Friday, October 30, 2009

‘Jobs Created or Saved’ Is White House Fantasy



Oct. 28 (Bloomberg) -- Heresy, thy name is Christina Romer.
Last week, the chairman of President Barack Obama’s Council of Economic Advisers -- a position that carried the title “chief economist” until Larry Summers took up residence in the White House -- testified to the Joint Economic Committee on the economic crisis and the efficacy of the policy response.
Here’s the executive summary in case you missed it:
The crisis: “Inherited.”
The economy: “In terrible shape” (the inherited one).
The shocks to the system: “Larger than those that precipitated the Great Depression.”
The policy response: “Strong and timely.”
The efficacy of the policy response: a 2 to 3 percentage point addition to second-quarter growth; 3 to 4 percentage points in the third; and 160,000 to 1.5 million “jobs saved or created,” a made-up metric if there ever was one. (More on that later.)
What was most puzzling about Romer’s Oct. 22 testimony was her comment on the waning effect of fiscal stimulus.
“Most analysts predict that the fiscal stimulus will have its greatest impact on growth in the second and third quarters of 2009,” Romer said. “By mid-2010, fiscal stimulus will likely be contributing little to growth.”
At first it was just fringe elements, such as conservative blogs and the not-really-a-news-organization Fox News, that pounced on Romer’s statement. Then other news outlets started to question her statement, which seemed to fly in the face of White House assertions that only a small portion of the stimulus -- $120 billion, or 15 percent -- has actually been spent. Most of the criticism of the stimulus coming from the president’s own party has been, “too little, too late,” and here’s Romer saying it’s kaput.
Thanks for That
Instead of being banished to the woodshed, Romer was consigned to the White House blog, where she slipped into professorial mode to explain the arcane distinction between the effect of the stimulus on the change in gross domestic product and its effect on the level of GDP.
Stimulus has its biggest impact on the growth rate of GDP when it’s implemented, Romer said, using a car-and-driver analogy: Step on the accelerator, the car goes from zero to 60.
Stimulus will keep the level of GDP and employment higher than they would have been even after the growth-rate effect fades, she said.
Her logic is impeccable. It’s her premise that’s flawed.
Dispensing Lucre
When the government distributes lucre or loot, people spend it. If your interest is national income accounting, spending other people’s money is great. Spending is a back-door way for government statisticians to measure what matters, which is the real output of goods and services.
But the government has no money of its own to spend; only what it borrows or confiscates from us via taxation. Oops.
“Government job creation is an oxymoron,” said Bill Dunkelberg, chief economist at the National Federation of Independent Business. It is only by depriving the private sector of funds that government can hire or subsidize hiring.
That’s why “jobs created or saved” is such pure fiction. It ignores what’s unseen, as our old friend Frederic Bastiat explained so eloquently 160 years ago in an essay.
Econometric models synthesize all sorts of variables and spit out a GDP forecast. From there they derive the change in employment using something called Okun’s Law, named after the late economist Arthur Okun, which describes the relationship between the two.
Fiction Lags Reality
Actual hiring seems to be lagging behind the model’s land of make-believe. For small businesses, which are the source of most job creation in the U.S., the government’s increased and changing role in the economy isn’t a confidence builder. Businessmen have no idea what health-care reform will mean for their cost structure or what whimsical tax policies the government might impose when it realizes those short-term deficits are running into long-term unfunded liabilities.
No wonder capital spending plans were at an all-time low in the third quarter, according to the NFIB monthly survey.
Only 30,383 jobs were created or saved by the American Recovery and Reinvestment Act, according to Recovery.gov, the government’s once-transparent Web site that has become a complex blur of numbers, graphs and pie charts. These are only the jobs reported by federal contract recipients. The Obama administration will report the larger universe of ARRA-related jobs on Oct. 30.
An extrapolation of what would have happened without the fiscal stimulus isn’t much consolation to the 9.8 percent of the workforce that is unemployed. Nor is Romer’s prescription for the economy and labor market very comforting in light of the trillions of future tax dollars that have been spent, lent or promised by the federal government.
“If you take your foot off the gas, the car goes from 60 back down to a slow crawl,” Romer said in clarifying blog post.
Gentlemen, start your engines.

America's Grossly Distorted Product

If the Obama administration were managing a company, it might have hoped the latest gross-domestic-product numbers would be greeted with cries of "great quarter, guys!"
At least the stock-market obliged, rising on the back of better-than-expected GDP data Thursday morning. But then bulls have become used to looking to Washington for inspiration. Zero rates and stimulus programs boost economic data as well as nudge money toward riskier assets.
Fully 2.2 percentage points of the third quarter's 3.5% growth figure related to vehicle purchases and residential construction, both juiced by government support. Federal spending added 0.6%.
If these GDP data were company earnings, they would be what analysts euphemistically call "low quality." Investors buying into the market off the back of them are ignoring weekly unemployment-claims data that came in above 500,000 again on the same day.
The danger is that all these short-term fixes leave the economy dangerously addicted to taxpayer-funded steroids. The circularity in the housing market, whereby Washington provides tax breaks to first-time buyers, guarantees most of the mortgages written, and then buys most of those, beggars belief, and suggests a worrying case of amnesia following the bursting of the housing bubble.
Another idea that has been floated is to give tax breaks to firms to encourage them to hire. Yet with earnings besting forecasts so far, it doesn't look like firms are exactly short of funds to pay workers. What they lack is a clear sense that the economy is on a stable footing. Distorting the cost of money, durable-goods demand and labor productivity won't help that, but merely serve to build up further problems.

Be Prepared for the Worst

Ron Paul, 10.29.09, 09:20 AM EDT
Forbes Magazine dated November 16, 2009

The large-scale government intervention in the economy is going to end badly.



