Jon Taplin's Blog

Two Americas

I have been accused of aggregating data when it comes to my economic analysis of America’s crisis.

I plead guilty.

If you were to look at the chart above of personal consumption, you would certainly think we were still in a deep recession, if not the second great depression. And yet over the weekend in two separate dinners, the restaurants on the West side of Los Angeles were packed. The conversation seemed ebullient. The wine was flowing.

So we are living in parallel universes. One world as described by Gretchen Morgenson are in Debt’s Deadly Grip.

Halfway through this year, 11.4 percent of outstanding consumer debt was delinquent, up slightly from 11.2 percent a year earlier. An astonishing $1.3 trillion of consumer debt is delinquent, with $986 billion seriously so — 90 days late and counting. While delinquent balances are down by about 3 percent from the same period last year, serious delinquencies are up a bit more — 3.1 percent.

Here are some other troubling statistics from the Fed: a half-million people had a foreclosure added to their credit reports between March 31 and June 30, an increase of 8.7 percent over the first quarter of the year. And the numbers of consumers with new bankruptcies appearing on their credit reports rose 34 percent during the quarter, to 621,000. That increase is significantly bigger than it has been in the last few years, according to the Fed.

These sobering facts directly lead to the aggregated data in the chart at the top. No one with maxed out credit cards and an underwater home equity loan is spending time at the mall. Continue reading ‘Two Americas’

Welcome to the Interregnum

As regular readers know, it is the continuing obsession of this writer that we are in a really strange period that comes once a century (if that) where the old compass is broken, but new tools for navigating the choppy waters are unfamiliar to the captains of government or industry. Anyone who felt that the election of 2008 would usher in a new era, missed the notion that all it did was “kill the old king”, but not crown a new one. Thus the Inter-Regnum. Nate Silver expresses the frustration of liberals.

The euphoric feeling among liberals in the days between the election and the inauguration seems so quaint now — like something that happened decades ago — but it was very tangible at the time. Conservatives, for their part, were willing to give Obama the benefit of the doubt, with his approval and favoability ratings sometimes soaring into the 70s: such a post-election “bounce” had once been commonplace in the days of Eisenhower and Kennedy, but had rarely been seen in the post-Watergate era.

But Obama was never really able to capitalize on that momentum. Perhaps, in the face of the headwinds of an ever-deepening jobs crisis (far worse than his advisors had anticipated) and unrepentant Republican obstructionism (a canny, even ballsy strategy in retrospect), there was no way he really could have. Continue reading ‘Welcome to the Interregnum’

Liberal-Libertarian Coalition

I’ve been writing for a while on the possibility of a Liberal-Libertarian coalition on issues like our imperial overstretch, This morning Reps. Barney Frank and Ron Paul have written a very strong piece in the Huffington Post on this very subject.

As members of opposing political parties, we disagree on a number of important issues. But we must not allow honest disagreement over some issues to interfere with our ability to work together when we do agree.

By far the single most important of these is our current initiative to include substantial reductions in the projected level of American military spending as part of future deficit reduction efforts. For decades, the subject of military expenditures has been glaringly absent from public debate. Yet the Pentagon budget for 2010 is $693 billion – more than all other discretionary spending programs combined. Even subtracting the cost of the wars in Iraq and Afghanistan, military spending still amounts to over 42% of total spending.

It is irrefutably clear to us that if we do not make substantial cuts in the projected levels of Pentagon spending, we will do substantial damage to our economy and dramatically reduce our quality of life.

This is a movement that needs wide support from both left and right. Until most Americans realize that there is a better Life After Empire, we will be trapped in a pinched view of the American future. Write Frank and Paul and tell them of your support.

Real Cause of the Financial Crisis

One of our correspondents sent me and article last week about University of Chicago Professor Raghuram Rajan and his thoughts about the financial crisis. He has a book coming out in early July called Fault Lines: How Hidden Fractures Still Threaten the World Economy. His main cause for the crisis is strikingly simple.

