Economic Perspectives

Employment Situation - December 2011

2012-01-06T15:50:00.001-05:00

The latest Employment Situation news release has been posted on the BLS website at http://www.bls.gov/news.release/pdf/empsit.pdf

and also archived at

http://www.bls.gov/news.release/archives/empsit_01062012.pdf.

Highlights are below.

Payroll employment rises 200,000 in December; jobless rate (8.5%) continues to trend down.

Nonfarm payroll employment rose by 200,000 in December, and the unemployment rate, at 8.5 percent, continued to trend down. Job gains occurred in transportation and warehousing, retail trade, manufacturing, health care, and mining.

Why Ron Paul is not Taken Seriously

2011-12-30T03:20:00.019-05:00

Advocates of U.S. Presidential candidate, Ron Paul, seem befuddled that his economic proposals do not receive more support and consideration. I am unsure if their criticisms of the U.S. Federal Reserve System (the Fed) are objections to the existence of paper money, central banks, or to the specific operation of the Fed. Monetary policy for an increasingly interconnected world is complex. It is reasonable that most people do not understand it. But it can be understood. Let me try to address a few issues.

Money is anything that is generally accepted to serve as a medium of exchange (i.e., you can buy things with it), a store of value (i.e., you use it to save purchasing power for use at a later time), and a unit of account (i.e., it is used to measure relative prices). Stated more simply, money facilitates commerce. Without money that is widely accepted, easy to carry and exchange, and difficult to counterfeit, economic transactions become much more difficult. Without money, people must rely on barter for exchanges of goods and services. For example, a yoga teacher would trade yoga instruction for everything she wants to buy. Paper money, such as Federal Reserve Notes, has been used since the 7th century because it conveniently serves the functions of money. Although it has no intrinsic value, paper money has historically been one of the most widely used forms of money. Bank deposits, such as those created under the fractional reserve banking systems that are common throughout the developed world, are another form of money of similar importance in modern times.

The reason why politicians other than Ron Paul are not advocating the elimination of the Federal Reserve System is because there is a broad consensus among politicians, economists, and the leaders of finance and business that central banks, such as the Fed, provide a necessary function for a developed society. Prior to the creation of the Federal Reserve System in 1913, the U.S. monetary and banking systems were chaotic and their instabilities impeded commerce and economic growth. Because central banks oversee the money supply and banking system, every country with its own currency needs a central bank. They all function essentially in the same way as the Fed.

The primary benefit of a central bank, such as the U.S. Federal Reserve System, is that it promotes a healthy and stable banking system capable of supporting economic growth. It also ensures that society has an appropriate quantity of reliable money to facilitate commerce.

The simplest refutation of the desirability of returning the U.S. to a gold standard is that the money supply would not typically increase unless the U.S. acquired more gold. A benefit of this is that it would prevent excessive inflation. But it would almost certainly lead to devastating deflation and it would make it nearly impossible for the U.S. to use monetary policy to reduce the duration and severity of economic downturns, such as the recent global recession.

Here is a simple example. As a country’s population increases and its economy grows, it needs a larger money supply. If there are a million people earning $1 per day, the economy needs $1 million per day to pay these workers. If the population doubles to 2 million, but the money supply has not increased because the country has not acquired more gold, then the existing $1 million must be sufficient to pay 2 million people. So people earn fifty cents per day instead of a dollar. With these lower labor costs, prices of goods and services fall, too. An overall reduction in the price level, which economists call deflation, might seem desirable. But it is devastating to an economy. It causes a dramatic reduction in purchases of newly produced goods and services. (Why buy something today if you know it will be cheaper next week, next month, or next year?) Deflation increases unemployment as businesses lay off workers because there is reduced demand for their products as consumers postpone purchases until the future (when they will be cheaper).

Developed modern economies have a money supply that is primarily composed of currency and bank deposits and is overseen by a central bank. This allows the money supply to be adjusted to the changing needs of society. The money supply can be easily altered to accommodate changes in population and economic growth. And because central banks influence the amount of money created by private commercial banks in the form of loans, monetary policy is a primary instrument of macroeconomic policy. In prosperous times, central banks fight inflation by encouraging banks to lend less money to the public and thereby reducing overall spending on newly produced goods and services. When the economy is sluggish, central banks promote economic growth and reduce unemployment by encouraging banks to lend more money and thus increase the demand for newly produced goods and services. (As sales increase, businesses rehire workers they laid off or hire new ones.) Mainstream society wants governments to take action to promote economic prosperity and reduce the negative impacts of macroeconomic declines. (See "The Economic Role of Government" for elaboration.)

Ron Paul seems to have considerable fears about hyperinflation. A few economies (with currencies not backed by gold and a central bank similar to the Fed) have suffered hyperinflation. But this does not imply that such a fate in inevitable. An examination of the U.S. inflation rates since 1956 provides no evidence that Fed policies have caused excessive increases in the price level.

http://econperspectives.blogspot.com/2008/10/us-inflation-rates-since-1956.html

Indeed, hyperinflation tends to occur in places where government leaders have considerably more influence over the central bank (as Paul seems to want). The relative independence of the Fed from the whims of current politicians is a strength of the U.S. monetary system, not a shortcoming as Paul suggests.

Ron Paul’s opinions of the Fed are viewed by mainstream society the same way it views people who claim the earth is flat, that the sun orbits the earth, that man never went to the moon, that the best way to cure all illness is to drain blood from the body, that there is no such thing as evolution, that the earth is only 6,000 years old, or that President Barack Obama was not born in Hawaii. There is substantial evidence to refute all of those beliefs. But for whatever reason, some people prefer conspiracy theories. There is a lot to like about Ron Paul’s candidacy. But Paul is not taken seriously by mainstream society because many of the policies he advocates are simplistic and seem to be based on wishful thinking rather than reality.

Here are a few resources that may help your understanding of monetary policy:

(1) The Fed Today, a 14-minute video that provides a good introduction to the U.S. Federal Reserve System.
http://www.youtube.com/watch?v=jFnH9MCdpLo

(2) Economic Perspectives, my blog about macroeconomic policy
http://econperspectives.blogspot.com/2009/03/monetary-policy.html

(3) Wikipedia – decent summaries that may provide answers to many of your questions. The article on the gold standard has a section on its advantages and disadvantages.
http://en.wikipedia.org/wiki/Central_bank
http://en.wikipedia.org/wiki/Federal_Reserve
http://en.wikipedia.org/wiki/Gold_standard
http://en.wikipedia.org/wiki/Banknote

The Economic Role of Government

2011-08-29T15:53:00.007-04:00

As I tell my students, it is a legitimate and defensible position to argue that the government should not try to manage the macroeconomy. For a variety of reasons (such as corruption, incompetence, and the influence of special interests), it is conceivable that policy makers and implementers will make things worse, not better. If one chooses this position, however, then one cannot complain about high unemployment, high inflation, or a lack of economic growth.

Prior to the Great Depression, the predominant school of economic thought, classical economics, suggested that macroeconomic problems would correct themselves. If unemployment increased, the response would be a decrease in wages until employers were willing to hire them again. Similarly, inflation (a general increase in the level of prices) would cause people to buy less (as prices rose). Reduced demand for products then would cause prices to fall. The biggest problem with classical economic thought, however, is that it is based on assumptions that are rarely true. (For example, it assumes people have full information, which is almost never the case.) Several decades of subsequent economic thought have been devoted to explanations of flaws in the simplistic classical rationale. (The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel has been awarded 42 times to 67 Laureates between 1969 and 2010 to highlight and honor those achievements.)

John Maynard Keynes, a British economist, popularized the notion that the government can and should play an active role in managing the macroeconomy. Keynes acknowledged that classical thought might have applicability over an extremely long time period, but “in the long run we are all dead.” If people wait for the macroeconomy to correct itself, they may not live long enough to see the changes. The severity and prolonged duration of the Great Depression convinced most people of the validity of Keynes’ insights. During the Great Depression, prices were falling, but that did not motivate an increase in purchases and employment as classical economics predicts. Even if people had income, they were reluctant to spend it because of uncertainty about the future.

Mainstream economics since the Great Depression is Keynesian economics. The overwhelming majority of economists around the world believe it is appropriate for the government to take actions to promote economic growth and to maintain low unemployment and low inflation. The debate in the United States is not whether the government should try to achieve these goals. Instead, the discussion is about what the government should do. Essentially, Republicans argue that public policies should primarily benefit businesses and the wealthy because they are the job creators. Democrats respond that making the wealthy richer will not cause them to hire more workers unless there is a significant increase in the demand for goods and services. Democrats favor policies with broader benefits because they believe increasing the overall demand for products will increase employment. Very few people argue that the government should do nothing to reduce unemployment, maintain stable prices, and promote economic growth. Indeed, the mood of the country is “they have not fixed the economy, so throw the bums out.”