image

Any number of pundits claim that we have now passed the worst of the recession. Green shoots of recovery are supposedly popping up all around the country, and the economy is expected to resume growing soon at an annual rate of 3% to 4%. Many of these are the same people who insisted that the economy would continue growing last year, even while it was clear that we were already in the beginning stages of a recession.
A false recovery is under way. I am reminded of the outlook in 1930, when the experts were certain that the worst of the Depression was over and that recovery was just around the corner. The economy and stock market seemed to be recovering, and there was optimism that the recession, like many of those before it, would be over in a year or less. Instead, the interventionist policies of Hoover and Roosevelt caused the Depression to worsen, and the Dow Jones industrial average did not recover to 1929 levels until 1954. I fear that our stimulus and bailout programs have already done too much to prevent the economy from recovering in a natural manner and will result in yet another asset bubble.
Anytime the central bank intervenes to pump trillions of dollars into the financial system, a bubble is created that must eventually deflate. We have seen the results of Alan Greenspan's excessively low interest rates: the housing bubble, the explosion of subprime loans and the subsequent collapse of the bubble, which took down numerous financial institutions. Rather than allow the market to correct itself and clear away the worst excesses of the boom period, the Federal Reserve and the U.S. Treasury colluded to put taxpayers on the hook for trillions of dollars. Those banks and financial institutions that took on the largest risks and performed worst were rewarded with billions in taxpayer dollars, allowing them to survive and compete with their better-managed peers.
This is nothing less than the creation of another bubble. By attempting to cushion the economy from the worst shocks of the housing bubble's collapse, the Federal Reserve has ensured that the ultimate correction of its flawed economic policies will be more severe than it otherwise would have been. Even with the massive interventions, unemployment is near 10% and likely to increase, foreigners are cutting back on purchases of Treasury debt and the Federal Reserve's balance sheet remains bloated at an unprecedented $2 trillion. Can anyone realistically argue that a few small upticks in a handful of economic indicators are a sign that the recession is over?
What is more likely happening is a repeat of the Great Depression. We might have up to a year or so of an economy growing just slightly above stagnation, followed by a drop in growth worse than anything we have seen in the past two years. As the housing market fails to return to any sense of normalcy, commercial real estate begins to collapse and manufacturers produce goods that cannot be purchased by debt-strapped consumers, the economy will falter. That will go on until we come to our senses and end this wasteful government spending.
Government intervention cannot lead to economic growth. Where does the money come from for Tarp (Treasury's program to buy bad bank paper), the stimulus handouts and the cash for clunkers? It can come only from taxpayers, from sales of Treasury debt or through the printing of new money. Paying for these programs out of tax revenues is pure redistribution; it takes money out of one person's pocket and gives it to someone else without creating any new wealth. Besides, tax revenues have fallen drastically as unemployment has risen, yet government spending continues to increase. As for Treasury debt, the Chinese and other foreign investors are more and more reluctant to buy it, denominated as it is in depreciating dollars.
The only remaining option is to have the Fed create new money out of thin air. This is inflation. Higher prices lead to a devalued dollar and a lower standard of living for Americans. The Fed has already overseen a 95% loss in the dollar's purchasing power since 1913. If we do not stop this profligate spending soon, we risk hyperinflation and seeing a 95% devaluation every year.
Ron Paul is a Republican congressman from Texas.


Obama’s bad economic bet may ruin Democrats

The anemic third-quarter U.S. GDP report is another indication that President Barack Obama’s economic gamble may yet fail to pay off. And that could be terrible news for Democrats heading into the 2010 midterm elections.
While the new report showed the economy shifting into recovery mode, it looks like a pretty anemic expansion. As the economics team at IHS Global Insight see things, temporary factors such as cash for clunkers (accounting for nearly half of the past quarter’s growth) and the homebuyers tax credit artificially inflated growth during the past three months. The firm puts underlying growth in the economy at closer to 2 percent than the 3.5 percent.
See, back at the start of 2009, the new White House team wagered that it could construct a stimulus plan that would both boost the economy, helping Democrats in the 2010 midterms, and serve as a significant down-payment on its long-term policy agenda in areas like clean energy and education. That would help Obama in 2012.
It’s a lot to ask of one plan, even a $787 billion one.
Of course, the task would have been easier had the administration gone with a $1.2 trillion stimulus option suggested by White House adviser Christina Romer. But worried that the deluxe option would stall in Congress while also spooking global bond vigilantes, Team Obama went with the mid-sized approach.
The administration didn’t count on the recession being far worse than it anticipated, driving the unemployment rate toward double digits. So while the stimulus plan was effective enough to help nudge the economy away from depression in the second quarter — it’s tough to spend a trillion dollars with absolutely zero short-term impact — and into mild recovery mode during the third, it wasn’t nearly powerful enough to ignite a V-shaped recovery.
Indeed, during the first quarter of the last 10 economic recoveries, real GDP rose a far more impressive 5.8 percent on average. For instance, the first five quarters of the Reagan Boom coming out of the 1981-82 recession showed GDP growth of 8.1 percent, 9.3 percent, 8.1 percent, 8.5 percent,  and 8.0 percent.
There was another, better path Obama could have taken. In a new study, Harvard economists Alberto Alesina and Silvia Ardagna conclude that fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. The Obama stimulus was two-thirds spending and one-third tax cuts or credits. And of course tax cuts thought more permanent by Americans could have produced a large impact on working, savings and investing – and powerful economic growth.
Romer herself has conducted research showing the economic oomph that tax cuts produce. And there’s research from economist Robert Barro who found that “a one-percentage-point cut in the average marginal tax rate raises the following year’s GDP growth rate by around 0.6 percent per year.”
As it is, Democrats are saddled with an economy that may not grow fast enough over the next year to substantially bring down the unemployment rate, if at all. So now there is a new wager in Washington: Just how bad will Democrat losses be next year?

No Deal: Chamber Chief Battles Obama

WASHINGTON -- With President Barack Obama bidding to overhaul the health-care system, tighten bank oversight and make industries pay for their greenhouse-gas emissions, some trade-association chiefs have decided to compromise with the party in power.
Not Thomas Donohue. On many of Mr. Obama's priorities, the president and chief executive of the U.S. Chamber of Commerce is working to defeat the administration—delighting some members, causing some to quit and sparking a furious reaction from the White House and left-wing activists. In the process, he has made the Chamber one of Mr. Obama's most visible opponents.
Bloomberg News
Thomas Donohue, president and CEO of U.S. Chamber of Commerce

