Econ-Recon: January 2008: Archives

January 20, 2008

We Have Met The Enemy...And It Is Us genre: Econ-Recon & Polispeak & Six Degrees of Speculation

Reflections

An interesting and potentially problematic phenomenon is emerging in the process to select a Democratic candidate for the presidency…as well as our next president. A preview of the issue began with anecdotal televised images from a caucus room on the Las Vegas strip. My growing concerns were validated in an analysis of the actual votes.

Before the votes were tallied, I took note of an interesting dynamic. For the most part, African American Obama supporters and Hispanic Clinton backers were chanting slogans for their respective candidates from opposite sides of the room. At first blush, I was inspired by the enthusiasm…and rightly so. The mood was animated, but by no means did it appear to be hostile. Regardless, it forced me to begin thinking about the mechanics of opportunity.

These particular caucus locations were created to make it possible for Culinary Workers Union members to participate. By and large, the union is made up of lower income ethnic voters...groups that have often felt neglected and inclined to believe many politicians treat them as an afterthought.

I suspect the focus on providing targeted caucus locations coupled with the fact that a woman and an African American are the leading Democratic candidates created a growing sense of opportunity in these overlooked and underappreciated groups. That’s an encouraging development.

At the same time, opportunity is an odd creature. Strange as it may seem, its absence often brings passive acceptance, as the flames of hope aren’t strong enough to fuel the fires that light the way to a better place. On the other hand, the emergence of opportunity is often accompanied by chaos and conflict as the downtrodden sense the possibility to transcend the certainty of a lesser lot in life.

Once opportunity rears its head on the distant horizon, the dim light that allows us to see its outline is apt to ignite dreams of better days that have long been kept in check. Simply stated, when opportunity is nowhere to be found, the certainty of status brings complacency; and conversely, when opportunity is palpable, the promise of progress often promotes impassioned participation.

As I pondered the fact that African American voters broke overwhelmingly for Senator Obama and Hispanic voters chose Senator Clinton by wide margins, I couldn’t help but consider the heinous nature of ethnic immobility and its propensity to divide rather than unite those who fight each day for a tiny share of a shrinking pie.

I suspect poverty brings clarity…and little else. Let me attempt an explanation.

Those who live each day like the one before…struggling to make ends meet…are undoubtedly forced to be cognizant of their limited resources as well as the need to jump to seize the scarce supply of opportunities that rarely appear. They know too well the large numbers of those who watch each day for a glimmer of hope…a chance to break the chains that bind and grab the rope that can deliver them from their darkened destiny…one clenched hand over another…hanging perilously above the pull of gravity that seeks to return them to the depths of despair.

Hence the chance to cast a vote of consequence is bound to inspire…and incite. With history as the point of reference, the knowledge of limited resources is, of course, the logical source of strife.

As we nominate a Democratic candidate and prepare for the 2008 presidential election, we needn’t and mustn’t allow the powers that be to portray the passions of hope as a reminder of racism. Rather, this process must be a rejoinder of our refusal to ignore the plight of the poor.

For far too long we have asked the least of us to be patient…to endure…to remain silent and satisfied with what little they receive. To be shocked when we witness a groundswell of emotion and the inevitable enmity that has become inured in those who know they are not welcome at the table is to ignore our part in setting too few place settings at that table.

We can make this election cycle about what separates us, or we can make it about what we choose to do to put an end to the dynamics that have long been allowed to divide us.

These simmering conflicts need not be evidence of the Democratic Party’s or this country’s inability to coalesce around one candidate. Rather, it should be fair notice that the Democratic Party will no longer accept the premise that the least of us need not be relevant or respected. I believe the voices of dissention are simply the sounds of destiny calling us to a new awareness.

Instead of silencing the voices of those who have yearned for change…and may now have the courage to demand it…we must add our voices to their clamor and grasp this opportunity to signal that we will no longer turn our heads to the plight of the have nots.

This is a moment that can either transform us or further fragment us. Instead of giving lip service to America’s greatness, it is time we once again demonstrate it. If we love this country we will. If we continue the trend of simply loving ourselves at the expense of the underrepresented, I suspect we’ll continue down the path of carelessly severing what’s left of the threads that so carefully created the cloth we call these United States.

Isn’t it time we put down our cynical and self-serving scissors and begin the hard work of stitching together a tapestry big enough to bring shelter and solace to all?