If President Obama loses the 2012 election, it will be because he did too little to improve the economy, not because he did too much. Reports from the Congressional Budget Office (CBO), a government agency whose professional economists provide non-partisan analysis to legislators, consistently confirm that the American Recovery and Reinvestment Act (ARRA), the much criticized stimulus spending program, created jobs, increased employment, and reduced the unemployment rate from what would have occurred in its absence. It is a fair criticism to say some politicians steered ARRA funds away from the most economically beneficial projects toward other favored objectives. But that is a failure of the political system and the implementation of the suggested policies, not of Keynesian economic theory.

EMPLOYMENT SITUATION - July 2011

2011-08-05T10:46:00.003-04:00

THE EMPLOYMENT SITUATION -- JULY 2011

Total nonfarm payroll employment rose by 117,000 in July, and the unemployment rate was little changed at 9.1 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, retail trade, manufacturing, and mining. Government employment continued to trend down.

Household Survey Data

The number of unemployed persons (13.9 million) and the unemployment rate (9.1 percent) changed little in July. Since April, the unemployment rate has shown little definitive movement. The labor force, at 153.2 million, was little changed in July. (See table A-1.)

Among the major worker groups, the unemployment rates for adult men(9.0 percent), adult women (7.9 percent), teenagers (25.0 percent), whites (8.1 percent), blacks (15.9 percent), and Hispanics (11.3 percent) showed little or no change in July. The jobless rate for Asians was 7.7 percent, not seasonally adjusted. (See tables A-1, A-2, and A-3.)

The number of persons unemployed for less than 5 weeks declined by 387,000 in July, mostly offsetting an increase in the prior month. The number of long-term unemployed (those jobless for 27 weeks and over), at 6.2 million, changed little over the month and accounted for 44.4 percent of the unemployed. (See table A-12.)

The civilian labor force participation rate edged down in July to 63.9 percent, and the employment-population ratio was little changed at 58.1 percent. (See table A-1.)

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was about unchanged in July at 8.4 million. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job. (See table A-8.)

In July, 2.8 million persons were marginally attached to the labor force, little changed from a year earlier. (These data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. (See table A-16.)

Among the marginally attached, there were 1.1 million discouraged workers in July, about the same as a year earlier. (These data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.7 million persons marginally attached to the labor force in July had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities. (See table A-16.)

Establishment Survey Data

Total nonfarm payroll employment increased by 117,000 in July, following little growth over the prior 2 months. Total private employment rose by 154,000 over the month, reflecting job gains in several major industries, including health care, retail trade, manufacturing, and mining. Government employment continued to decline. (See table B-1.)

Health care employment grew by 31,000 in July. Ambulatory health care services and hospitals each added 14,000 jobs over the month. Over the past 12 months, health care employment has grown by 299,000.

Retail trade added 26,000 jobs in July. Employment in health and personal care stores rose by 9,000 over the month with small increases distributed among several other retail industries. Employment in retail trade has increased by 228,000 since a recent low in December 2009.

Manufacturing employment increased in July (+24,000); nearly all of the increase was in durable goods manufacturing. Within durable goods, the motor vehicles and parts industry had fewer seasonal layoffs than typical for July, contributing to a seasonally adjusted employment increase of 12,000. Manufacturing has added 289,000 jobs since its most recent trough in December 2009, and durable goods manufacturing added 327,000 jobs during this period.

In July, employment in mining rose by 9,000; virtually all of the gain (+8,000) occurred in support activities for mining. Employment in mining has increased by 140,000 since a recent low in October 2009.

Employment in professional and technical services continued to trend up in July (+18,000). This industry has added 246,000 jobs since a recent low in March 2010. Employment in temporary help services changed little over the month and has shown little movement on net so far this year.

Elsewhere in the private sector, employment in construction, transportation and warehousing, information, financial activities, and leisure and hospitality changed little over the month.

Government employment continued to trend down over the month

(-37,000). Employment in state government decreased by 23,000, almost entirely due to a partial shutdown of the Minnesota state government. Employment in local government continued to wane over the month.

The average workweek for all employees on private nonfarm payrolls was unchanged over the month at 34.3 hours. The manufacturing workweek and factory overtime for all employees also were unchanged at 40.3 hours and 3.1 hours, respectively. In July, the average workweek for production and nonsupervisory employees on private nonfarm payrolls was 33.6 hours for the sixth consecutive month. (See tables B-2 and B-7.)

In July, average hourly earnings for all employees on private nonfarm payrolls increased by 10 cents, or 0.4 percent, to $23.13. Over the past 12 months, average hourly earnings have increased by 2.3 percent. In July, average hourly earnings of private-sector production and nonsupervisory employees increased by 8 cents, or 0.4 percent, to $19.52. (See tables B-3 and B-8.)

The change in total nonfarm payroll employment for May was revised from +25,000 to +53,000, and the change for June was revised from +18,000 to +46,000.

_____________

The Employment Situation for August is scheduled to be released on Friday, September 2, 2011, at 8:30 a.m. (EDT).

U.S. Debt Clock

2011-05-19T00:07:00.003-04:00

http://www.usdebtclock.org/

US Uncut: Corporate Tax Cheats Are Bankrupting America

2011-04-07T16:21:00.004-04:00

Click the image above to enlarge it.

According to its website,

"US Uncut is a grassroots movement taking direct action against corporate tax cheats and unnecessary and unfair public service cuts across the U.S. Washington's proposed budget for the coming year sends a clear message: The wrath of budget cuts will fall upon the shoulders of hard-working Americans. That's unacceptable."

Republican cuts would cost 700,000 jobs

2011-03-01T11:04:00.001-05:00

In the March 1, 2009 article "Republican cuts would cost 700,000 jobs: Report," Zachary Roth reports that Mark Zandi, a prominent economic forecaster, suggests that the budget cuts proposed by Republicans will slow economic growth and reduce the number of jobs. The logic is that a primary determinant of the number of jobs is the overall demand for newly produced goods and services, which economists refer to as aggregate demand (AD). And a key source of demand, especially in economic downturns and their recoveries, is government purchases. Less government spending translates into less aggregate demand and fewer jobs.

According to Roth:

A new report by a leading economic forecaster finds that budget cuts passed by the House of Representatives would cost 700,000 jobs over the next two years if enacted.

"The House Republicans' proposal would reduce 2011 real GDP growth by 0.5% and 2012 growth by 0.2%," according to the study, by Moody's Analytics chief economist Mark Zandi. "This would mean some 400,000 fewer jobs created by the end of 2011 and 700,000 fewer jobs by the end of 2012."

Zandi is no left-wing ideologue. He was on the economic team for Sen. John McCain's 2008 presidential campaign, and has advised members of both political parties. His findings point in the same direction as those of an even more pessimistic Goldman Sachs report, leaked last week, which concluded that the proposed cuts would reduce second- and third-quarter growth in 2010 by 1.5 to 2 percentage points.

Although the economy has been growing of late, it's not adding jobs fast enough to start significantly bringing down the unemployment rate, which stands at 9 percent. Writes Zandi: "Imposing additional government spending cuts before this has happened, as House Republicans want, would be taking an unnecessary chance with the recovery."

America already faces a jobs crisis, having lost around 8 million jobs since the start of the recession in late 2007.

Zandi argues that the government does need to cut spending--but that it should wait to do so until unemployment has come down further. "Significant government spending restraint is vital," he writes, "but given the economy's halting recovery, it would be counterproductive for that restraint to begin until the U.S. is creating enough jobs to lower the unemployment rate."

The House proposal cuts spending by around $60 billion from 2010 levels. The Senate and the Obama administration will weigh in before any cuts become law.

Charts reveal shocking income inequality

2011-02-23T20:13:00.001-05:00

"Some new data crunches show how the gap between rich and poor has widened into a chasm."

In the February 23, 2011 Yahoo! article, "Separate but unequal: Charts show growing rich-poor gap," Zachary Roth summarizes the Mother Jones article," It's the Inequality, Stupid" that appears in its March/April 2011 issue:

The Great Recession and the slump that followed have triggered a jobs crisis that's been making headlines since before President Obama was in office, and that will likely be with us for years. But the American economy is also plagued by a less-noted, but just as serious, problem: Simply put, over the last 30 years, the gap between rich and poor has widened into a chasm.
Gradual developments like this don't typically lend themselves to news coverage. But Mother Jones magazine has crunched the data on inequality, and put together a group of stunning new charts. Taken together, they offer a dramatic visual illustration of who's doing well and who's doing badly in modern America.
Here are three samples:
â€¢Â This chart shows that the poorest 90 percent of Americans make an average of $31,244 a year, while the top 1 percent make over $1.1 million:

• According to this chart, most income groups have barely grown richer since 1979. But the top 1 percent has seen its income nearly quadruple:

• And this chart suggests most Americans have little idea of just how unequal income distribution is. And that they'd like things to be divvied up a lot more equitably:

To see the rest of these fascinating charts, click on over to Mother Jones.