On climate change, Mr. Donohue's group says warmer temperatures could help by reducing deaths related to cold weather.
On health care, a Chamber ad says Democrats' approach will kill jobs and slow growth.
On financial regulation, one ad says the administration's plan will hurt small businesses, "even the small butcher"—a line that prompted Mr. Obama to denounce the Chamber from the presidential podium this month.
Now, Mr. Donohue aims to spend $20 million annually for several years advocating free-market policies such as open trade and less regulation, taking aim at much of the Democrats' agenda. The public-relations campaign is the biggest undertaking in the Chamber's 100-year history.
A question hanging over all this is whether Mr. Donohue's aggressive stance will work better than compromise. The Chamber, which says it has 300,000 dues-paying members, has become a political target in Washington's partisan atmosphere. Though Mr. Donohue has strong supporters, a vocal minority of companies, including Apple Inc. and Nike Inc., have recently quit the Chamber or its board.
"They've put Main Street businesses in a precarious place by taking a position that's not credible and doesn't allow them to shape legislation to their members' benefit," said James Rogers, chief executive of Duke Energy Corp.
He says he has cut the electric utility's contributions to the Chamber over two years to protest the group's stance on climate change. Duke is one of the biggest owners of nuclear reactors in the U.S. but also the country's third biggest emitter of carbon dioxide because of its reliance on coal. It has said it favors legislation putting a price on carbon partly out of a desire for regulatory certainty in making investment decisions.
Through a spokesman, Mr. Donohue declined to be interviewed for this article. In an interview with The Wall Street Journal and other news organizations this month, the 71-year-old said "the great preponderance of our members believe in our position [on climate change] and support it."
On the Chamber's general approach, he said: "We work very hard to be inclusive, to give people a fair hearing, to ask for their input, and go back and forth with them." In a response to written questions, Mr. Donohue said Duke's Mr. Rogers "remains a good strong member whose counsel we greatly value."
Though it has attacked the leading proposals in Congress to make companies pay for their greenhouse-gas emissions, the Chamber says it accepts the idea that man-made emissions contribute to climate change and supports reducing them.
Some supporters of Mr. Donohue say if anything, he has been too accommodating to companies that support climate-change legislation. "You can never herd all companies in the same direction. He's doing as good a job as anyone I've seen heading one of these organizations," said Don Blankenship, CEO of coal producer Massey Energy Co., and a Chamber board member.
But, he added, "I don't like to see trade associations refer to global warming as "an issue" because it supports the idea something needs to be done about it." He said he has pressed Mr. Donohue to take an even tougher stand against proposals in Congress to require companies to pay for their emissions. He said high emissions "mean you've got a better, more productive economy."
Some other trade groups have moved to compromise with Democrats. Drug makers have offered $80 billion in savings to help fund a health-care overhaul. The Alliance of Automobile Manufacturers not only endorsed the administration's plan to raise national fuel-economy standards but helped it thwart a proposal by Senate Republicans to weaken the Environmental Protection Agency's authority to regulate emissions.
The Chamber is in the unusual position of quarreling publicly with major corporations. In recent weeks, Apple, PG&E Corp., PNM Resources Inc. and Exelon Corp. have quit the association, citing its position on climate change, while Nike quit its board. Exelon, a big generator of nuclear energy, says it expects an annual revenue boost of about $1.1 billion if climate legislation approved by the House in June is enacted.
Energy Secretary Steven Chu recently called the resignations "wonderful." The senior Republican on the House Select Committee on Energy Independence and Global Warming, Rep. James Sensenbrenner of Wisconsin, said it was "disingenuous" for Nike and Apple to criticize the Chamber "while manufacturing their products in countries that consistently refuse mandatory emission impacts." Representatives of both companies declined to comment.
With environmentalists and activist shareholders pressuring some firms to quit the Chamber, it sent members a memo two weeks ago apologizing for "any annoyance and inconvenience these efforts against us might cause you."
The Chamber recently disclosed it spent $34.7 million to lobby the government in the third quarter. That was up 68% from the same period last year.
A former Postal Service executive and trucking lobbyist, Mr. Donohue has tripled the Chamber's revenue over 12 years, helped beat back tougher air-quality rules and helped pass legislation that makes it harder to bring class-action lawsuits. The Chamber's board has rewarded him with a chauffeured car, $3.1 million in annual pay and the use of corporate aircraft often stocked with oatmeal-raisin cookies, his favorite snack.
Shortly after taking over in 1997, he pledged to dispel what he said was the Chamber's image as "a sleeping giant, missing in action from many important battles." He publicly expressed hope someone would punch the then-president of the AFL-CIO, John Sweeney, "in the mouth."
To bolster firepower, Mr. Donohue hired a new team, including William L. Kovacs as senior vice president for environment, technology and regulatory affairs. The Chamber then launched a series of attacks on climate-related bills.
Democrats in Congress want to bring down emissions by requiring companies to have permits to emit the gases. Over time, the U.S. would issue fewer permits, with the aim of reducing emissions.
In December 2007, the Chamber produced a TV and Internet ad depicting a family wearing coats indoors, cooking over candles and walking to work. Legislation in the Senate "could make it more expensive to heat our homes, power our lives and drive our cars," it said. "Is this really how Americans want to live?"
The ads surprised the U.S. unit of Germany's Siemens AG, which could see more demand for its wind-power and nuclear-services businesses if the U.S. adopts carbon caps. "We told [Mr. Donohue] we didn't agree with the ads and that we'd like a heads-up when a decision is made on how to represent the Chamber's position on climate change," a Siemens spokeswoman said at the time.
[Duke Energy CEO James Rogers, left, is critical of the U.S. Chamber of Commerce stance on a climate-change] AFP/Getty Images
Duke Energy CEO James Rogers is critical of the U.S. Chamber of Commerce stance on a climate-change bill.
[Massey Energy CEO] Associated Press
Massey Energy CEO Don Blankenship says the Chamber should be even tougher in its opposition.
The ads also got the attention of Gen. James L. Jones, a retired Marine Corps commandant and then president of the Institute for 21st Century Energy, a unit of the Chamber that makes recommendations to policy makers. According to a person familiar with the matter, Gen. Jones complained to Mr. Donohue that the ads put him in an awkward spot because the general was seeking a United Nations foundation's support for Chamber energy initiatives.
Two months later, the Chamber released another Internet video, on the eve of a U.N. climate conference in Monaco, accusing U.N. diplomats of hypocrisy for staging summits in locations requiring jet travel.
"Jones's concern was that it would make the Chamber look like bullies," said the person familiar with the matter.
Gen. Jones, now Mr. Obama's national security adviser, didn't respond to requests for comment left with his office. Mr. Donohue, through a spokesman, declined to comment on his discussions with Gen. Jones except to say the two "have had literally thousands of conversations over a full range of topics." He said the general is a "great friend" and was "an absolutely superb president of our Institute for 21st Century Energy."
Some Chamber members who support tougher regulation see it as just one of many important issues and praise other positions taken by the group. George Nolen, a retired CEO of Siemens's U.S. unit, cites the Chamber's support of free-trade policies. "They can't possibly have every member company in agreement on how to attack the problem in the same way," he said.
But as a House panel prepared for hearings on emissions restrictions in April, Johnson & Johnson's vice president for government affairs, Clifford Holland, urged the Chamber to express its members' "full range of views" on the issue. He expressed hope "a consensus can be reached that reflects the views of the range of Chamber members."
Until this past summer, the Chamber's uneasy balance on climate change was holding. Then in June, the group petitioned the EPA to hold a hearing on the agency's declaration that greenhouse gases endanger public health—the basis for regulating them under the Clean Air Act.
The Chamber accused the EPA of ignoring analyses that "show that a warming of even 3 degrees Celsius in the next 100 years would, on balance, be beneficial to humans' because the reduction of wintertime deaths would be "several times larger than the increase in summertime heat stress-related" deaths.
In interviews with reporters, Mr. Kovacs, the Chamber's environment chief, spoke of its desire for a hearing that would be the "Scopes monkey trial of the 21st century," referring to the 1925 trial that pitted evolutionism against creationism.
Environmentalists and some Chamber members pounced. In a letter to Mr. Donohue dated Sept. 18, PG&E CEO Peter Darbee said his company would leave the Chamber as a result of "deep concern" over "extreme rhetoric and obstructionist tactics."
Mr. Donohue said the Chamber continues to support federal investments and incentives for power that can be produced without emitting carbon dioxide, while "standing firm" in its opposition to the legislation passed by the House. "If people want to attack us, bring 'em on," Mr. Donohue told reporters.
They are. Last week, a group claiming to represent the Chamber staged a phony press conference in Washington to announce the Chamber would suspend all lobbying against climate legislation. A real Chamber spokesman interrupted the fake announcement, but not before several news organizations reported it.
The Chamber called the hoax "a foolish distraction from the serious effort by our nation to reduce greenhouse gases." This week, it sued the group that organized the stunt, alleging in federal court that it had violated trademark law by using the Chamber's emblem.
Write to Stephen Power at stephen.power@wsj.com

Thursday, October 29, 2009

It’s still about jobs, jobs, jobs

By Silla Brush and Jared Allen

The Commerce Department reported Thursday that the economy grew in the third quarter at rate of 3.5 percent, a sign that the U.S. is climbing out of the recession.
The report attributed the gains to increases in personal consumption, federal government spending, exports and private inventory investments. Motor vehicle output added roughly 1.7 percentage points to the change in gross domestic product, a broad gauge of the economy, as the government's "cash for clunkers" program helped stimulate car purchases.

