defiant to public opinion and are sticking with their plans to end Medicare.
“Today’s data from the Bureau of Labor Statistics show that the job market has weakened considerably as employers added only 54,000 jobs in May. Yet Congress is dithering on increasing the debt ceiling. Failing to do so will lead to a sharp and immediate drop in economic output due to reductions in government spending and investment and their effects on the private sector. Employers’ confidence in the ability of Congress to act may be already shaken. Clearly, today’s data show that the labor market would be unable to handle such a large shock. Policymakers should focus first and foremost on doing no harm and acting to sustain, not derail, the economic recovery.“
“Moody’s Investors Service warned Thursday that it might review the government’s Aaa debt rating for a possible downgrade as early as next month if there is no progress toward a deal” on raising the country’s debt ceiling.
HUD Secretary Shaun Donovan said thata settlement regarding the foreclosure fraud settlement should come in a matter of weeks.
Yesterday, “Goldman Sachs was subpoenaed by Manhattan prosecutors seeking details on its conduct during the financial crisis, opening a fresh legal front for a bank facing probes from federal and state officials,” the FT reports.
“Fewer U.S. home loans are going delinquent and new problem loans have hit three-year lows, possible signs that a five-year wave of foreclosures is starting to recede,” USA Today reports.
“Many homeowners have been granted a hard-fought mortgage modification only to have their mortgage company effectively pull a bait and switch,” charging extra fees or reneging on the deal, Propublica reports.
The APfact-checks Mitt Romney’s presidential campaign announcement speech.