Winner Take All Politics: How Washington Made the Rich Richer – and Turned it s Back on the Middle Class.

2011-01-06T11:23:00.001-05:00

Winner Take All Politics: How Washington Made the Rich Richer – and Turned it s Back on the Middle Class - by Jacob S. Hacker

From the publisher's website:

Description

A groundbreaking work that identifies the real culprit behind one of the great economic crimes of our time— the growing inequality of incomes between the vast majority of Americans and the richest of the rich.

We all know that the very rich have gotten a lot richer these past few decades while most Americans haven't. In fact, the exorbitantly paid have continued to thrive during the current economic crisis, even as the rest of Americans have continued to fall behind. Why do the "haveit- alls" have so much more? And how have they managed to restructure the economy to reap the lion's share of the gains and shift the costs of their new economic playground downward, tearing new holes in the safety net and saddling all of us with increased debt and risk? Lots of so-called experts claim to have solved this great mystery, but no one has really gotten to the bottom of it—until now.

In their lively and provocative Winner-Take-All Politics, renowned political scientists Jacob S. Hacker and Paul Pierson demonstrate convincingly that the usual suspects—foreign trade and financial globalization, technological changes in the workplace, increased education at the top—are largely innocent of the charges against them. Instead, they indict an unlikely suspect and take us on an entertaining tour of the mountain of evidence against the culprit. The guilty party is American politics. Runaway inequality and the present economic crisis reflect what government has done to aid the rich and what it has not done to safeguard the interests of the middle class. The winner-take-all economy is primarily a result of winner-take-all politics.

In an innovative historical departure, Hacker and Pierson trace the rise of the winner-take-all economy back to the late 1970s when, under a Democratic president and a Democratic Congress, a major transformation of American politics occurred. With big business and conservative ideologues organizing themselves to undo the regulations and progressive tax policies that had helped ensure a fair distribution of economic rewards, deregulation got under way, taxes were cut for the wealthiest, and business decisively defeated labor in Washington. And this transformation continued under Reagan and the Bushes as well as under Clinton, with both parties catering to the interests of those at the very top. Hacker and Pierson's gripping narration of the epic battles waged during President Obama's first two years in office reveals an unpleasant but catalyzing truth: winner-take-all politics, while under challenge, is still very much with us.

Winner-Take-All Politics—part revelatory history, part political analysis, part intellectual journey— shows how a political system that traditionally has been responsive to the interests of the middle class has been hijacked by the superrich. In doing so, it not only changes how we think about American politics, but also points the way to rebuilding a democracy that serves the interests of the many rather than just those of the wealthy few.

Infographic: Visualizing the National Debt

2011-01-04T13:07:00.002-05:00

Infographic Source: National Debt LifesLittleMysteries.com

Click the image above to see it completely.

Give It Back for Jobs

2011-01-02T20:56:00.003-05:00

The "Give It Back for Jobs" website (http://giveitbackforjobs.org/) encourages people to donate to charity the amount of money they will save by the extension of the Bush tax cuts for 2011 and 2012. According to the website:

Calculate, Pledge, and Donate Your Tax Cut

Americans who've benefited from the extension of the Bush tax cuts should give what they can afford - in large amounts or small - back to the public, by supporting organizations that promote fairness and economic growth.

The government has, by extending the cuts, deprived itself of the resources required to support the policies that will secure a vibrant middle class. But joint action by visitors to this site will begin to replicate good government policy, outside the government and free from the grip of obstructionists within it.

Beware of Politicians Who Do Not Understand Economics

2010-11-30T10:19:00.005-05:00

The following quotation is attributed to Abraham Lincoln in the 1912 three-volume publication Industrial Development of Nations by George Boughton Curtiss. The story is also recounted in the book Free Trade, the Tariff and Reciprocity by Frank William Taussig.

“I do not know much about the tariff, but I know this much, when we buy manufactured goods abroad, we get the goods and the foreigner gets the money. When we buy manufactured goods at home, we get both the goods and the money.”

The quotation is a good example of a passage that sounds persuasive in a political speech, but has no merit when subjected to scrutiny and the application of basic economic principles. To see the fallacy of the protectionist sentiment, use the same logic on a personal level:

When I buy food and clothes from stores, I get the food and clothes and the store owners get the money. When I grow my own food and make my own clothes, I get the food and clothes and get to keep my money.

It is essentially an argument to never buy anything from anyone. But that is absurd. It ignores the economic concepts of specialization, trade, and opportunity cost. People and societies benefit when they devote their time and energy to goods and services they can produce at a relatively lower absolute or comparative cost than others. People then use the income from their specialized activities to purchase the things they are not able to produce as efficiently. Indeed, one of the primary sources of economic growth and prosperity is the willingness and ability to specialize and trade.

Modern politicians are equally guilty of populist appeals that lack economic credibility, such as claims that the primary source of economic growth is lower taxes and reduced regulation of business, or that tax cuts increase government revenues, or that significant reductions to the U.S. budget deficit and the U.S. public debt can be achieved without sacrifices in the form of higher taxes and reduced government benefits.

Bernanke's Monetary Policy: Why a Little Inflation is Good

2010-11-12T11:39:00.001-05:00

In the November 12, 2010 TIME magazine article "Bernanke's Bum Rap: What's Wrong with a Little Inflation?," Michael Grunwald provides a defense for Fed Chairman Ben Bernanke's monetary policy.

Ben Bernanke teaches at Jacksonville University

2010-11-05T21:58:00.002-04:00

Ben Bernanke, the Chairman of the Board of Governors of the Federal Reserve System, came to Jacksonville University on November 5, 2010 to be a guest lecturer in the Money and Banking course. He spent most of the time answering questions from students. The 45-minute video of the class is available from C-SPAN.

Norway has the highest quality of life.

2010-11-04T11:15:00.004-04:00

According to a United Nations report, Norway has the highest quality of life in the world. Read more here.

According to the 2010 Human Development Reports, the world rankings are:

Human Development Index (HDI) - 2010 Rankings

Very High Human Development

Norway
Australia
New Zealand
United States
Ireland
Liechtenstein
Netherlands
Canada
Sweden
Germany
Japan
Korea (Republic of)
Switzerland
France
Israel
Finland
Iceland
Belgium
Denmark
Spain
Hong Kong, China (SAR)
Greece
Italy
Luxembourg
Austria
United Kingdom
Singapore
Czech Republic
Slovenia
Andorra
Slovakia
United Arab Emirates
Malta
Estonia
Cyprus
Hungary
Brunei Darussalam
Qatar
Bahrain
Portugal
Poland
Barbados

High Human Development

Bahamas
Lithuania
Chile
Argentina
Kuwait
Latvia
Montenegro
Romania
Croatia
Uruguay
Libyan Arab Jamahiriya
Panama
Saudi Arabia
Mexico
Malaysia
Bulgaria
Trinidad and Tobago
Serbia
Belarus
Costa Rica
Peru
Albania
Russian Federation
Kazakhstan
Azerbaijan
Bosnia and Herzegovina
Ukraine
Iran (Islamic Republic of)
The former Yugoslav Republic of Macedonia
Mauritius
Brazil
Georgia
Venezuela (Bolivarian Republic of)
Armenia
Ecuador
Belize
Colombia
Jamaica
Tunisia
Jordan
Turkey
Algeria
Tonga

Medium Human Development

Fiji
Turkmenistan
Dominican Republic
China
El Salvador
Sri Lanka
Thailand
Gabon
Suriname
Bolivia (Plurinational State of)
Paraguay
Philippines
Botswana
Moldova (Republic of)
Mongolia
Egypt
Uzbekistan
Micronesia (Federated States of)
Guyana
Namibia
Honduras
Maldives
Indonesia
Kyrgyzstan
South Africa
Syrian Arab Republic
Tajikistan
Viet Nam
Morocco
Nicaragua
Guatemala
Equatorial Guinea
Cape Verde
India
Timor-Leste
Swaziland
Lao People's Democratic Republic
Solomon Islands
Cambodia
Pakistan
Congo
São Tomé and Príncipe

Low Human Development

Kenya
Bangladesh
Ghana
Cameroon
Myanmar
Yemen
Benin
Madagascar
Mauritania
Papua New Guinea
Nepal
Togo
Comoros
Lesotho
Nigeria
Uganda
Senegal
Haiti
Angola
Djibouti
Tanzania (United Republic of)
Côte d'Ivoire
Zambia
Gambia
Rwanda
Malawi
Sudan
Afghanistan
Guinea
Ethiopia
Sierra Leone
Central African Republic
Mali
Burkina Faso
Liberia
Chad
Guinea-Bissau
Mozambique
Burundi
Niger
Congo (Democratic Republic of the)
Zimbabwe

Note: The HDI rankings featured above were published in the Human Development Report 2010, The Real Wealth of Nations: Pathways to Human Development. Information about the HDI. PDF version Table 1 - Human Development Index and its components [108 KB].

