Jeff Frankel

Current Recession Now Tied for Longest Since the Great Depression

My personal inclination is not to attribute to his father W.'s habit of ignoring real-world data . George H.W. Bush was far better able to absorb information and to shift course when appropriate than was his son. A good example would be the Andrews Air Force Base agreement that he reached with Congress, which helped set the stage for a subsequent steady elimination of the budget deficit over the course of the 1990s.
JF


On Apr 30 02:53 AM Moon Kil Woong wrote:

> Cetin: I don't think quickly recovers is what people had in mind
> when they are talking about how long it has lasted.
>
> Of course when the downturn started the government was in denial
> for almost a year which was extremely unhelpful. Bush Jr. must had
> learned that trick from his father Bush Senior who also was in denial
> about a falling economy.
>
> As Steve Hansen points out, the jury is still out regarding whether
> the upturn will actually lead to a 2009 late recovery.

Current Recession Now Tied for Longest Since the Great Depression

Reply to John S. Gordon:

The NBER Business Cycle Dating Committee (of which I am a member) dates the beginning of the recession from the end of 2007. It is true that some indicators, like the housing market, went into decline before then. But other indicators, most of them more important, did not go into decline into later -- especially after the Lehman Brother bankruptcy in September 2008. For example, output continued to rise in the first half of 2008. It is reasonable to assume that the choice lies somewhere in between. And the BCDC in choosing to place the turning point at December 2007 paid a lot of attention employment which emphatically peaked in that month, and also real household income.
JF


On Apr 30 08:28 AM john s. gordon wrote:

> current recession began in june 2007, that's when the housing bubble
> in sacramento started to deflate.

Implications of Yuan's Return to Dollar Link

The China-US currency situations is one of the best examples in monetary history of "be careful what you wish for; you might get it."

Tim Geithner and other Administration officials do understand the double-edged sword -- that if the Chinese were to stop accumulating reserves (or even to go the other way, to start selling dollars) -- as the US has been asking them to do, there is a severe risk that we would have trouble funding our deficits and that US interest rates would rise. (In the preceding Administration, Undersecretary Tim Adams also understood this, although I am not sure everybody else did.)

Why then did Secretary Geithner make the comment he did, at his Senate confirmation hearnigs? I believe it was not in the text of his remarks, but was rather in response to a question. The Congress -- both Houses, and both parties -- are dead-set on the campaign to get China to "stop manipulating" its currency. Many congressmen haven't even heard the alternative view, let alone understood it. Their beliefs run along the lines of our commenter Tom E. The Treasury is required by a law that Congress passed 20 years ago to name trading partners as manipulator based on such criteria as the bilateral trade deficit, even though it is irrelevant both as a matter of economics and as a matter of international law. I wish Tim hadn't said what he said. But my guess is that he felt constrained politically to do so.

JF

Fiscal Responsibility: Obama Takes the Reins

To AMaxTax

No, we are not in agreement even on the AMT aspect. I think the AMT needs to be fixed once and for all, not retained once and for all.

It sounds like you are one of the people not yet affected by AMT (whereas "Erzo" probably is), and so you want to tax them. So is your comment in pure self-interest?

Or is it that you think the red states are morally superior to the blue states. Because if we are going to go back to Karl Rove's "red states vs. blue states" sham (despite our President's heroic efforts to rise above that), I will for once dare speak some unrecognized facts: (1) the red states on average receive much higher net fiscal subsidies from the federal government than do the blue states, and (2) they experience higher rates of teen-age pregnancy, divorce and alcoholism than the blue states. So there !

JF

On Feb 24 11:34 AM AltMaxTax wrote:

> Obama was not honest with his stimulus package. It will raise 'baseline'
> budgets for years to come. It will also raise state budgets for years
> to come and they will hurt over this.
> So mostly I think your article represents your own delusions.
>
> However, we might possibly agree on one thing. I think they need
> to stop tweaking the Alternate Minimum Tax. Let it go ahead and screw
> the high income people in high tax states that generally vote democratic
> anyway. Why are republicans trying to minimize the negative effect
> of the AMT on wealthy democrats in blue states. That is nuts.
> Either fix it for real, or just let the thing do its damage. The
> little year by year tweaks just keep us in the crazy place.
> Another silver lining of the porkulus bill is that it will ultimately
> result in broad based tax increases because they won't possibly be
> able to raise enough revenue just by taxing the high income people.
> And eventually when the middle class figures out that they are hurt
> more by higher taxes than they are helped by Obama's soaring rhetoric
> they may actually consider voting differently.

Fiscal Responsibility: Obama Takes the Reins

There is no question that tax increases hurt, especially to the extent they fall on the workers you describe. One of the reasons I opposed the simple-minded tax-cutting of 1981 and 2001-03 is that in both cases I thought that they would be accompanied by huge deficits and debts, requiring taxes to end up at higher levels just to service the debt. I think those predictions were born out.