The gains were better than the expected 3 percent increase, and bring to an end four straight quarters of economic contraction. Still, President Barack Obama downplayed the good economic news in a Thursday statement, and signaled his focus would remain on jobs.



"We’ve come a long way since the first three months of 2009, when our economy shrunk by an alarming 6.4 percent," said Obama, who described the report as an "affirmation that this recession is abating and the steps we’ve taken have made a difference."

"But I also know that we've got a long way to go to fully restore our economy, and recover from what has been the longest and deepest downturn since the Great Depression," Obama said. "And while this report today represents real progress, the benchmark I use to measure the strength of our economy is not just whether our GDP is growing, but whether we are creating jobs, whether families are having an easier time paying their bills, whether our businesses are hiring and doing well."
The economic growth reinforces arguments that the recession, which has raged since December 2007, has technically come to an end, although they do not technically determine that the recession is over. The National Bureau of Economic Research, the official arbiter of when recessions start and end, considers a range of factors, not just GDP.
Lawmakers from both parties were not declaring victory on the eve of the report, which had been highly anticipated.
“We have a long way to go,” said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, on Wednesday.

“Economists may say the recession is over, but most American families would disagree,” said Rep. Kevin Brady (Texas), the top Republican on the Joint Economic Committee.
With the midterm election one year away, Democrats in particular are wary of crowing too loudly about good economic news when many of their constituents are struggling.

Underlying that concern is the brutal reality that the nation’s labor market is worsening with more Americans losing jobs. The unemployment rate, now 9.8 percent, is expected to continue rising. The nonpartisan Congressional Budget Office estimates that the unemployment rate will average 10 percent throughout 2010 and will not return to pre-recession levels until 2014.

Those numbers are weighing heavily on lawmakers.

“Americans don’t feed their families on technicalities,” said Rep. Xavier Becerra (Calif.), the only member of Democratic leadership to vote twice against the $700 billion bailout of the financial system.

“So technically speaking, we hear the recession is over. On the ground, the hard facts for most American families are that they’re still suffering from tough times.”

Sen. Mike Johanns (R-Neb.) said voters would not feel an improvement in the economy until jobs return.

“To real people out there, they won’t feel the economy has improved until they have a greater feeling of security about their jobs,” Johanns said.

Lawmakers are also dueling over whether the $787 billion fiscal stimulus package and $700 billion financial bailout helped the economy. The financial bailout package was backed by both the George W. Bush and Obama administrations, while the stimulus was one of the first efforts supported by  Obama.
On Friday, the government will release new data on the direct impact in job numbers of the fiscal package’s spending provisions. The Obama administration has been touting the various spending and tax provisions under the package as a key measure in stabilizing the economy.

A range of private estimates and Obama administration predictions shows the package having a positive impact on between 800,000 and 1.5 million jobs.
Christina Romer, chairwoman of the Council of Economic Advisers, said Thursday that analysis by her council and outside groups suggests the stimulus had added 3 or 4 percent to GDP growth.

"This suggests that in the absence of the Recovery Act, real GDP would have risen little, if at all, this past quarter,” Romer said in a Thursday statement.
Republicans, however, have slammed the stimulus package and say that it has little or nothing to do with the growth rates. Brady said that the package had “very little” to do with those rates. He said the growth is largely due to expansionary policies by the Federal Reserve and changes in private markets.




“We’re all looking for signs of recovery in the economy,” Brady said. The growth rate is, he said, “another step back toward recovery, but one the White House had very little to do with.”

But for Democrats looking to shore up perceptions of the controversial program, the growth numbers could help make their case. Bill Galston of the Brookings Institution said, “If you’re trying to stop the bleeding both in the economy and in perceptions of the economy, then being able to point to signs of hope is not trivial.”

Anne Kim, an analyst at the Third Way, a think tank aligned with centrist Democrats, said that the most important statistic will be the unemployment rate next summer. “We don’t have to be at full employment next November, but people just have to feel that things are getting better,” Kim said.

That’s one reason why Democrats, and some Republicans, are now supporting additional federal measures to help prop up the economy, including an extension of an $8,000 first-time homebuyer tax credit and additional benefits for unemployed workers.

“The problem is we need, I think, ways to stimulate employment,” Frank said.

The dollar's fall is felt overseas




LONDON -- The dramatic decline of the U.S. dollar is aiding the American economic recovery but setting off alarm bells overseas, with corporate executives, politicians and pundits calling it among the biggest threats to the rebounds underway in Europe and Japan.
Mounting concern abroad over the shrinking dollar underscores how exchange rates have emerged as a growing source of friction, with many countries jockeying for the weakest currency to boost exports and protect their markets from foreign competition.
The U.S. dollar has taken a steep tumble -- down 18 percent against the euro in the past 12 months, and more than 40 percent against the South African rand and Australian dollar -- as U.S. officials have effectively diluted its value, printing money and adopting near-zero interest rates, to jump-start the economy.
The moves have sharply improved the U.S. trade deficit, as everything from American-made cellular phones to furniture suddenly become more competitive both at home and overseas while giving foreign manufacturers more incentives to create jobs in the United States. Analysts say the severity of the downturn in the United States as well as the unemployment rate would be markedly worse without the weak dollar.
Yet it has had just the opposite effect on German washing machines and Japanese cars, making them less price competitive in the world's largest market -- the United States. Moreover, those same Japanese cars and German washing machines are also less competitive in the world's fastest growing market -- China. That's because the Chinese yuan, still closely pegged to the value of the U.S. currency, has fallen just as much as the dollar on world markets, serving up a double whammy to countries with fast-appreciating currencies like the euro. It also means that China, the country that enjoys the single biggest trade surplus with the United States, has actually seen that surplus grow during the recession.
Developing countries

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Other developing countries whose currencies are not pegged to the dollar, such as Brazil, have grown so concerned about the soaring values that they have recently enacted new investment controls to stem the U.S. dollar's fall. European companies including Nestle, based in Switzerland where the franc has appreciated 13 percent against the dollar in the past 12 months, cite exchange rates as a bigger factor in recent revenue declines than weak global demand.
"We're losing competitiveness globally because of this," complained Jose Manuel Rodriguez Bordillo, director general of Spain's Agrosevilla, one of the world's largest olive exporters. "There's no way this can continue; we're losing 15 percent [in revenue] this year just because of the exchange rate."
The weak dollar is becoming a source of international tension, particularly in U.S.-European relations. Officials in the 16 countries that use the euro warn a continued slide of the dollar may pose long-term structural problems for Europe, forcing down wages and hurting employment in the months and years ahead. This week, a top aide to French President Nicolas Sarkozy called the value of the dollar "a disaster" for Europe, warning of dire consequences to the global economy if it remains at its current levels. In some circles, the dollar's decline is seen as a protectionist move by the United States -- something U.S. officials have strongly denied.
"If the dollar is going down this way, it is because that is what the Americans want," economic commentator Yves de Kerdrel wrote in the French newspaper Le Figaro this week. "In a globalized economy where national egoisms persist but where customs barriers have almost disappeared, the best protection consists in playing on exchange rates."
Yet analysts say the fall of the dollar reflects a basic economic truth: the U.S. financial situation is no longer as solid as it once was. Rather than being undervalued, many argue that the dollar has room to fall further.
"The dollar is weaker not so much because people are buying yen because they think Japan is suddenly going to be the next hot thing again," said Stephen King, chief economist at HSBC in London. "Instead, there is a sense that in some very defined and critical way, the dollar and the U.S. have lost their way. The U.S. has borrowed so much from foreigners. They've got a rising budget deficit and few ways to bring it under control that investors see as viable. Those are things that affect the value of a currency."
Investor confidence