How Obama Saved Capitalism and Lost the Midterms

2010-11-03T07:45:00.001-04:00

In the November 2, 2010 online New York Times commentary, "How Obama Saved Capitalism and Lost the Midterms," Timothy Egan explains that the partisan attacks on President Obama's handling of the U.S. economy are misguided and untrue.

Egan writes:

If I were one of the big corporate donors who bankrolled the Republican tide that carried into office more than 50 new Republicans in the House, I would be wary of what you just bought.

For no matter your view of President Obama, he effectively saved capitalism. And for that, he paid a terrible political price.

Suppose you had $100,000 to invest on the day Barack Obama was inaugurated. Why bet on a liberal Democrat? Here’s why: the presidency of George W. Bush produced the worst stock market decline of any president in history. The net worth of American households collapsed as Bush slipped away. And if you needed a loan to buy a house or stay in business, private sector borrowing was dead when he handed over power.

As of election day, Nov. 2, 2010, your $100,000 was worth about $177,000 if invested strictly in the NASDAQ average for the entirety of the Obama administration, and $148,000 if bet on the Standard & Poors 500 major companies. This works out to returns of 77 percent and 48 percent.

But markets, though forward-looking, are not considered accurate measurements of the economy, and the Great Recession skewed the Bush numbers. O.K. How about looking at the big financial institutions that keep the motors of capitalism running — banks and auto companies?

The banking system was resuscitated by $700 billion in bailouts started by Bush (a fact unknown by a majority of Americans), and finished by Obama, with help from the Federal Reserve. It worked. The government is expected to break even on a risky bet to stabilize the global free market system. Had Obama followed the populist instincts of many in his party, the underpinnings of big capitalism could have collapsed. He did this without nationalizing banks, as other Democrats had urged.

Saving the American auto industry, which has been a huge drag on Obama’s political capital, is a monumental achievement that few appreciate, unless you live in Michigan. After getting their taxpayer lifeline from Obama, both General Motors and Chrysler are now making money by making cars. New plants are even scheduled to open. More than 1 million jobs would have disappeared had the domestic auto sector been liquidated.

“An apology is due Barack Obama,” wrote The Economist, which had opposed the $86 billion auto bailout. As for Government Motors: after emerging from bankruptcy, it will go public with a new stock offering in just a few weeks, and the United States government, with its 60 percent share of common stock, stands to make a profit. Yes, an industry was saved, and the government will probably make money on the deal — one of Obama’s signature economic successes.

Interest rates are at record lows. Corporate profits are lighting up boardrooms; it is one of the best years for earnings in a decade.

All of the above is good for capitalism, and should end any serious-minded discussion about Obama the socialist. But more than anything, the fact that the president took on the structural flaws of a broken free enterprise system instead of focusing on things that the average voter could understand explains why his party was routed on Tuesday. Obama got on the wrong side of voter anxiety in a decade of diminished fortunes.

“We have done things that people don’t even know about,” Obama told Jon Stewart. Certainly. The three signature accomplishments of his first two years — a health care law that will make life easier for millions of people, financial reform that attempts to level the playing field with Wall Street, and the $814 billion stimulus package — have all been recast as big government blunders, rejected by the emerging majority.

But each of them, in its way, should strengthen the system. The health law will hold costs down, while giving millions the chance at getting care, according to the nonpartisan Congressional Budget Office. Financial reform seeks to prevent the kind of meltdown that caused the global economic collapse. And the stimulus, though it drastically raised the deficit, saved about 3 million jobs, again according to the CBO. It also gave a majority of taxpayers a one-time cut — even if 90 percent of Americans don’t know that, either.

Of course, nobody gets credit for preventing a plane crash. “It could have been much worse!” is not a rallying cry. And, more telling, despite a meager uptick in job growth this year, the unemployment rate rose from 7.6 percent in the month Obama took office to 9.6 today.

Billions of profits, windfalls in the stock market, a stable banking system — but no jobs.

Of course, the big money interests who benefited from Obama’s initiatives have shown no appreciation. Obama, as a senator, voted against the initial bailout of AIG, the reckless insurance giant. As president, he extended them treasury loans at a time when economists said he must — or risk further meltdown. Their response was to give themselves $165 million in executive bonuses, and funnel money to Republicans this year.

Money flows one way, to power, now held by the party that promises tax cuts and deregulation — which should please big business even more.

President Franklin Roosevelt also saved capitalism, in part by a bank “holiday” in 1933, at a time when the free enterprise system had failed. Unlike Obama, he was rewarded with midterm gains for his own party because a majority liked where he was taking the country. The bank holiday was incidental to a larger public works campaign.

Obama can recast himself as the consumer’s best friend, and welcome the animus of Wall Street. He should hector the companies sitting on piles of cash but not hiring new workers. For those who do hire, and create new jobs, he can offer tax incentives. He should finger the financial giants for refusing to clean up their own mess in the foreclosure crisis. He should point to the long overdue protections for credit card holders that came with reform.

And he should veto, veto, veto any bill that attempts to roll back some of the basic protections for people against the institutions that have so much control over their lives – insurance companies, Wall Street and big oil.

They will whine a fierce storm, the manipulators of great wealth. A war on business, they will claim. Not even close. Obama saved them, and the biggest cost was to him.

Show Me the Stimulus

2010-10-22T11:36:00.004-04:00

Show Me the Stimulus provides links to news and commentary about the effects of federal government spending from the American Recovery and Reinvestment Act in the state of Maryland.

This nine-month Maryland Morning series is funded by The Joseph and Harvey Meyerhoff Family Charitable Funds, The Baltimore Community Foundation, Melnick-Newell and Associates, and Persels & Associates.

Dow Jones Industrial Average (1900 - Present Monthly)

2010-10-12T21:27:00.003-04:00

Click the image above to enlarge it.

Dow Jones Industrial Average (1900 - Present Monthly)

Source: StockCharts.com

Charlie Rose Interview with Andrew Sullivan

2010-10-11T23:43:00.002-04:00

Charlie Rose interview with Andrew Sullivan.

History of the U.S. Tax System

2010-09-25T10:52:00.003-04:00

Fact Sheets: Taxes
HISTORY OF THE U.S. TAX SYSTEM

The federal, state, and local tax systems in the United States have been marked by significant changes over the years in response to changing circumstances and changes in the role of government. The types of taxes collected, their relative proportions, and the magnitudes of the revenues collected are all far different than they were 50 or 100 years ago. Some of these changes are traceable to specific historical events, such as a war or the passage of the 16th Amendment to the Constitution that granted the Congress the power to levy a tax on personal income. Other changes were more gradual, responding to changes in society, in our economy, and in the roles and responsibilities that government has taken unto itself.

Colonial Times

For most of our nation's history, individual taxpayers rarely had any significant contact with Federal tax authorities as most of the Federal government's tax revenues were derived from excise taxes, tariffs, and customs duties. Before the Revolutionary War, the colonial government had only a limited need for revenue, while each of the colonies had greater responsibilities and thus greater revenue needs, which they met with different types of taxes. For example, the southern colonies primarily taxed imports and exports, the middle colonies at times imposed a property tax and a "head" or poll tax levied on each adult male, and the New England colonies raised revenue primarily through general real estate taxes, excises taxes, and taxes based on occupation.

England's need for revenues to pay for its wars against France led it to impose a series of taxes on the American colonies. In 1765, the English Parliament passed the Stamp Act, which was the first tax imposed directly on the American colonies, and then Parliament imposed a tax on tea. Even though colonists were forced to pay these taxes, they lacked representation in the English Parliament. This led to the rallying cry of the American Revolution that "taxation without representation is tyranny" and established a persistent wariness regarding taxation as part of the American culture.

The Post Revolutionary Era

The Articles of Confederation, adopted in 1781, reflected the American fear of a strong central government and so retained much of the political power in the States. The national government had few responsibilities and no nationwide tax system, relying on donations from the States for its revenue. Under the Articles, each State was a sovereign entity and could levy tax as it pleased.