Tagged as: 2008 Election, African Americans, Barack Obama, Culinary Workers Union, Democracy, Democrats, Hillary Clinton, Hispanics, Las Vegas, Nevada Caucus, Partisanship, Poverty, Racism

Daniel DiRito | January 20, 2008 | 1:55 PM | link | Comments (0)
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January 16, 2008

Inside The Numbers: The Humpty Dumpty Economy? genre: Econ-Recon & Polispeak

We may not be officially in the throes of a recession, but there is sufficient data to understand why voters are focusing their attention on the economy. While economics is thought to be a function of mathematical equations, the evidence suggests that math is driven by consumer sentiment. As such, the math can rarely predict a recession. Instead, as is often the case, understanding a recession frequently happens well after the fact.

I've been amused to watch economists offer their odds on the U.S. slipping into a recession. For example, over the last several months...as the numbers have worsened, former Federal Reserve Chairman, Alan Greenspan, has revised his prediction a from one in three chance to a fifty-fifty likelihood we will see a recession. Greenspan isn't alone in having altered his thinking...and I expect to see more of the same until such time as the math can capture the impact of rapidly expanding consumer pessimism.

Truth be told, December may well prove to have been the first month of a recession. In the constant barrage of numbers and statistics leading up to a recession, we occasionally receive data that captures the prevailing factors that are driving consumer doubts. Today, McClatchy News delivered a relevant snapshot.

McClatchy Graphic

WASHINGTON — New data from the Labor Department confirm what most middle-class Americans already know: Inflation is squeezing them.

As consumer inflation rose by 4.1 percent last year, the highest rate since 1990, the prices of basic essentials such as food, gasoline and health insurance climbed far more steeply, explaining why so many Americans are telling pollsters that the economy is their chief concern.

The Bureau of Labor Statistics reported Wednesday that the price of food and beverages rose 4.8 percent. At the same time, real weekly earnings failed to keep pace, rising 0.9 percent for the year. In the simplest of terms, a dollar earned bought less.

This partly explains why the economy so frustrates Americans.

"The kinds of things you purchase every day are going up (in price)," said Gus Faucher, the director of macroeconomics at forecaster Moody's Economy.com in West Chester, Pa. "People who are at the lower end of the income scale are going to feel that more."

That brings me to another point. If tax cuts are the be all and end all that the GOP suggests them to be, then why is it that they fail to insulate the middle class from a downturn in the economy? The obvious answer is that aside from being a symbolic gesture to most Americans, the tax cuts are simply a drop in the bucket. At the same time, the lion's share of these tax cuts serve to further line the pockets of those who least need insulating from a faltering economy.

Perhaps the prevailing economic fallacy is the contention that further tax cuts will stimulate the economy. This might be true if the cuts were directed to those most in need of money to spend...the same middle class that pushed the economy into recession based upon their astute ability to recognize that their money buys less.

Instead, the GOP argues that their top-heavy tax cuts will eventually be transformed into investments and jobs. Unfortunately, that strategy fully ignores the fact that people in the middle class need more money; not more jobs. If those who already have jobs...have jobs that won't allow them to keep apace with inflation...then what benefit will they see from the creation of new jobs...especially when most investors and large corporations are looking to create more lower paying jobs in order to produce more wealth. Even worse, globalization often means that these tax cuts are put into foreign investments that do not create jobs for Americans.

Until such time as economic policy is geared to produce meaningful benefit for the middle class, the economy will remain unstable and vulnerable, the handouts to the wealthy will further concentrate wealth in the hands of fewer individuals, and negative consumer sentiment will more frequently send the country into recession.

Lastly, the unprecedented subprime lending crisis...coupled with the inevitable decline in home values...has the potential to indefinitely stymie consumer optimism. Once the undermining of this last bastion of middle class wealth is realized, I would argue that all economic equations would have been rendered useless. If this happens, the backbone of the U.S. economy may be...like the fabled Humpty Dumpty...beyond reconstruction.