The dollar has also fallen because investors are feeling more confident about the global economy. During the height of the crisis, the greenback was viewed as the safest port in the storm. As the storm subsides, investors are charting a course again for emerging markets which, given the poor fiscal position and fragile recovery in the United States, no longer seem quite as risky as they once did.
It has generated a mild snowball effect. As the dollar weakens, it becomes less attractive to hold, so investors increasingly are dumping the currency and moving into oil, gold and stocks. That, in turn, has helped fuel a strong recovery in commodity prices and recent stock market surges.
The risk remains of a full-blown run on the dollar that could force the Federal Reserve to suddenly raise interest rates, dealing a potentially severe blow to the U.S. recovery. That could happen if major holders of dollars, such as China and Japan, begin to sell off their holdings. China in particular has made statements on the need to move away from the dollar as a reserve currency, though analysts say they have so far backed up those calls with only minor moves to divest their holdings. There are also rising concerns that the U.S. policy of flooding the economy with cheap money could drive up inflation, as it has already begun to do in Britain, a country where the once-mighty pound has been humbled, tumbling against the euro as well as the dollar.
But for now, the weak dollar is one problem the United States loves to have.
"Right now, you're getting an economic bump from it," said C. Fred Bergsten, director of the Peterson Institute for International Economics in Washington. "Our conclusion is that the dollar's value is just about right where it should be."

Stimulus jobs overstated by thousands

By BRETT J. BLACKLEDGE and MATT APUZZO

WASHINGTON (AP) - An early progress report on President Barack Obama's economic recovery plan overstates by thousands the number of jobs created or saved through the stimulus program, a mistake that White House officials promise will be corrected in future reports.
The government's first accounting of jobs tied to the $787 billion stimulus program claimed more than 30,000 positions paid for with recovery money. But that figure is overstated by least 5,000 jobs, according to an Associated Press review of a sample of stimulus contracts.
The AP review found some counts were more than 10 times as high as the actual number of jobs; some jobs credited to the stimulus program were counted two and sometimes more than four times; and other jobs were credited to stimulus spending when none was produced.
For example:
- A company working with the Federal Communications Commission reported that stimulus money paid for 4,231 jobs, when about 1,000 were produced.
- A Georgia community college reported creating 280 jobs with recovery money, but none was created from stimulus spending.
- A Florida child care center said its stimulus money saved 129 jobs but used the money on raises for existing employees.
There's no evidence the White House sought to inflate job numbers in the report. But administration officials seized on the 30,000 figure as evidence that the stimulus program was on its way toward fulfilling the president's promise of creating or saving 3.5 million jobs by the end of next year.
The reporting problem could be magnified Friday when a much larger round of reports is expected to show hundreds of thousands of jobs repairing public housing, building schools, repaving highways and keeping teachers on local payrolls.
The White House says it is aware there are problems. In an interview, Ed DeSeve, an Obama adviser helping to oversee the stimulus program, said agencies have been working with businesses that received the money to correct mistakes. Other errors discovered by the public also will be corrected, he said.
"If there's an error that was made, let's get it fixed," DeSeve said.
The White House released a statement early Thursday that it said laid out the "real facts" about how jobs were counted in the stimulus data distributed two weeks ago. It said that had been a test run of a small subset of data that had been subjected only to three days of reviews, that it had already corrected "virtually all" the mistakes identified by the AP and that the discovery of mistakes "does not provide a statistically significant indication of the quality of the full reporting that will come on Friday."
The data partially reviewed by the AP for errors included all the data presently available, representing all known federal contracts awarded to businesses under the stimulus program. The figures being released Friday include different categories of stimulus spending by state governments, housing authorities, nonprofit groups and other organizations.
As of early Thursday, on its recovery.org Web site, the government was still citing 30,383 as the actual number of jobs linked so far to stimulus spending, despite the mistakes the White House has now acknowledged and said were being corrected.
It's not clear just how far off the 30,000 claim was. The AP's review was not an exhaustive accounting of all 9,000 contracts, but homed in on the most obvious cases where there were indications of duplications or misinterpretations.
While the thousands of overstated jobs represent a tiny sliver of the overall economy, they represent a significant percentage of the initial employment count credited to the stimulus program.
Tom Gavin, a spokesman for the White House budget office, attributed the errors to officials as well as recipients having to conduct such reporting for the first time.
In fact, the AP review shows some businesses undercounted the number of jobs funded under the stimulus program by not reporting jobs saved.
Here are some of the findings:
- Colorado-based Teletech Government Solutions on a $28.3 million contract with the Federal Communications Commission for creation of a call center, reported creating 4,231 jobs, although 3,000 of those workers were paid for five weeks or less.
"We all felt it was an appropriate way to represent the data at the time" and the reporting error has been corrected, said company president Mariano Tan.
- The Toledo, Ohio-based Koring Group received two FCC contracts, again for call centers. It reported hiring 26 people for each contract, or a total of 52 jobs, but cited the same workers for both contracts. The jobs only lasted about two months.
The FCC spotted the problem. The company's owner, Steve Holland, acknowledged the actual job count is closer to five and blamed the problem on confusion about the reporting.
The AP's review identified nearly 600 contracts claiming stimulus money for more than 2,700 jobs that appear to have similar duplicated counts.
- Barbara Moore, executive director of the Child Care Association of Brevard County in Cocoa, Fla., reported that the $98,669 she received in stimulus money saved 129 jobs at her center, though the cash was used to give her 129 employees a 3.9 percent cost-of-living raise. She said she needed to boost their salaries because some workers had left "because we had not been able to give them a raise in four years."
- Officials at East Central Technical College in Douglas, Ga., said they now know they shouldn't have claimed 280 stimulus jobs linked to more than $200,000 to buy trucks and trailers for commercial driving instruction, and a modular classroom and bathroom for a health education program.
"It was an error on someone's part," said Mike Light, spokesman for the Technical College System of Georgia. The 280 were not jobs, but the number of students who would benefit, he said.
- The San Joaquin, Calif., Regional Rail Commission reported creating or saving 125 jobs as part of a stimulus project to lay railroad track. Because the project drew from two pools of money, the commission reported the jobs figure twice, bringing the total to 250 on the government report. Spokesman Thomas Reeves said the commission corrected the data Tuesday.

Wednesday, October 28, 2009

Washington's Suicide Mission

The real problem is Washington's riverboat gamble on saving the economy with free money.