When the Constitution was adopted in 1789, the Founding Fathers recognized that no government could function if it relied entirely on other governments for its resources, thus the Federal Government was granted the authority to raise taxes. The Constitution endowed the Congress with the power to "…lay and collect taxes, duties, imposts, and excises, pay the Debts and provide for the common Defense and general Welfare of the United States." Ever on guard against the power of the central government to eclipse that of the states, the collection of the taxes was left as the responsibility of the State governments.

To pay the debts of the Revolutionary War, Congress levied excise taxes on distilled spirits, tobacco and snuff, refined sugar, carriages, property sold at auctions, and various legal documents. Even in the early days of the Republic, however, social purposes influenced what was taxed. For example, Pennsylvania imposed an excise tax on liquor sales partly "to restrain persons in low circumstances from an immoderate use thereof." Additional support for such a targeted tax came from property owners, who hoped thereby to keep their property tax rates low, providing an early example of the political tensions often underlying tax policy decisions.

Though social policies sometimes governed the course of tax policy even in the early days of the Republic, the nature of these policies did not extend either to the collection of taxes so as to equalize incomes and wealth, or for the purpose of redistributing income or wealth. As Thomas Jefferson once wrote regarding the "general Welfare" clause:

To take from one, because it is thought his own industry and that of his father has acquired too much, in order to spare to others who (or whose fathers) have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, "to guarantee to everyone a free exercise of his industry and the fruits acquired by it."
With the establishment of the new nation, the citizens of the various colonies now had proper democratic representation, yet many Americans still opposed and resisted taxes they deemed unfair or improper. In 1794, a group of farmers in southwestern Pennsylvania physically opposed the tax on whiskey, forcing President Washington to send Federal troops to suppress the Whiskey Rebellion, establishing the important precedent that the Federal government was determined to enforce its revenue laws. The Whiskey Rebellion also confirmed, however, that the resistance to unfair or high taxes that led to the Declaration of Independence did not evaporate with the forming of a new, representative government.

During the confrontation with France in the late 1790's, the Federal Government imposed the first direct taxes on the owners of houses, land, slaves, and estates. These taxes are called direct taxes because they are a recurring tax paid directly by the taxpayer to the government based on the value of the item that is the basis for the tax. The issue of direct taxes as opposed to indirect taxes played a crucial role in the evolution of Federal tax policy in the following years. When Thomas Jefferson was elected President in 1802, direct taxes were abolished and for the next 10 years there were no internal revenue taxes other than excises.

To raise money for the War of 1812, Congress imposed additional excise taxes, raised certain customs duties, and raised money by issuing Treasury notes. In 1817 Congress repealed these taxes, and for the next 44 years the Federal Government collected no internal revenue. Instead, the Government received most of its revenue from high customs duties and through the sale of public land.

The Civil War

When the Civil War erupted, the Congress passed the Revenue Act of 1861, which restored earlier excises taxes and imposed a tax on personal incomes. The income tax was levied at 3 percent on all incomes higher than $800 a year. This tax on personal income was a new direction for a Federal tax system based mainly on excise taxes and customs duties. Certain inadequacies of the income tax were quickly acknowledged by Congress and thus none was collected until the following year.

By the spring of 1862 it was clear the war would not end quickly and with the Union's debt growing at the rate of $2 million daily it was equally clear the Federal government would need additional revenues. On July 1, 1862 the Congress passed new excise taxes on such items as playing cards, gunpowder, feathers, telegrams, iron, leather, pianos, yachts, billiard tables, drugs, patent medicines, and whiskey. Many legal documents were also taxed and license fees were collected for almost all professions and trades.

The 1862 law also made important reforms to the Federal income tax that presaged important features of the current tax. For example, a two-tiered rate structure was enacted, with taxable incomes up to $10,000 taxed at a 3 percent rate and higher incomes taxed at 5 percent. A standard deduction of $600 was enacted and a variety of deductions were permitted for such things as rental housing, repairs, losses, and other taxes paid. In addition, to assure timely collection, taxes were "withheld at the source" by employers.

The need for Federal revenue declined sharply after the war and most taxes were repealed. By 1868, the main source of Government revenue derived from liquor and tobacco taxes. The income tax was abolished in 1872. From 1868 to 1913, almost 90 percent of all revenue was collected from the remaining excises.

The 16th Amendment

Under the Constitution, Congress could impose direct taxes only if they were levied in proportion to each State's population. Thus, when a flat rate Federal income tax was enacted in 1894, it was quickly challenged and in 1895 the U.S. Supreme Court ruled it unconstitutional because it was a direct tax not apportioned according to the population of each state.

Lacking the revenue from an income tax and with all other forms of internal taxes facing stiff resistance, from 1896 until 1910 the Federal government relied heavily on high tariffs for its revenues. The War Revenue Act of 1899 sought to raise funds for the Spanish-American War through the sale of bonds, taxes on recreational facilities used by workers, and doubled taxes on beer and tobacco. A tax was even imposed on chewing gum. The Act expired in 1902, so that Federal receipts fell from 1.7 percent of Gross Domestic Product to 1.3 percent.

While the War Revenue Act returned to traditional revenue sources following the Supreme Court's 1895 ruling on the income tax, debate on alternative revenue sources remained lively. The nation was becoming increasingly aware that high tariffs and excise taxes were not sound economic policy and often fell disproportionately on the less affluent. Proposals to reinstate the income tax were introduced by Congressmen from agricultural areas whose constituents feared a Federal tax on property, especially on land, as a replacement for the excises.

Eventually, the income tax debate pitted southern and western Members of Congress representing more agricultural and rural areas against the industrial northeast. The debate resulted in an agreement calling for a tax, called an excise tax, to be imposed on business income, and a Constitutional amendment to allow the Federal government to impose tax on individuals' lawful incomes without regard to the population of each State.

By 1913, 36 States had ratified the 16th Amendment to the Constitution. In October, Congress passed a new income tax law with rates beginning at 1 percent and rising to 7 percent for taxpayers with income in excess of $500,000. Less than 1 percent of the population paid income tax at the time. Form 1040 was introduced as the standard tax reporting form and, though changed in many ways over the years, remains in use today.

One of the problems with the new income tax law was how to define "lawful" income. Congress addressed this problem by amending the law in 1916 by deleting the word "lawful" from the definition of income. As a result, all income became subject to tax, even if it was earned by illegal means. Several years later, the Supreme Court declared the Fifth Amendment could not be used by bootleggers and others who earned income through illegal activities to avoid paying taxes. Consequently, many who broke various laws associated with illegal activities and were able to escape justice for these crimes were incarcerated on tax evasion charges.

Prior to the enactment of the income tax, most citizens were able to pursue their private economic affairs without the direct knowledge of the government. Individuals earned their wages, businesses earned their profits, and wealth was accumulated and dispensed with little or no interaction with government entities. The income tax fundamentally changed this relationship, giving the government the right and the need to know about all manner of an individual or business' economic life. Congress recognized the inherent invasiveness of the income tax into the taxpayer's personal affairs and so in 1916 it provided citizens with some degree of protection by requiring that information from tax returns be kept confidential.

World War I and the 1920s

The entry of the United States into World War I greatly increased the need for revenue and Congress responded by passing the 1916 Revenue Act. The 1916 Act raised the lowest tax rate from 1 percent to 2 percent and raised the top rate to 15 percent on taxpayers with incomes in excess of $1.5 million. The 1916 Act also imposed taxes on estates and excess business profits.

Driven by the war and largely funded by the new income tax, by 1917 the Federal budget was almost equal to the total budget for all the years between 1791 and 1916. Needing still more tax revenue, the War Revenue Act of 1917 lowered exemptions and greatly increased tax rates. In 1916, a taxpayer needed $1.5 million in taxable income to face a 15 percent rate. By 1917 a taxpayer with only $40,000 faced a 16 percent rate and the individual with $1.5 million faced a tax rate of 67 percent.

Another revenue act was passed in 1918, which hiked tax rates once again, this time raising the bottom rate to 6 percent and the top rate to 77 percent. These changes increased revenue from $761 million in 1916 to $3.6 billion in 1918, which represented about 25 percent of Gross Domestic Product (GDP). Even in 1918, however, only 5 percent of the population paid income taxes and yet the income tax funded one-third of the cost of the war.

The economy boomed during the 1920s and increasing revenues from the income tax followed. This allowed Congress to cut taxes five times, ultimately returning the bottom tax rate to 1 percent and the top rate down to 25 percent and reducing the Federal tax burden as a share of GDP to 13 percent. As tax rates and tax collections declined, the economy was strengthened further.