Tagged as: Alan Greenspan, Consumer Confidence, Economics, Economy, Federal Reserve, Globalization, GOP, Home Equity, Housing, Inflation, Interest Rates, Middle Class, Recession, Subprime Lending, Tax Cuts, Wealth Consolidation

Daniel DiRito | January 16, 2008 | 4:58 PM | link | Comments (0)
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George Bush: A Wishin' & Hopin' Energy Policy? genre: Econ-Recon & Polispeak & Tongue-In-Cheek & Video-Philes

Never let it be said that George Bush lacks a comprehensive energy policy. The President ended his Middle East tour by "asking" (think pretty please) Saudi Arabia to increase OPEC's oil production to lessen the impact of energy costs upon the world economy.

From ABC News:

One hour after his plea for more Saudi oil was publicly rejected by the kingdom's oil minister, President Bush made a private visit to Saudi Arabia's King Abdullah to again ask him to open the spigots.

The White House revealed Bush's private meeting with the Saudi monarch to reporters aboard Air Force One as the president flew to Egypt on the next leg of his Mideast trip.

The president went over the head of the oil minister and made his case to King Abdullah and White House Press Secretary Dana Perino said the private conversation may have yielded some daylight in the Saudis' hard-line stance.

"The king says that he understands the situation. He's worried about high oil prices and how they can negatively affect economies around the world," Perino said aboard the presidential jetliner. "The president said there's a hope that as a result of these conversations that OPEC would be encouraged to authorize an increase in production … to help deal with the tight supply problems in this time when we have growing economies across the world, especially in China."

Earlier, Bush told ABC News' Terry Moran how he would lobby the king.

"I will say to him that, 'If it's possible, your majesty, consider what high prices are doing to one of your largest customers,'" Bush said. "In other words, the worst thing that can happen to an oil-producing nation is that the price of oil causes the economy to slow down, because that will inevitably lead to fewer purchases [of oil]."

When Bush ran for the White House in 2000, he said he would "jawbone" America's Saudi allies to lower the price of oil. The price of oil has hit a record of $100 a barrel, but has slipped to a current price of $91 a barrel on fears that the U.S. economy is headed for a recession.

__________________________________________________

Perhaps I'm ignorant, but if I were the President, I don't think I would run around telling reporters my strategy if all it involved was sweet-talking his majesty. Further, if I'm the Saudi's, Bush's notion that higher prices will "lead to fewer purchases [of oil]" does little more than provide a good laugh to the members of OPEC at their next meeting. It seems pretty simple to me - without an alternative to oil, who are we kidding in thinking OPEC can be pressured?

Little did we know that the meaning of "jawboning" would ultimately culminate in George Bush kissing up to the Saudi's in hopes they would increase oil production. Yes, it sure looks like the President had an effective plan in place. After all, look at the results...record oil prices! Oh, and don't forget all the oil we're getting from Iraq...you know...the oil that was going to pay for the war effort.

OK, with that said, I decided to offer my own "pulled from thin air" version of the President's comprehensive energy policy. I suspect it has as much potential to succeed as the one being followed by George Bush. So here it is...

The President will soon unveil a new strategy...one that is sure to touch a soft spot with the Saudi's and OPEC. After much consideration, he has decided to reach back into the annals of musical history (think Dusty Springfield) to create his "Wishin' & Hopin'" tour. Say what you will about the President's intellect, but his plan to use his charms to woo OPEC into handing over more oil is sheer genius.

Hence, the following graphic shall serve to launch the President's "Wishin' & Hopin'" strategic energy policy. Let the oil flow!

George W. Bush - Wishin' & Hopin'

The President's Wishin' & Hopin' Energy Policy

Dusty Springfield & Martha Reeves - Wishin' & Hopin'

Tagged as: Dusty Springfield, Energy Policy, Energy Shortage, George W. Bush, Humor, Iraq, King Abdullah, Martha Reeves, Middle East, Oil, Opec, Saudi Arabia

Daniel DiRito | January 16, 2008 | 12:15 PM | link | Comments (1)
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January 11, 2008

Rudy: Buying Votes With Trillions In Tax Cuts? genre: Econ-Recon & Polispeak

The Mythical Money Tree?

Rudy Giuliani, in an apparent effort to assert his relevance in the Republican presidential primary, has introduced a new ad in Florida (see below) in which he touts his tax cutting prowess and promises to propose trillions of dollars in reductions on his first day in the White House.

Rudy has argued that tax cuts will actually increase the revenues the government collects. In saying as much, the former Mayor of New York ignores the actual dynamics behind his misleading oversimplification. Clearly, if one looks at tax rates in the context of one year...say 2008...a reduction in tax rates will not magically, within that year, raise the revenues paid to the government.