Members of the Obama administration have taken turns deploring the billions of dollars in year-end bonuses the finance industry is getting ready to hand out. Never mentioned is what they think firms should do with the money. Give it back to their customers? Spend it on office decorations?
Firms can't just wish away revenue sitting on their books. That's an accounting crime. More to the point, aren't surging banker bonuses amid a general downturn the proximate and necessary outcome of Washington's recovery Heimlich, which involves doling out free money to banks and artificially goosing asset prices?
Associated Press
Ken Feinberg, pay czar

Er, wasn't this the plan?
After all, whatever sloppy incentives are introduced into the mix, Ken Feinberg is on hand to fix them by fine-tuning banker pay. VoilĂ , Washington has figured out how to stoke a credit bubble with one hand while making sure with the other that it feeds only good and sound "long-term" purposes.
Of course, Mr. Feinberg's clever calibration of carrots only works with the seven bailed-out firms under his direct control. As he grandly told PBS, "The private marketplace should be able to have the flexibility to adopt these programs on their own."
Unpack the ironies and contradictions in that sentence.
Mr. Feinberg is no dummy. Everyone knows the folderol about bonuses is a substitute for tackling the political challenge of "too big to fail." His every explanation has consisted of pleading political necessity over good judgment.
Yet the urgent problem now isn't TBTF, or even banker bonuses. These are distractions. The urgent problem is the giant riverboat gamble that Washington can save the economy by doing what comes naturally—spending money carelessly, creating massive new entitlements without funding them, dishing out cheap credit to politically favored sectors, telling business people where and how to invest.
Mr. Feinberg is an apt symbol indeed, for this gamble is built on the conceit that Washington can hector the recipients, whether auto companies, banks or homeowners, into behaving in ways that are "responsible." So far, however, human nature is proving a disappointment: Take the outbreak of tax fraud related to the government's emergency home-buyer's credit.
Nor is the larger gamble looking so good either. Banks continue to fail at an alarming rate, the dollar is under assault, and Washington is looking at a future of trillion-dollar deficits. One might have guessed it would take a decade of Obamanomics to produce European welfare state levels of youth unemployment, but at 18.5% we're there.
About the only positive sign is the price surge in normally uncorrelated assets—stocks, bonds, commodities, gold—as fund managers use cheap credit to play the carry-trade opportunity.
All this might be defensible if time were being bought to clean up an accumulation of past excesses. Instead, the president is creating a new one. It's no exaggeration to say the Senate health-care bill taking shape is the equivalent of climbing aboard a train about to plunge into a canyon and deciding what it really needs is a bomb on board.
By one metric alone, it might succeed—somewhat reducing the numbers of those who tell pollsters they are "uninsured." But it does so in a fashion reminiscent of the means the Clinton and Bush administrations used to raise the homeownership rate from 64% to 70%—which produced the subprime wreckage around us.
The Senate bill includes a mandate requiring all citizens to buy health insurance, but the penalties have been progressively weakened. Insurers, though, would still be required to take all comers, including the already-sick, and charge them a standard rate.
Kaboom—a monumental incentive for Americans not to buy health insurance until they get seriously ill.
Which leads us to a question: When are Ben Bernanke and Larry Summers going to have a quiet conversation about how to steer Team Obama off its suicide mission?
We know they were recently rivals for the Fed chairmanship. We know the Fed itself has become compromised. But who else is there?
The Fed's three-decade habit of rescuing the financial system from episodes of failed risk-taking has crossed into absurdity in the current crisis. Half the Fed's brain wants banks to lend out the massive reserves the Fed has been creating on bank balance sheets. The other half fears if these reserves ever leak into the real economy, it will fuel an inflationary blowout. Yet it still might be possible to muddle to a lasting recovery. It depends on real confidence emerging at some point to replace the short-term grab for gains created by zero-rate borrowing.
Real confidence is what the Japanese, our predecessors down bubble road, have lacked and still lack. Real confidence means real "reform"—the hopper is hardly barren of ideas, like raising the retirement age, enacting the Breaux Commission's Medicare proposals, instituting a flat tax and eliminating the tax distortions that every serious economist knows contributed to the housing bubble and the health-care bubble.
"Change," to borrow a mantra, has to start somewhere. Over to you, Ben and Larry.

‘Jobs Created or Saved’ Is White House Fantasy: Caroline Baum

Oct. 28 (Bloomberg) -- Heresy, thy name is Christina Romer.

Last week, the chairman of President Barack Obama’s Council of Economic Advisers -- a position that carried the title “chief economist” until Larry Summers took up residence in the White House -- testified to the Joint Economic Committee on the economic crisis and the efficacy of the policy response.

Here’s the executive summary in case you missed it:

The crisis: “Inherited.”

The economy: “In terrible shape” (the inherited one).

The shocks to the system: “Larger than those that precipitated the Great Depression.”

The policy response: “Strong and timely.”

The efficacy of the policy response: a 2 to 3 percentage point addition to second-quarter growth; 3 to 4 percentage points in the third; and 160,000 to 1.5 million “jobs saved or created,” a made-up metric if there ever was one. (More on that later.)

What was most puzzling about Romer’s Oct. 22 testimony was her comment on the waning effect of fiscal stimulus.

“Most analysts predict that the fiscal stimulus will have its greatest impact on growth in the second and third quarters of 2009,” Romer said. “By mid-2010, fiscal stimulus will likely be contributing little to growth.”

At first it was just fringe elements, such as conservative blogs and the not-really-a-news-organization Fox News, that pounced on Romer’s statement. Then other news outlets started to question her statement, which seemed to fly in the face of White House assertions that only a small portion of the stimulus -- $120 billion, or 15 percent -- has actually been spent. Most of the criticism of the stimulus coming from the president’s own party has been, “too little, too late,” and here’s Romer saying it’s kaput.

Thanks for That

Instead of being banished to the woodshed, Romer was consigned to the White House blog, where she slipped into professorial mode to explain the arcane distinction between the effect of the stimulus on the change in gross domestic product and its effect on the level of GDP.

Stimulus has its biggest impact on the growth rate of GDP when it’s implemented, Romer said, using a car-and-driver analogy: Step on the accelerator, the car goes from zero to 60.

Stimulus will keep the level of GDP and employment higher than they would have been even after the growth-rate effect fades, she said.

Her logic is impeccable. It’s her premise that’s flawed.

Dispensing Lucre

When the government distributes lucre or loot, people spend it. If your interest is national income accounting, spending other people’s money is great. Spending is a back-door way for government statisticians to measure what matters, which is the real output of goods and services.

But the government has no money of its own to spend; only what it borrows or confiscates from us via taxation. Oops.

“Government job creation is an oxymoron,” said Bill Dunkelberg, chief economist at the National Federation of Independent Business. It is only by depriving the private sector of funds that government can hire or subsidize hiring.

That’s why “jobs created or saved” is such pure fiction. It ignores what’s unseen, as our old friend Frederic Bastiat explained so eloquently 160 years ago in an essay.

Econometric models synthesize all sorts of variables and spit out a GDP forecast. From there they derive the change in employment using something called Okun’s Law, named after the late economist Arthur Okun, which describes the relationship between the two.

Fiction Lags Reality

Actual hiring seems to be lagging behind the model’s land of make-believe. For small businesses, which are the source of most job creation in the U.S., the government’s increased and changing role in the economy isn’t a confidence builder. Businessmen have no idea what health-care reform will mean for their cost structure or what whimsical tax policies the government might impose when it realizes those short-term deficits are running into long-term unfunded liabilities.

