The Politics of Economics: Vignettes

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dollars pic.jpgTNR Senior Editor Noam Scheiber thinks that Elizabeth Warren is confirmable if nominated and thinks that Obama wins by pushing this button.
Scheiber thinks the Dems will hold behind her for the most part — and even with a defection or two, Grassley, Snowe, Collins and perhaps other Republican Senators have much to gain by supporting Elizabeth Warren as the head of a new consumer protection agency.
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The Fiscal Times has an interesting clip in an opinion piece titled: “Prime Numbers: Deficit Cuts A Priority for Americans“:

A 2003 Federal Reserve study showed that each percentage point rise in the ratio of federal debt to GDP lifted long-term interest rates by four basis points, or 0.04 percent. Applying that relationship to the CBO’s projections implies that borrowing costs ten years from now would be 1.4 percentage points higher than they would be at the 2009 debt-to-GDP level.

While the Fiscal Times tends to focus on the country’s budget deficit, the nation’s “jobs deficit” and “infrastructure deficit” are far more deleterious at this moment in time to the nation’s future opportunities.
The article, written by James C. Cooper, makes clear that borrowing a decade from now may be 1.4% higher than rates that can be locked in today. America needs smart investment now — not reckless investment with low returns to the economy. The key is to design an investment strategy that drives the economy towards high-wage job generation and innovation.
The US economy can lock in remarkably low rates for the next 30 years on monies that it borrows in the current economic climate.
America may forfeit its future to China, which is making huge comparative investments in its infrastructure and innovation base, if the US doesn’t rewire itself for growth, for innovation, and job creation.
Just cutting deficits is not an economic strategy.
— Steve Clemons

Comments

5 comments on “The Politics of Economics: Vignettes

  1. Carroll says:

    So tell us something we didn’t already know Robert.
    I’m tired of talking, I feel like a freaking broken record on this subject.
    The Great Decoupling Of Corporate Profits From Jobs
    By Robert Reich – July 27, 2010, 9:54AM
    Second-quarter earnings reports are coming in, and they’re making Wall Street smile. Corporate profits are up. And big American companies are sitting on a gigantic pile of money. The 500 largest non-financial firms held almost a trillion dollars in the second quarter, and that money pile is growing larger this quarter. Profits that plummeted in the recession have bounced back. Big businesses have recovered almost 90 percent of what they lost.
    So with all this money and profit, they’ll start hiring again, right? Wrong – for three reasons.
    First, lots of their profits are coming from their overseas operations. So that’s where they’re investing and expanding production.
    GM now sells more cars in China than it does in the US, but makes most of them there. The company now employs 32,000 hourly workers in China. But only 52,000 GM hourly workers remain in the United States – down from 468,000 in 1970.
    GM isn’t just hiring low-tech assembly workers in China. Last week the firm broke ground there on a $250 million advanced technology center to develop batteries and other alternative energy sources.
    You and I and other American taxpayers still own over 60 percent of GM. We bought GM to save GM jobs, remember?
    GM officials say no American taxpayer money is being used to expand in China. But money is fungible. Because of our generosity, GM can now use the dollars it doesn’t have to spend in the United States meeting its American payrolls and repaying its creditors, for new investments in China.
    Second, big U.S. businesses are investing their cash in labor-saving technologies. This boosts their productivity, but not their payrolls.
    Last Friday, for example, Ford reported a $2.6 billion second-quarter profit. The firm is already more than two-thirds the way to equaling its record 1999 profits. But due to labor-saving technologies, Ford now has half as many employees as it did a decade ago.
    Wall Street analysts are happy with Ford’s “commitment to keeping capacity in check,” according to the Wall Street Journal. Ford shares rose 5.2 percent Friday. “Keeping capacity in check” is the Street’s way of saying “no new hiring.” In fact, the Street is advising investors to sell the stocks of companies that talk openly of expanding capacity.
    Finally, corporations are using their pile of money to pay dividends to their shareholders and buy back their own stock – thereby pushing up share prices.
    Last Friday, GE announced it would raise its dividend by 20 percent and reinstate its share-buyback plan. It’s GE’s first dividend increase since the company cut its dividend in early 2009. As a result, GE shares are up more than 5% in the past few days.
    Bottom line: Higher corporate profits no longer lead to higher employment. We’re witnessing a great decoupling of company profits from jobs.
    The next supply-side economist who tells you companies need more incentive (i.e. lower taxes) before they’ll hire is living on another planet.
    The reality is this: Big American companies may never rehire large numbers of workers. And they won’t even begin to think about hiring until they know American consumers will buy their products. The problem is, American consumers won’t start buying against until they know they have reliable paychecks.

    Reply

  2. JohnH says:

    But do those most heavily invested in the economy–the wealthy few–support deficit cuts?
    Sure looks like their opposing the lapse of Bush’s tax giveaways!

    Reply

  3. Don Bacon says:

    SC: “America may forfeit its future to China, which is making huge comparative investments in its infrastructure and innovation base, if the US doesn’t rewire itself for growth, for innovation, and job creation. Just cutting deficits is not an economic strategy.”
    Exactly correct, and a particularly good read on China.
    One model people will be looking at is the UK, with David Cameron at the helm.
    from Michael Gerson, WaPo:
    “Cameron has proposed about four pounds in spending reductions for every pound in tax increases. A recent study of 44 major fiscal adjustments in developed nations since 1975 found that a one-percentage-point increase in taxes as a portion of gross domestic product cuts annual economic growth by an average of 0.9 percentage points. Reducing government expenditures by one percentage point, in contrast, increases average annual growth by 0.6 percentage points.”
    Cameron is going with austerity measures, a social agenda called “Big Society”, an emergency budget, encouraging volunteerism, empowering local communities, charter schools, welfare reform and aid to charities.
    Gerson: “The problem with centralized, government-oriented policies, he argues, is not only their expense. They have ‘turned able, capable individuals into passive recipients of state help.’ The alternative is a “thoughtful re-imagination of the role, as well as the size of the state.”
    The US federal government, on the other hand, is growing by leaps and bounds with increasing commitments both foreign and domestic, while the economy tanks and the debt skyrockets.
    Gerson’s piece is entitled “David Cameron’s dream could be President Obama’s nightmare” — apropos I think. Obama has shown no such courage to actually change anything for the better, but rather to subsidize failure, grow the government, expand the current war, maintain and expand the bloated military, and in his spare time — take on China, our chief banker and principal goods supplier who has out-performed the US. And this guy is supposed to be smart?

    Reply

  4. questions says:

    A conservative takes on the evidence regarding securitization:
    http://economix.blogs.nytimes.com/2010/07/27/debating-the-securitization-of-mortgages/?hp
    And concludes that two different papers have opposite findings regarding securitization, and that despite the mixed info, the author decides to take a stand against Fannie and Freddie anyway!
    What a funny piece.
    The real suggestion might be that people who score near cutoffs need to be watched far more carefully for any kind of loan. What a thought….
    The other real lesson seems to be that evidence doesn’t really sway ideological commitments!

    Reply

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