The only way tax cuts can increase revenues is if the money that isn't paid to the government is reinvested such that it stimulates economic growth and jobs. If that happens, then the assumption is that corporations will have more income and more individuals will have jobs which will facilitate more tax revenues being paid in the future. Hence, there is a lag during which the government will likely experience reduced revenues...and there's no guarantee the tax cuts will produce the added revenues promised.

Lost in the Giuliani strategy is any analysis of where the money from these tax cuts is actually being spent. In the new global economy, wherein American corporations are quickly becoming multi-national giants, the trend is to move jobs to cheaper labor markets in foreign nations. Hence, granting tax reductions to these corporations (I believe Giuliani want's to reduce the corporate rate from 35 to 25 percent) may actually facilitate their efforts to shift manufacturing and service industry jobs out of the country.

If tax cuts are used in this manner...the concept of supply side economics...or what many used to call a trickle down strategy...there are reasons to doubt their potential to increase future revenues or jobs as expected in the past. Yes, the bottom line of some corporations may increase and possibly result in higher tax burdens. However, that ignores the many tax loopholes available to corporations. Even worse, given the shifting of investment capital and jobs to other nations, the stateside job creation necessary to generate higher revenues for the government isn't apt to materialize.

In the end, that means the tax cuts aren't likely to produce the added government revenues Giuliani is promising in his campaign rhetoric. The fact that corporations are prone to funding campaigns whose policies will benefit them serves as an incentive for politicians to make such promises...and then deliver them once elected.

A brief look at the Bush tax cuts and the economy during his tenure support my contention. By and large, the economic growth of the past five years has been the result of artificially low interest rates which allowed homeowners to spend their equity in order to bolster the economy. Below I've included a second video clip containing Ron Paul's observations on the economy and interest rates. I don't agree with the congressman on a number of issues, but he's on the mark with regards to this issue.

Further, public sentiment (consumer confidence and polling) has never fully reflected the Bush administration's assertions that the economy is robust. This results from the fact that the average citizen doesn't believe that higher incomes and meaningful job growth were part of this recent period of economic expansion. Simple math tells us that energy costs alone have offset the meager tax cuts afforded to the average citizen.

Not only were the Bush tax cuts inconsequential to most Americans, they did little to create a growth economy. Did they soften the last recession? Probably...but they didn't translate into the intended long term stimulus and there isn't any reason to believe Giuliani's will either. It's time to dismantle this oft heard GOP canard.

Like decorations on a Christmas tree, the allure of tax cuts is compelling. Unfortunately, a misguided focus on pretty trimmings may lead one to ignore the fact that the tree is brittle and vulnerable to calamity. While Rudy Giuliani would have us believe that his huge tax cuts will ignite our economy, he may actually be pouring fuel on an unhealthy economy that lacks the root structure to insure steady and sustainable growth. Rudy's plan may well be the match that starts a fire we're not prepared to extinguish.

Rudy Giuliani Ad - "First Day"

Ron Paul On The Economy: Fox News South Carolina Debate

Tagged as: 2008 Election, Corporate Welfare, Deficit Spending, Globalization, GOP, Jobs, Outsourcing, Ron Paul, Rudy Giuliani, South Carolina Debate, Supplu Side Economics, Tax Cuts, Tax Loopholes, Tax Rates, Trickle Down

Daniel DiRito | January 11, 2008 | 12:09 PM | link | Comments (0)
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January 4, 2008

The Economy Slows - The Fat Cats Are Salivating? genre: Econ-Recon & Polispeak

The Fat Cat Salivates

When the Bush administration first responded to concerns that the economy was on the verge of recession, they were quick to point to the stable unemployment figures and steady job growth. Well, as with most of what comes out of the Bush administration, the unfolding facts suggest their analysis may have been wrong...again.

The latest reports seem to support the concerns of numerous economists that a perfect storm may be materializing which could plummet the country into recession. The latest data on unemployment and job growth will undoubtedly put wind in the sails of those who believe the economy is tanking as well as force the Bush administration to once again shift their rhetoric.

First a look at the latest data.