No wonder capital spending plans were at an all-time low in the third quarter, according to the NFIB monthly survey.

Only 30,383 jobs were created or saved by the American Recovery and Reinvestment Act, according to Recovery.gov, the government’s once-transparent Web site that has become a complex blur of numbers, graphs and pie charts. These are only the jobs reported by federal contract recipients. The Obama administration will report the larger universe of ARRA-related jobs on Oct. 30.

An extrapolation of what would have happened without the fiscal stimulus isn’t much consolation to the 9.8 percent of the workforce that is unemployed. Nor is Romer’s prescription for the economy and labor market very comforting in light of the trillions of future tax dollars that have been spent, lent or promised by the federal government.

“If you take your foot off the gas, the car goes from 60 back down to a slow crawl,” Romer said in clarifying blog post.

Gentlemen, start your engines.

Tuesday, October 27, 2009

Gloom Spreads on Economy

Americans are growing increasingly pessimistic about the economy after a mild upswing of attitudes in September. But Republicans haven't been able to profit politically from the economic gloom, according to a new Wall Street Journal/NBC News poll.
The survey found a country in a decidedly negative mood, nearly a year after the election of President Barack Obama. For the first time during the Obama presidency, a majority of Americans sees the country as being on the wrong track.

Fifty-eight percent of those polled say the economic slide still has a ways to go, up from 52% in September and back to the level of pessimism expressed in July. Only 29% said the economy had "pretty much hit bottom," down from 35% last month.
But a dark national view of how everybody in Washington is conducting the public's business appears to be preventing Republicans from benefiting from concerns about the direction of the country or the Democrat-led government's handling of the economy, as the minority party often does.
In fact, disapproval of the Republican Party actually has ticked upward, along with the public's general pessimism. Asked which political party should control Congress after next year's midterm elections, Democrats now hold a clear edge over the GOP, 46% to 38%, a month after the Republicans were nearly as popular. In September, the Democratic edge was 43% to 40%.
"There was a bounce-back surge for Republicans, and that's stalled," said Bill McInturff, a Republican pollster who conducted the Wall Street Journal/NBC News poll with Democratic pollster Peter Hart.
"The mood in America may be blue, but attitudes toward Washington are just jet black," Mr. Hart said.
The survey of 1,009 Americans was conducted from Oct. 22-25.

Obama's Approval

Overall, respondents sent Mr. Obama mixed signals on his top policy initiatives.
His health-care plan continues to face a plurality of opposition -- 42% say it is a bad idea, against 38% who say it is a good idea. But a key flash point in the health-care debate is showing steadily increasing support.
A government-run insurance plan that competes with private insurance plans -- the so-called public option -- is now backed by 48%, compared with 42% who oppose it. In September, 48% opposed it while 46% supported it. In the rough month of August, when noisy town-hall meetings were tarnishing the president's health-care push, 47% opposed the public option and only 43% favored it.
White House Chief of Staff Rahm Emanuel said in an interview: "Clearly, as the public perceives the potential of this landmark legislation passing, they are acknowledging that moment with political support."
That has begun redounding to the Democrats' advantage in Congress, he said. "The public sees them getting something done of real importance," Mr. Emanuel said.
Don Stewart, spokesman for Senate Minority Leader Mitch McConnell (R., Ky.), said positive movement in favor of the public option is "meaningless" if Americans remain opposed to the broader legislation.
"They can talk about momentum all they want. The momentum is in the Senate Democratic cloakroom. It's not in Topeka, and it's not in Arcadia, Fla.," Mr. Stewart said, referring to the town Mr. Obama was visiting Tuesday.
On Afghanistan, the public is signaling it can support a presidential decision to send more troops, but only so far. Some 47% said they would either strongly or somewhat support sending more troops into the eight-year-old fight, with 43% saying they somewhat or strongly opposed such a move. Last month, 51% said they opposed sending more troops, compared with 44% who approved of such a move.
But asked specifically about sending an additional 40,000 troops, which the U.S. commander in Afghanistan, Gen. Stanley McChrystal, has requested, 49% said that would be unacceptable. Just 43% called that acceptable. A majority of Americans are amenable to a much smaller 10,000-troop increase, but a majority of women don't support even that.
Associated Press
Sarah Hodges, from Durham, N.C., looks at a camera while shopping at Super Target in Durham, N.C.

With support so fluid, "the country is looking to be led," Mr. Hart said. Mr. Obama "has the ability to both shape attitudes and shape policy," he added.
The economy is where real signs of stress are showing. The recent recovery of the stock market has done little to temper the pessimism: 64% said the rise of the Dow Jones Industrial Average didn't have much impact on their views of the economy; 32% said it was an important indication of economic improvement. Just 42% said the economy will get better in the next 12 months, down from 47% in September. In contrast, 22% said things would get worse, up from 20%, and 33% said the economy would stay in the same condition, up from 30%.
That pessimism has fed into what Mr. Hart called "total disgust" with Washington. Just 23% said they trust Washington to do what is right most of the time or just about always, a level not seen since 1997, 1995 and before that 1982, the last time unemployment reached the current level.
That, coupled with the surging "wrong-track" number, should be a red flag to Democrats a year after their 2008 electoral sweep, Mr. McInturff said. But with the economy coloring attitudes across the board, there is time for the party to recover.
"This rupture with Washington is magnified because of the scope of economic concerns," he said. "When things are OK, people say, 'Oh, that's just Washington.' When things are bad, they look to Washington for help and ask, 'Can these guys help me?'"
Indeed, for all the conservative clamor over Mr. Obama's actions on the economy, 63% of respondents said the government has either done the right amount of intervention or needs to do more. Among loosely aligned voters in the middle of the electorate, a clear plurality, 42%, said government has done too little to fix the economy.

Without jobs, where's the recovery?

By Julian E. Zelizer, Special to CNN
October 27, 2009 10:46 a.m. EDT
Julian Zelizer believes that high unemployment rates hurt both the Democrats and the Republicans.
Julian Zelizer believes that high unemployment rates hurt both the Democrats and the Republicans.
 