In October of 1929 the stock market crash marked the beginning of the Great Depression. As the economy shrank, government receipts also fell. In 1932, the Federal government collected only $1.9 billion, compared to $6.6 billion in 1920. In the face of rising budget deficits which reached $2.7 billion in 1931, Congress followed the prevailing economic wisdom at the time and passed the Tax Act of 1932 which dramatically increased tax rates once again. This was followed by another tax increase in 1936 that further improved the government's finances while further weakening the economy. By 1936 the lowest tax rate had reached 4 percent and the top rate was up to 79 percent. In 1939, Congress systematically codified the tax laws so that all subsequent tax legislation until 1954 amended this basic code. The combination of a shrunken economy and the repeated tax increases raised the Federal government's tax burden to 6.8 percent of GDP by 1940.

The Social Security Tax

The state of the economy during the Great Depression led to passage of the Social Security Act in 1935. This law provided payments known as "unemployment compensation" to workers who lost their jobs. Other sections of the Act gave public aid to the aged, the needy, the handicapped, and to certain minors. These programs were financed by a 2 percent tax, one half of which was subtracted directly from an employee's paycheck and one half collected from employers on the employee's behalf. The tax was levied on the first $3,000 of the employee's salary or wage.

World War II

Even before the United States entered the Second World War, increasing defense spending and the need for monies to support the opponents of Axis aggression led to the passage in 1940 of two tax laws that increased individual and corporate taxes, which were followed by another tax hike in 1941. By the end of the war the nature of the income tax had been fundamentally altered. Reductions in exemption levels meant that taxpayers with taxable incomes of only $500 faced a bottom tax rate of 23 percent, while taxpayers with incomes over $1 million faced a top rate of 94 percent. These tax changes increased federal receipts from $8.7 billion in 1941 to $45.2 billion in 1945. Even with an economy stimulated by war-time production, federal taxes as a share of GDP grew from 7.6 percent in 1941 to 20.4 percent in 1945. Beyond the rates and revenues, however, another aspect about the income tax that changed was the increase in the number of income taxpayers from 4 million in 1939 to 43 million in 1945.

Another important feature of the income tax that changed was the return to income tax withholding as had been done during the Civil War. This greatly eased the collection of the tax for both the taxpayer and the Bureau of Internal Revenue. However, it also greatly reduced the taxpayer's awareness of the amount of tax being collected, i.e. it reduced the transparency of the tax, which made it easier to raise taxes in the future.

Developments after World War II

Tax cuts following the war reduced the Federal tax burden as a share of GDP from its wartime high of 20.9 percent in 1944 to 14.4 percent in 1950. However, the Korean War created a need for additional revenues which, combined with the extension of Social Security coverage to self-employed persons, meant that by 1952 the tax burden had returned to 19.0 percent of GDP.

In 1953 the Bureau of Internal Revenue was renamed the Internal Revenue Service (IRS), following a reorganization of its function. The new name was chosen to stress the service aspect of its work. By 1959, the IRS had become the world's largest accounting, collection, and forms-processing organization. Computers were introduced to automate and streamline its work and to improve service to taxpayers. In 1961, Congress passed a law requiring individual taxpayers to use their Social Security number as a means of tax form identification. By 1967, all business and personal tax returns were handled by computer systems, and by the late 1960s, the IRS had developed a computerized method for selecting tax returns to be examined. This made the selection of returns for audit fairer to the taxpayer and allowed the IRS to focus its audit resources on those returns most likely to require an audit.

Throughout the 1950s tax policy was increasingly seen as a tool for raising revenue and for changing the incentives in the economy, but also as a tool for stabilizing macroeconomic activity. The economy remained subject to frequent boom and bust cycles and many policymakers readily accepted the new economic policy of raising or lowering taxes and spending to adjust aggregate demand and thereby smooth the business cycle. Even so, however, the maximum tax rate in 1954 remained at 87 percent of taxable income. While the income tax underwent some manner of revision or amendment almost every year since the major reorganization of 1954, certain years marked especially significant changes. For example, the Tax Reform Act of 1969 reduced income tax rates for individuals and private foundations.

Beginning in the late 1960s and continuing through the 1970s the United States experienced persistent and rising inflation rates, ultimately reaching 13.3 percent in 1979. Inflation has a deleterious effect on many aspects of an economy, but it also can play havoc with an income tax system unless appropriate precautions are taken. Specifically, unless the tax system's parameters, i.e. its brackets and its fixed exemptions, deductions, and credits, are indexed for inflation, a rising price level will steadily shift taxpayers into ever higher tax brackets by reducing the value of those exemptions and deductions.

During this time, the income tax was not indexed for inflation and so, driven by a rising inflation, and despite repeated legislated tax cuts, the tax burden rose from 19.4 percent of GDP to 20.8 percent of GDP. Combined with high marginal tax rates, rising inflation, and a heavy regulatory burden, this high tax burden caused the economy to under-perform badly, all of which laid the groundwork for the Reagan tax cut, also known as the Economic Recovery Tax Act of 1981.

The Reagan Tax Cut

The Economic Recovery Tax Act of 1981, which enjoyed strong bi-partisan support in the Congress, represented a fundamental shift in the course of federal income tax policy. Championed in principle for many years by then-Congressman Jack Kemp (R-NY) and then-Senator Bill Roth (R- DE), it featured a 25 percent reduction in individual tax brackets, phased in over 3 years, and indexed for inflation thereafter. This brought the top tax bracket down to 50 percent.

The 1981 Act also featured a dramatic departure in the treatment of business outlays for plant and equipment, i.e. capital cost recovery, or tax depreciation. Heretofore, capital cost recovery had attempted roughly to follow a concept known as economic depreciation, which refers to the decline in the market value of a producing asset over a specified period of time. The 1981 Act explicitly displaced the notion of economic depreciation, instituting instead the Accelerated Cost Recovery System which greatly reduced the disincentive facing business investment and ultimately prepared the way for the subsequent boom in capital formation. In addition to accelerated cost recovery, the 1981 Act also instituted a 10 percent Investment Tax Credit to spur additional capital formation.

Prior to, and in many circles even after the 1981 tax cut, the prevailing view was that tax policy is most effective in modulating aggregate demand whenever demand and supply become mismatched, i.e. whenever the economy went in to recession or became "over-heated". The 1981 tax cut represented a new way of looking at tax policy, though it was in fact a return to a more traditional, or neoclassical, economic perspective. The essential idea was that taxes have their first and primary effect on the economic incentives facing individuals and businesses. Thus, the tax rate on the last dollar earned, i.e. the marginal dollar, is much more important to economic activity than the tax rate facing the first dollar earned or than the average tax rate. By reducing marginal tax rates it was believed the natural forces of economic growth would be less restrained. The most productive individuals would then shift more of their energies to productive activities rather than leisure and businesses would take advantage of many more now profitable opportunities. It was also thought that reducing marginal tax rates would significantly expand the tax base as individuals shifted more of their income and activities into taxable forms and out of tax-exempt forms.

The 1981 tax cut actually represented two departures from previous tax policy philosophies, one explicit and intended and the second by implication. The first change was the new focus on marginal tax rates and incentives as the key factors in how the tax system affects economic activity. The second policy departure was the de facto shift away from income taxation and toward taxing consumption. Accelerated cost recovery was one manifestation of this shift on the business side, but the individual side also saw a significant shift in the enactment of various provisions to reduce the multiple taxation of individual saving. The Individual Retirement Account, for example, was enacted in 1981.

Simultaneously with the enactment of the tax cuts in 1981 the Federal Reserve Board, with the full support of the Reagan Administration, altered monetary policy so as to bring inflation under control. The Federal Reserve's actions brought inflation down faster and further than was anticipated at the time, and one consequence was that the economy fell into a deep recession in 1982. Another consequence of the collapse in inflation was that federal spending levels, which had been predicated on a higher level of expected inflation, were suddenly much higher in inflation-adjusted terms. The combination of the tax cuts, the recession, and the one-time increase in inflation-adjusted federal spending produced historically high budget deficits which, in turn, led to a tax increase in 1984 that pared back some of the tax cuts enacted in 1981, especially on the business side.

As inflation came down and as more and more of the tax cuts from the 1981 Act went into effect, the economic began a strong and sustained pattern of growth. Though the painful medicine of disinflation slowed and initially hid the process, the beneficial effects of marginal rate cuts and reductions in the disincentives to invest took hold as promised.

The Evolution of Social Security and Medicare

The Social Security system remained essentially unchanged from its enactment until 1956. However, beginning in 1956 Social Security began an almost steady evolution as more and more benefits were added, beginning with the addition of Disability Insurance benefits. In 1958, benefits were extended to dependents of disabled workers. In 1967, disability benefits were extended to widows and widowers. The 1972 amendments provided for automatic cost-of-living benefits.

In 1965, Congress enacted the Medicare program, providing for the medical needs of persons aged 65 or older, regardless of income. The 1965 Social Security Amendments also created the Medicaid programs, which provides medical assistance for persons with low incomes and resources.