As incomes at the top soared, politicians responded to middle-class angst about stagnant wages and insecurity over jobs and health insurance. Since they couldn’t easily raise incomes—Mr. Rajan is in the camp that sees better education as the only cure and that takes time—politicians of both parties gave constituents more to spend by fostering an explosion of credit, especially for housing.

This has happened before: Farmers’ grievances led to a U.S. government-backed expansion of bank credit in the 1920s; India’s state-owned banks pump credit into poor constituencies in election years. But one thing was different: “When easy money pushed by a deep pocketed government comes into contact with the profit motive of a sophisticated, amoral financial sector, a deep fault line develops,” Mr. Rajan writes. House prices shot up, banks borrowed cheaply and heavily to build leveraged mountains of ever more risky mortgage-linked securities.

As you can see by the chart at the top, from 1960 -1982 the ratio of household financial liabilities to income stayed flat at around 60%. But the Reagan era changed all of that. Wages were held down for all but the top 5% of earners (whose pay soared). Continue reading ‘Real Cause of the Financial Crisis’

America’s Anti-Tax Obsession

In 1985, Grover Norquist formed a group called Americans for Tax Reform. His goal was simple: “”I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.” So the fear of new taxes has prevented us as a country of doing anything about our health care system, for instance. The conservative assumption is that if you don’t do anything, things will stay the same, but as the chart and accompanying article prove, that’s not true–they get worse.

How did we get to this bizarre place? As Frank Rich points out this morning, when Andrew Stack committed his crazed act of murder suicide by flying his plane into the Austin Texas IRS headquarters, some Republican congressmen were supportive.

Representative Steve King, Republican of Iowa, even rationalized Stack’s crime. “It’s sad the incident in Texas happened,” he said, “but by the same token, it’s an agency that is unnecessary. And when the day comes when that is over and we abolish the I.R.S., it’s going to be a happy day for America.” No one in King’s caucus condemned these remarks. Continue reading ‘America’s Anti-Tax Obsession’

Globaloney

Thomas Frank (What’s the Matter with Kansas?) adds his eloquent voice to those of us questioning the Democrats blind embrace of Free Trade. He tells us why middle class workers are abandoning the Democrats for the easy solutions of the Tea Party Populists.

For the moment, let’s leave aside the question of whether the conservative rebels can credibly claim that, by raising their voices for tax cuts and deregulation, they are striking a brave blow against the powers-that-be.

Instead, let us pause to contemplate what appears to be the epic dimwittedness on the other side of the battlefield—the years of folly that have allowed the Democrats to wander blithely into the same old snare again and again. The laissez-faire system has just finished giving us a convincing demonstration of its viciousness, but the party of Franklin Roosevelt can’t get out in front of the resulting anger. Working-class Massachusetts and even Appalachia are turning away from it in disgust, but the party of the political scientists doesn’t seem to have noticed.

The answer to the riddle is as plain as the caviar on a lobbyist’s spoon. Democrats don’t speak to angry, working-class people because a lot of them can’t speak to angry, working-class people. They don’t know how. Many of the party’s resident geniuses gave up on that constituency long ago, preferring instead to remodel their organization as the vanguard of enlightened professionals and the shrine of purest globaloney. They worked hard to convince Wall Street that new-style Democrats could be trusted. They accepted, for the most part, the deregulatory agenda of the Reagan administration; in fact, in some fields—banking, telecommunications, free trade—they went farther than Ronald Reagan dared.

As I said last week, I know free trade is good for owners of capital, like Rush Limbaugh and Glenn Beck, but how exactly is this going to make things better for the poor white males getting laid off in droves that are listening to the Private Jet Populists?

Jobless Recovery

I’ve been arguing for the last four months that we have entered a New Normal era in which the combination of a naive embrace of free trade, aggressive use of automation and a substandard education and retraining system, has left the United States in a position where it can no longer create enough jobs for its citizens. Yesterday, the New York Times ran a long piece on permanent unemployment that started with this chart.

This is the largest number and percentage of long-term unemployment since the Labor Department started keeping the stats in 1948. But this is not a new issue–it has been building for the last three decades.