From Bloomberg.com:

Jan. 4 (Bloomberg) -- Hiring in the U.S. slowed more than forecast in December and unemployment jumped to a two-year high, raising the odds that the Federal Reserve will cut interest rates by half a point this month to ward off a recession.

Payrolls rose by 18,000, capping the worst year for job creation since 2003, the Labor Department said today in Washington. The jobless rate increased to 5 percent from 4.7 percent in November, while the Institute for Supply Management said growth in U.S. service industries cooled last month.

"This tells you that the strains from credit problems and so forth that have been developing the last six months are starting to bite and they're biting in a way that now finally draws consumption into question,'' said Neal Soss, chief economist at Credit Suisse Group Inc. in New York.

"It's not a done deal, but if we're going to have a recession, it's too late to do anything about it,'' said Stuart Schweitzer, global markets strategist at JPMorgan Wealth & Asset Management in New York. "The Fed can't prevent a recession if one's in the making, and we're pretty close.''

The world's largest economy grew at a 1 percent pace in the fourth quarter after expanding at a 4.9 percent rate the previous three months that was the strongest since 2003, according to the median estimate of economists surveyed last month. Growth for all 2008 was projected at 2.3 percent.

Keep in mind that a recession is defined as two consecutive quarters of negative growth...or a decline in GDP. The fact that the fourth quarter GDP barely remained in the black, coupled with the beliefs of many that the downturn (fueled largely by the sub-prime lending crisis and it's impact on consumer confidence and spending) has yet to hit bottom, seems to suggest that negative growth is just beyond the horizon. While we're not in a recession at the moment, one would be foolish to imagine any indicators of a strong economy in the short term.

Returning to the rhetoric of the Bush administration, it now appears that the powers that be have taken note of the tepid data...a fact that cannot be encouraging to a Republican party that needs every advantage it can find heading into the 2008 election cycle.

From The New York Times:

WASHINGTON — President Bush said Thursday that he was considering whether to propose a stimulus package to shore up the economy, the clearest indication yet of a growing concern inside the White House over rising oil prices, the subprime mortgage crisis and the possibility of recession.

“I’m concerned about people losing their homes and paying a lot for gasoline," Mr. Bush said in an interview with Reuters.

Asked if he intended to do anything more to help people stay in their homes, the president volunteered the idea of an economic stimulus package, although he said he had not made up his mind and would probably not do so until sometime around his State of the Union address, which he delivers on Jan. 28.

“In terms of any stimulus package, we’re considering all options," Mr. Bush said.

But it is a safe bet that tax cuts, long a centerpiece of the Bush domestic agenda, would be a feature of any administration initiative. And it is an equally safe bet that Democrats, who are contemplating their own economic stimulus package, would object, saying further tax cuts are unaffordable.

Mr. Bush has repeatedly said economic fundamentals are strong, a theme he is likely to echo Monday in Chicago when he delivers a speech on the economy. But with polls showing that the economy has eclipsed Iraq as the leading concern among voters, and with Democrats warning of a “Bush recession," it has become increasingly apparent that inside the White House, there is a growing feeling that he cannot leave the economy to its own devices in his final year as president.

I'm of the opinion that the election year dynamic won't help the President sell his party's economic credentials or additional tax cuts. Truth be told, the Bush administration's tax cuts have had little impact on the average American and the Bush apologist's efforts to tout their success have never gained traction.

Add in the huge deficit, the doubling of the national debt, and the outsourcing of jobs under George Bush and it's difficult to imagine voters trusting the GOP to solve what ails the economy. I suspect the Democrats will make the case that the President's tax cuts were little more than a band-aid placed upon an economy in need of skillful stitching...and a handout to those already basking in the bounty of trickle-down tax strategies.

At some point, the voting public has to realize that perpetual tax cuts have little to do with sound economic policy and more to do with assuring that corporate America will fund the political aspirations of their GOP lapdogs. The next time a president dangles a tax treat, it needs to end up in the mouths of those who work hard each day to make ends meet; not in the bank accounts of a few fat cats who are salivating at the thought of another round of tax cuts.

Tagged as: 2008 Election, Budget Deficit, Economy, GDP, George Bush, GOP, Job Growth, National Debt, Recession, Sub-Prime Lending, Tax Cuts, Trickle-Down, Unemployment

Daniel DiRito | January 4, 2008 | 10:50 AM | link | Comments (1)
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