Rather than the tax increases you describe, I prefer others: taxes on energy or carbon, reinstating the estate tax at some appropriate level, and Obama's decision to treat the income of hedge fund managers as earned income rather than capital gains.


JF

On Feb 24 08:54 AM Ergo wrote:

> What a conclusion. Increasing taxes on the hardest workers, while
> wasting trillions in borrowed funds, is definitely the road to fiscal
> responsibility. (sarcasm intended).
>
> Seriously, I understand the author's point. But IMO, the analysis
> is incomplete. The government creates incentives for people to act
> in certain ways. Tax policy is a big way to do that. I am suspicious
> about the 250k cut off, especially with higher payroll taxes over
> 107k. People who make good salaries typically work harder jobs with
> longer hours and live in cities where costs are higher. Penalizing
> the responsible just can't be good long term policy.
>
> There has already been a lot written about the tragedy of the stimulus.
> We're spending 800 Billion and not getting much to show for it. It's
> not just spending money that was needed, but spending in a way that
> makes sense. Think about how much could've been done with that money
> if it were focused on something specific. In short, I don't believe
> a few rhetorical techniques with revised arguments are the same thing
> as fiscal responsibilty.

Fiscal Responsibility: Obama Takes the Reins

John,
I agree.
On the question of the difficulties of having mature policy discussions via the modern media, I go back and forth on whether we should view this as a new phenomenon. Some people say that the famous Lincoln-Douglas debates were in fact as simple-minded as modern candidate debates.

JF


On Feb 24 10:43 AM John Lounsbury wrote:

> Jeffrey - - -
>
> Excellent article. I have several thoughts:
>
> 1. Obama seems to have the ability to tell the truth and not to pull
> punches. This may or may not stand him in good stead because it does
> not fit the mold of our political system. (Yes, the word "mold" has
> two meanings, and I meant both to be considered.) It is one thing
> to tell the truth and quite another to get politicians to take appropriate
> action based on the truth.
>
> 2. One of the biggest mistakes Roosevelt made in The Great Depression
> was to raise taxes in 1937. Consequences of raising taxes before
> there is a well established recovery must be carefully considered.
>
>
> 3. Improving efficiencies in government and other broad service areas,
> such as medicine, will involve challenging entrenched economic interests.
> Can Obama be effective here when all too many legislative branch
> politicians are bought and paid for? Especially when many of these
> people may not be consciously aware that they are acting in response
> to "bribery", but feel they are acting on "principle". Too many politicians
> have frozen their brains in an ideological rigidity that prevents
> them from engaging in pragmatic reasoning.
>
> Abraham Lincoln was able to overcome such handicaps, but that was
> in the day when media exposure took place in terms of days, not minutes.
> Obama may or may not have all the political acumen of Lincoln, whom
> he apparently wishes to emulate. But could Lincoln have been successful
> if he lived with our modern media?

Fiscal Responsibility: Obama Takes the Reins

Obviously I disagree with your overall assessment.

But to clarify: whatever measures are taken to fix Social Security, they are not going to have much effect in the next four years. It is for the more distant future. The steps to cut the deficit over the next four years are different (PAYGO, etc.).

JF


On Feb 24 10:14 AM ED K wrote:

> The President elect saying ,he will cut the deficit in half in four
> years, only exposes his economic inexperience.With each proposal
> he makes and new commitment my giving him the benefit of the doubt
> dwindles further.Iam starting to believe his administration is going
> to be a disaster for the country.
>
> If his cutting the deficit in half has anything to do with altering
> social security,raising taxes or modifying medicare he will quickly
> become a lame duck president.This proposal could turn out to be his
> swan song.

Fiscal Responsibility: Obama Takes the Reins

Yes, I know that the Social Security retirement age has already been raised, a result, I believe of the Greenspan Commission of the early 1980s. But, yes, I am afraid that most economists support raising it again, if only a little, as part of the solution. I know it is very unpopular. But as a result of lengthening life span, the average worker's period of retirement has increased, far more than his (or her) period of work.

Currently benefits after one's retirement are indexed to wages of continuing workers. One proposal is to index them instead to the CPI, so that real benefits would remain constant. The "progressive indexation" idea, as I understand it, is that lower income workers would continue to see their benefits rise along with nominal wages but that the benefits of higher income workers would rise at a slower rate, progressively closer to the rate of CPI inflation. It was originally proposed by Bob Pozen, but became popular with the Bush Administration and unpopular with liberals.

JF


On Feb 24 08:26 AM Joyful Alternative wrote:

> One point: The full age of Social Security retirement has already
> been raised. For example, the age for someone born in 1945 is 66
> and for someone born in 1957 it's 67 (not 65).
>
> Does the author plan on raising the age further?
>
> PS: What is "progressive indexation of benefits"?

TIPS Can Help Improve the Fiscal Situation

I am glad to see that I am in good company.
JF


On Feb 22 11:26 AM John Lounsbury wrote:

> A general comment about TIPS: These are the only intermediate and
> long-term bonds I have in accounts at present. I have no other bond
> holdings with maturities longer than one year.