During periods of American economic expansion in the 1950s, ’60s and ’70s, the number of private-sector jobs increased about 3.5 percent a year, according to an analysis of Labor Department data by Lakshman Achuthan, managing director of the Economic Cycle Research Institute, a research firm. During expansions in the 1980s and ’90s, jobs grew just 2.4 percent annually. And during the last decade, job growth fell to 0.9 percent annually.

It would be easy to blame Ronald Reagan, who started a war against unions for the loss of wage growth, but for me the real villains are the academic economists that sit at universities and proclaim the principles of free trade as inviolate.

I’ve been reading Free Trade Doesn’t Work by Ian Fletcher for the past week and he makes a compelling case that tenured economists who propound the theories of free trade that the Wall Street Journal and the Cato Institute then popularize, are completely disconnected from the real world outside the academy.

For example, it has been obvious for 35 years now that America’s economy needs to be internationally competitive. But many academic economists disparage the very concept of competitiveness, mainly because it has no accepted definition. Continue reading ‘Jobless Recovery’

Buck Up, Democrats

According to the Wall Street Journal President Obama’s Stimulus Bill is only just now kicking into gear.

Proponents of the stimulus program focused attention on infrastructure projects during the fight to win approval for it last year. But the bulk of the money proposed for projects like new rail lines and water projects—about $180 billion in all—is likely to be spent this year at the earliest. During year one of the stimulus, only about $20 billion of money was handed out for infrastructure projects.

I’ve been in a distinct minority for the last few months in asserting that the November 2010 election need not be a repeat of Bill Clinton’s 1994 wipeout. If the Journal is correct, economic growth should continue to power forward leading up to the November election.

The ramped-up stimulus spending in 2010 will contribute 1.4 percentage points to gross domestic product growth this year, said Brian Bethune, chief U.S. financial economist for IHS Global Insight.

As I said on Friday, every campaign needs a narrative and I think Obama will have one as he kicks off the fall campaign on Labor Day. Now I’m aware that he isn’t actually running in November and I’m also aware that the actual unemployment rate may not change dramatically as more discouraged workers return to looking for work and thus raise the labor pool.

But at the end of the day, a chart like this one, will dramatically illustrate the difference between Republican disaster and Democratic hope.

Election Strategy 2010

A couple of months ago, I went out on a limb and predicted that a 2010 Republican election victory was a mirage. The New York Times/CBS News Poll this morning reinforces my confidence that President Obama and the Democrats can keep their majorities in November.

Americans blame former President George W. Bush, Wall Street and Congress much more than they do Mr. Obama for the nation’s economic problems and the budget deficit, the poll found.

They credit Mr. Obama more than Republicans with making an effort at bipartisanship, and they back the White House’s policies on a variety of disputed issues, including allowing gay men and lesbians to serve openly in the military and repealing the Bush tax cuts for the wealthy.

Every successful campaign has a narrative. Obama’s narrative for 2010 is “I inherited this mess caused by eight years of Republican misrule. I kept the economy out of a second great depression, but despite my efforts at compromise, the Republican party will block my every effort in a desperate attempt to return to power. Do you really want to go back to the ruling ideology that got us into this mess in the first place?”

Riding the Tea Party Tiger

As I’ve said before the right wing of American Politics is a pretty fractious bunch. It now appears that the Pro-business wing is getting pretty worried about the anti-business rhetoric of the Tea Party Populists. Conventional wisdom is that Republican gridlock is good for big business but in the Wall Street Journal it was noted that the stock market’s recent fall started the morning after Scott Brown’s win in Massachusetts.

So why did stocks collapse the moment the vote was tallied in Massachusetts?

It’s because the immediate reaction to the Brown election—in both parties—has been a dangerous lurch toward antibusiness populism. The Obama administration’s strategy has been to latch onto something that both parties can agree on: lynching Wall Street.

Republicans have to be careful what they wish for. John McCain under attack from the right, is no longer the maverick. Continue reading ‘Riding the Tea Party Tiger’