Of course, the expansions of Social Security and the creation of Medicare and Medicaid required additional tax revenues, and thus the basic payroll tax was repeatedly increased over the years. Between 1949 and 1962 the payroll tax rate climbed steadily from its initial rate of 2 percent to 6 percent. The expansions in 1965 led to further rate increases, with the combined payroll tax rate climbing to 12.3 percent in 1980. Thus, in 31 years the maximum Social Security tax burden rose from a mere $60 in 1949 to $3,175 in 1980.

Despite the increased payroll tax burden, the benefit expansions Congress enacted in previous years led the Social Security program to an acute funding crises in the early 1980s. Eventually, Congress legislated some minor programmatic changes in Social Security benefits, along with an increase in the payroll tax rate to 15.3 percent by 1990. Between 1980 and 1990, the maximum Social Security payroll tax burden more than doubled to $7,849.

The Tax Reform Act of 1986

Following the enactment of the 1981, 1982, and 1984 tax changes there was a growing sense that the income tax was in need of a more fundamental overhaul. The economic boom following the 1982 recession convinced many political leaders of both parties that lower marginal tax rates were essential to a strong economy, while the constant changing of the law instilled in policy makers an appreciation for the complexity of the tax system. Further, the debates during this period led to a general understanding of the distortions imposed on the economy, and the lost jobs and wages, arising from the many peculiarities in the definition of the tax base. A new and broadly held philosophy of tax policy developed that the income tax would be greatly improved by repealing these various special provisions and lowering tax rates further. Thus, in his 1984 State of the Union speech President Reagan called for a sweeping reform of the income tax so it would have a broader base and lower rates and would be fairer, simpler, and more consistent with economic efficiency.

The culmination of this effort was the Tax Reform Act of 1986, which brought the top statutory tax rate down from 50 percent to 28 percent while the corporate tax rate was reduced from 50 percent to 35 percent. The number of tax brackets was reduced and the personal exemption and standard deduction amounts were increased and indexed for inflation, thereby relieving millions of taxpayers of any Federal income tax burden. However, the Act also created new personal and corporate Alternative Minimum Taxes, which proved to be overly complicated, unnecessary, and economically harmful.

The 1986 Tax Reform Act was roughly revenue neutral, that is, it was not intended to raise or lower taxes, but it shifted some of the tax burden from individuals to businesses. Much of the increase in the tax on business was the result of an increase in the tax on business capital formation. It achieved some simplifications for individuals through the elimination of such things as income averaging, the deduction for consumer interest, and the deduction for state and local sales taxes. But in many respects the Act greatly added to the complexity of business taxation, especially in the area of international taxation. Some of the over-reaching provisions of the Act also led to a downturn in the real estate markets which played a significant role in the subsequent collapse of the Savings and Loan industry.

Seen in a broader picture, the 1986 tax act represented the penultimate installment of an extraordinary process of tax rate reductions. Over the 22 year period from 1964 to 1986 the top individual tax rate was reduced from 91 to 28 percent. However, because upper-income taxpayers increasingly chose to receive their income in taxable form, and because of the broadening of the tax base, the progressivity of the tax system actually rose during this period.

The 1986 tax act also represented a temporary reversal in the evolution of the tax system. Though called an income tax, the Federal tax system had for many years actually been a hybrid income and consumption tax, with the balance shifting toward or away from a consumption tax with many of the major tax acts. The 1986 tax act shifted the balance once again toward the income tax. Of greatest importance in this regard was the return to references to economic depreciation in the formulation of the capital cost recovery system and the significant new restrictions on the use of Individual Retirement Accounts.

Between 1986 and 1990 the Federal tax burden rose as a share of GDP from 17.5 to 18 percent. Despite this increase in the overall tax burden, persistent budget deficits due to even higher levels of government spending created near constant pressure to increase taxes. Thus, in 1990 the Congress enacted a significant tax increase featuring an increase in the top tax rate to 31 percent. Shortly after his election, President Clinton insisted on and the Congress enacted a second major tax increase in 1993 in which the top tax rate was raised to 36 percent and a 10 percent surcharge was added, leaving the effective top tax rate at 39.6 percent. Clearly, the trend toward lower marginal tax rates had been reversed, but, as it turns out, only temporarily.

The Taxpayer Relief Act of 1997 made additional changes to the tax code providing a modest tax cut. The centerpiece of the 1997 Act was a significant new tax benefit to certain families with children through the Per Child Tax credit. The truly significant feature of this tax relief, however, was that the credit was refundable for many lower-income families. That is, in many cases the family paid a "negative" income tax, or received a credit in excess of their pre-credit tax liability. Though the tax system had provided for individual tax credits before, such as the Earned Income Tax credit, the Per Child Tax credit began a new trend in federal tax policy. Previously tax relief was generally given in the form of lower tax rates or increased deductions or exemptions. The 1997 Act really launched the modern proliferation of individual tax credits and especially refundable credits that are in essence spending programs operating through the tax system.

The years immediately following the 1993 tax increase also saw another trend continue, which was to once again shift the balance of the hybrid income tax-consumption tax toward the consumption tax. The movement in this case was entirely on the individual side in the form of a proliferation of tax vehicles to promote purpose-specific saving. For example, Medical Savings Accounts were enacted to facilitate saving for medical expenses. An Education IRA and the Section 529 Qualified Tuition Program was enacted to help taxpayers pay for future education expenses. In addition, a new form of saving vehicle was enacted, called the Roth IRA, which differed from other retirement savings vehicles like the traditional IRA and employer-based 401(k) plans in that contributions were made in after-tax dollars and distributions were tax free.

Despite the higher tax rates, other economic fundamentals such as low inflation and low interest rates, an improved international picture with the collapse of the Soviet Union, and the advent of a qualitatively and quantitatively new information technologies led to a strong economic performance throughout the 1990s. This, in turn, led to an extraordinary increase in the aggregate tax burden, with Federal taxes as a share of GDP reaching a postwar high of 20.8 percent in 2000.

The Bush Tax Cut

By 2001, the total tax take had produced a projected unified budget surplus of $281 billion, with a cumulative 10 year projected surplus of $5.6 trillion. Much of this surplus reflected a rising tax burden as a share of GDP due to the interaction of rising real incomes and a progressive tax rate structure. Consequently, under President George W. Bush's leadership the Congress halted the projected future increases in the tax burden by passing the Economic Growth and Tax Relief and Reconciliation Act of 2001. The centerpiece of the 2001 tax cut was to regain some of the ground lost in the 1990s in terms of lower marginal tax rates. Though the rate reductions are to be phased in over many years, ultimately the top tax rate will fall from 39.6 percent to 33 percent.

The 2001 tax cut represented a resumption of a number of other trends in tax policy. For example, it expanded the Per Child Tax credit from $500 to $1000 per child. It also increased the Dependent Child Tax credit. The 2001 tax cut also continued the move toward a consumption tax by expanding a variety of savings incentives. Another feature of the 2001 tax cut that is particularly noteworthy is that it put the estate, gift, and generation-skipping taxes on course for eventual repeal, which is also another step toward a consumption tax. One novel feature of the 2001 tax cut compared to most large tax bills is that it was almost devoid of business tax provisions.

The 2001 tax cut will provide additional strength to the economy in the coming years as more and more of its provisions are phased in, and indeed one argument for its enactment had always been as a form of insurance against an economic downturn. However, unbeknownst to the Bush Administration and the Congress, the economy was already in a downturn as the Act was being debated. Thankfully, the downturn was brief and shallow, but it is already clear that the tax cuts that were enacted and went into effect in 2001 played a significant role in supporting the economy, shortening the duration of the downturn, and preparing the economy for a robust recovery.

One lesson from the economic slowdown was the danger of ever taking a strong economy for granted. The strong growth of the 1990s led to talk of a "new" economy that many assumed was virtually recession proof. The popularity of this assumption was easy to understand when one considers that there had only been one very mild recession in the previous 18 years.

Taking this lesson to heart, and despite the increasing benefits of the 2001 tax cut and the early signs of a recovery, President Bush called for and the Congress eventually enacted an economic stimulus bill. The bill included an extension of unemployment benefits to assist those workers and families under financial stress due to the downturn. The bill also included a provision to providing a temporary but significant acceleration of depreciation allowances for business investment, thereby assuring that the recovery and expansion will be strong and balanced. Interestingly, the depreciation provision also means that the Federal tax on business has resumed its evolution toward a consumption tax, once again paralleling the trend in individual taxation.

This history of the U.S. Tax System was retrieved from the U.S. Treasury website on September 25, 2010.