Editor's note: Julian E. Zelizer is a professor of history and public affairs at Princeton University's Woodrow Wilson School. His new book, "Arsenal of Democracy: The Politics of National Security -- From World War II to the War on Terrorism," will be published in December by Basic Books. Zelizer writes widely about current events.
Princeton, New Jersey (CNN) -- When the stock market broke the 10,000 point barrier a few weeks ago, many investors celebrated. Economists have started to talk about the end of the "Great Recession." But many Americans can't see what all the enthusiasm is about.
National unemployment rates remain extraordinarily high, having reached almost 10 percent. According to the Congressional Budget Office, unemployment will climb to 10.2 percent in 2010 before falling to around 9.1 percent the following year.
Within particular states, the situation is dire. In Massachusetts, unemployment rates have reached a level not seen since 1976. Michigan's unemployment rate is at a little over 15 percent. State budgets, according to a report by the Rockefeller Institute of Government, are still devastated by rapidly declining tax revenue. According to its study, collections by states fell by 16.6 percent from April to June.
The term that is being used to describe this situation is a "jobless" recovery. Some experts are worrying about a "new normal," in which unemployment rates remain much higher than before.
"We're going to have elevated unemployment for four years to come," said one economist at the liberal Economic Policy Institute.
Since the 1970s, this has been the trend. Jobs have taken longer to reappear after recessions end because a weaker manufacturing sector can no longer produce the kinds of jobs that used to exist in the post-World War II period, the era that one historian has called an era of "grand expectations."
Many jobs have gone overseas and will never return. Now the nation needs high rates of consumer spending to boost the powerful service sector, but this will take time.
A jobless recovery is in some ways a predictable, though unsatisfactory, kind of recovery after several decades when the nation has witnessed growing income inequality.
The gap between the rich and the poor has continued to increase through the 1990s and 2000s. Now we are watching a recovery where the improvement begins up top.
But the so-called jobless recovery -- a term that in fact suggests we are not seeing an actual recovery -- threatens both parties politically. For Democrats, the threat is twofold. The first is that voters unhappy with economic conditions could take it out on the party in power.
The other threat is that the failure to resolve high rates of joblessness will open Democrats up to the neo-populist attacks some Republicans have been employing as they blame the administration for focusing on saving Wall Street but not doing much for Main Street.
The threat from joblessness, however, can also harm Republicans. Many party officials still acknowledge that the severe financial collapse that took place in the final months of President George W. Bush's administration remains a huge liability to the party given that voters still associate his White House with that collapse.
And so far, polls indicate that many voters are unhappy with the Republican Party and don't see the GOP as offering a positive domestic agenda.
It is possible that continued frustration about jobs allows Democrats to target Republicans as an obstructionist party that has in fact hampered their efforts to revitalize economic growth. During the 1930s, President Franklin Roosevelt understood that you could not have recovery without jobs. This is why he made public works programs the centerpiece of the New Deal.
Although we often remember Social Security or the National Industrial Recovery Act, the major government intervention that happened in that decade, as the historian Jason Scott Smith recently documented, was public works spending.
Two-thirds of emergency spending between 1933 and 1939, he writes, went to public works.
From the start, FDR realized that without getting people back on the job, his party would remain vulnerable. Both parties have a political incentive to take more aggressive action.
There have been several recent proposals that could potentially gain bipartisan support, including some kind of tax credit to stimulate hiring, increased economic assistance to the states, and an accelerated schedule for spending the rest of the economic stimulus money that was appropriated in February 2008.
With joblessness, both parties have an issue on which they should be able to find some common ground.
If the moral imperative to make sure that Americans can feed their families is not enough in Washington, Democrats and Republicans should at least be moved by the political risks that both parties can face as a result of inaction.
The opinions expressed in this commentary are solely those of Julian Zelizer.
 

Rolling up the TARP

The $700 billion for banks has become an all-purpose bailout fund. 

The Troubled Asset Relief Program will expire on December 31, unless Treasury Secretary Timothy Geithner exercises his authority to extend it to next October. We hope he doesn't. Historians will debate TARP's role in ending the financial panic of 2008, but today there is little evidence that the government needs or can prudently manage what has evolved into a $700 billion all-purpose political bailout fund.
We supported TARP to deal with toxic bank assets and resolve failing banks as a resolution agency of the kind that worked with savings and loans in the 1980s. Some taxpayer money was needed beyond what the FDIC's shrinking insurance fund had available. But TARP quickly became a Treasury tool to save failing institutions without imposing discipline (Citigroup) and even to force public capital onto banks that didn't need it. This stigmatized all banks as taxpayer supplicants and is now evolving into an excuse for the Federal Reserve to micromanage compensation.
TARP was then redirected well beyond the financial system into $80 billion in "investments" for auto companies. These may never be repaid but served as a lever to abuse creditors and favor auto unions. TARP also bought preferred stock in struggling insurers Lincoln and Hartford, though insurance companies are not subject to bank runs and pose no "systemic risk." They erode slowly as customers stop renewing policies.
TARP also became another fund for Congress to pay off the already heavily subsidized housing industry by financing home mortgage modifications. Not one cent of the $50 billion in TARP funds earmarked to modify home mortgages will be returned to the Treasury, says the Congressional Budget Office.
As of the end of September, Mr. Geithner was sitting on $317 billion of uncommitted TARP funds, thanks in part to bank repayments. But this sum isn't the limit of his check-writing ability. Treasury considers TARP a "revolving fund." If taxpayers are ever paid back by AIG, GM, Chrysler, Citigroup and the rest, Treasury believes it has the authority to spend that returned money on new adventures in housing or other parts of the economy.
A TARP renewal by Mr. Geithner could thus put at risk the entire $700 billion. Rep. Jeb Hensarling (R., Texas) and former SEC Commissioner Paul Atkins sit on TARP's Congressional Oversight Panel. They warn that the entire taxpayer pot could be converted into subsidies. They are especially concerned about expanding the foreclosure prevention programs that have been failing by every measure.
Associated Press
Treasury Secretary Timothy Geithner

TARP inspector general Neil Barofsky agrees that the mortgage modifications "will yield no direct return" and notes charitably that "full recovery is far from certain" on the money sent to AIG and Detroit. Mr. Barofsky also notes that since Washington runs huge deficits, and interest rates are almost sure to rise in coming years, TARP will be increasingly expensive as the government pays more to borrow.
Even with the banks, TARP has been a double-edged sword. While its capital injections saved some banks, its lack of transparency created uncertainty that arguably prolonged the panic. Federal Reserve Chairman Ben Bernanke and former Treasury Secretary Hank Paulson recently admitted to Mr. Barofsky what everyone figured at the time of the first capital injections. Although they claimed in October 2008 they were providing capital only to healthy banks, Mr. Bernanke now says some of the firms were under stress. Mr. Paulson now admits that he thought one in particular was in danger of failing. By forcing all nine to take the money, they prevented the weaklings from being stigmatized.
Says Mr. Barofsky, "In addition to the basic transparency concern that this inconsistency raises, by stating expressly that the 'healthy' institutions would be able to increase overall lending, Treasury created unrealistic expectations about the institutions' conditions and their ability to increase lending."
The government also endangered one of the banks that they considered healthy at the time. In December, Mr. Paulson pressured Bank of America to complete its purchase of Merrill Lynch. His position is that a failed deal would have hurt both firms, but this is highly speculative. Mr. Barofsky reports that, according to Fed documents, the government viewed BofA as well-capitalized, but officials believed that its tangible common equity would fall to dangerously low levels if it had to absorb the sinking Merrill.
In other words, by insisting that BofA buy Merrill, Messrs. Paulson and Bernanke were spreading systemic risk by stuffing a failing institution into a relatively sound one. And they were stuffing an investment bank into one of the nation's largest institutions whose deposits were guaranteed by taxpayers. BofA would later need billions of dollars more in TARP cash to survive that forced merger, and when that news became public it helped to extend the overall financial panic.
Treasury and the Fed would prefer to keep TARP as insurance in case the recovery falters and the banking system hits the skids again. But the more transparent way to address this risk is by buttressing the FDIC fund that insures bank deposits and resolves failing banks. The political class has twisted TARP into a fund to finance its pet programs and constituents, and the faster it fades away, the better for taxpayers and the financial system.