The Dollar ReDe$ign Project

2010-09-25T10:08:00.003-04:00

The Dollar ReDe$ign Project wants to resdesign U.S. currency in order to " rebrand the US Dollar, rebuild financial confidence and revive our failing economy." The project allowed submissions of alternative designs for U.S. currency. People were asked to vote on their favorite until Septemeber 30, 2010.

GOP, Democrats offer dueling governing plans

2010-09-23T23:56:00.000-04:00

In the September 23, 2010 article "GOP, Democrats offer dueling governing plans," Associated Press Writer Julie Hirschfeld Davis outlines the alternative plans for how to run the country.

Newt Gingrich on the GOP's 'Pledge'

2010-09-23T19:39:00.000-04:00

Newt Gingrich on the GOP's 'Pledge'

GOP 'Pledge' vows cuts, repeal of health care law

2010-09-23T17:59:00.002-04:00

In the September 23, 2010 article "GOP 'Pledge' vows cuts, repeal of health care law," Associated Press writer Julie Hirschfeld Davis explains that the pledge is rhetoric designed to persuade undecided voters to side with Republicans, who vow to cut taxes, government spending, budget deficits, and the public debt without acknowledging the inherent flaws in their logic (or math).

REVENUES - EXPENDITURES = Budget Balance (SURPLUS if positive, DEFICIT if negative).

When recent deficits have exceeded $1 trillion, advocating reductions to both revenues and expenditures will do little to reduce the deficits and will continue to substantially increase the public debt. Significant INCREASES in revenues are needed as well as dramatic cuts in major federal government spending programs (such as defense, Social Security, Medicare & Medicaid) that neither Republican nor Democrats seem prepared to support.

Unusual Worry: Is Inflation Too Low? Federal Reserve Worries Prices Not Going Up Fast Enough

2010-09-22T23:16:00.001-04:00

In the September 22, 2010 article "Unusual Worry: Is Inflation Too Low? Federal Reserve Worries Prices Not Going Up Fast Enough," Associated Press economics writer Jeannine Aversa provides further evidence that the macroeconomic policy goal is LOW inflation, not NO inflation. Here is an excerpt:

The Fed, meeting for the last time before the midterm elections, said its measures show inflation is "somewhat below" desirable levels for the economy. That may sound strange, because inflation is often made out to be an economic evil.

And it can be, when it gets out of control. But its opposite can be even worse.

Once deflation takes hold, it can wreck an economy. Workers suffer pay cuts. Corporate profits shrivel. Stock values fall. People, businesses and the government find it costlier to pare debt. Foreclosures and bankruptcies rise.

And people spend less, convinced that prices will fall even further if they just wait. That trend has already emerged in the housing market. Many would-be buyers are standing on the sidelines, waiting for home prices to fall further.

Why No Amount of Fiscal or Monetary Stimulus Will Be Enough, Given How Small A Share of Total Income the Middle Now Receives

2010-09-21T15:52:00.000-04:00

Robert Reich explains "Why No Amount of Fiscal or Monetary Stimulus Will Be Enough, Given How Small A Share of Total Income the Middle Now Receives."

The National Bureau of Economic Research declares the recession ended in June 2009.

2010-09-20T16:07:00.002-04:00

Business Cycle Dating Committee, National Bureau of Economic Research

This report is also available as a PDF file.

CAMBRIDGE September 20, 2010 - The Business Cycle Dating Committee of the National Bureau of Economic Research met yesterday by conference call. At its meeting, the committee determined that a trough in business activity occurred in the U.S. economy in June 2009. The trough marks the end of the recession that began in December 2007 and the beginning of an expansion. The recession lasted 18 months, which makes it the longest of any recession since World War II. Previously the longest postwar recessions were those of 1973-75 and 1981-82, both of which lasted 16 months.

In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month. A recession is a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. The trough marks the end of the declining phase and the start of the rising phase of the business cycle. Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion.

The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007. The basis for this decision was the length and strength of the recovery to date.

The committee waited to make its decision until revisions in the National Income and Product Accounts, released on July 30 and August 27, 2010, clarified the 2009 time path of the two broadest measures of economic activity, real Gross Domestic Product (real GDP) and real Gross Domestic Income (real GDI). The committee noted that in the most recent data, for the second quarter of 2010, the average of real GDP and real GDI was 3.1 percent above its low in the second quarter of 2009 but remained 1.3 percent below the previous peak which was reached in the fourth quarter of 2007.

Identifying the date of the trough involved weighing the behavior of various indicators of economic activity. The estimates of real GDP and GDI issued by the Bureau of Economic Analysis of the U.S. Department of Commerce are only available quarterly. Further, macroeconomic indicators are subject to substantial revisions and measurement error. For these reasons, the committee refers to a variety of monthly indicators to choose the months of peaks and troughs. It places particular emphasis on measures that refer to the total economy rather than to particular sectors. These include a measure of monthly GDP that has been developed by the private forecasting firm Macroeconomic Advisers, measures of monthly GDP and GDI that have been developed by two members of the committee in independent research (James Stock and Mark Watson, (available here), real personal income excluding transfers, the payroll and household measures of total employment, and aggregate hours of work in the total economy. The committee places less emphasis on monthly data series for industrial production and manufacturing-trade sales, because these refer to particular sectors of the economy. Movements in these series can provide useful additional information when the broader measures are ambiguous about the date of the monthly peak or trough. There is no fixed rule about what weights the committee assigns to the various indicators, or about what other measures contribute information to the process.

The committee concluded that the behavior of the quarterly series for real GDP and GDI indicates that the trough occurred in mid-2009. Real GDP reached its low point in the second quarter of 2009, while the value of real GDI was essentially identical in the second and third quarters of 2009. The average of real GDP and real GDI reached its low point in the second quarter of 2009. The committee concluded that strong growth in both real GDP and real GDI in the fourth quarter of 2009 ruled out the possibility that the trough occurred later than the third quarter.

The committee designated June as the month of the trough based on several monthly indicators. The trough dates for these indicators are:

Macroeconomic Advisers' monthly GDP (June)
The Stock-Watson index of monthly GDP (June)
Their index of monthly GDI (July)
An average of their two indexes of monthly GDP and GDI (June)
Real manufacturing and trade sales (June)
Index of Industrial Production (June)
Real personal income less transfers (October)
Aggregate hours of work in the total economy (October)
Payroll survey employment (December)
Household survey employment (December)
The committee concluded that the choice of June 2009 as the trough month for economic activity was consistent with the later trough months in the labor-market indicators–aggregate hours and employment–for two reasons. First, the strong growth of quarterly real GDP and real GDI in the fourth quarter was inconsistent with designating any month in the fourth quarter as the trough month. The committee believes that these quarterly measures of the real volume of output across the entire economy are the most reliable measures of economic activity. Second, in previous business cycles, aggregate hours and employment have frequently reached their troughs later than the NBER's trough date. In particular, in 2001-03, the trough in payroll employment occurred 21 months after the NBER trough date. In 2009, the NBER trough date is 6 months before the trough in payroll employment. In both the 2001-03 and 2009 cycles, household employment also reached its trough later than the NBER trough date.

The committee noted the contrast between the June trough date for the majority of the monthly indicators and the October trough date for real personal income less transfers. There were two reasons for selecting the earlier date. The first was described above -- the fact that quarterly real GDP and GDI rose strongly in the fourth quarter. The second was that real GDI is a more comprehensive measure of income than real personal income less transfers, as it includes additional sources of income such as undistributed corporate profits. The committee's use of income-side measures, notably real GDI, is based on the accounting principle that the value of output equals the sum of the incomes that arise from producing the output. Apart from a random statistical discrepancy, real GDI satisfies that equality while real personal income does not.

The committee also maintains a quarterly chronology of business cycle peak and trough dates. The committee determined that the trough occurred in the second quarter of 2009, when the average of quarterly real GDP and GDI reached its low point.

For more information, see the FAQs and the more detailed description of the NBER's business cycle dating procedure at http://www.nber.org/cycles/recessions.html. An Excel spreadsheet containing the data and the figures for the indicators of economic activity considered by the committee is available at that page as well.

The current members of the Business Cycle Dating Committee are: Robert Hall, Stanford University (chair); Martin Feldstein, Harvard University; Jeffrey Frankel, Harvard University; Robert Gordon, Northwestern University; James Poterba, MIT and NBER President; James Stock, Harvard University; and Mark Watson, Princeton University. David Romer, University of California, Berkeley, is on leave from the committee and did not participate in its deliberations.

[ NBER Home Page | More information ]

NBER, 1050 Massachusetts Ave., Cambridge, MA 02138, 617-868-3900, www.nber.org

(September 20, 2010)

The perils of false equivalencies and self-proclaimed centrism

2010-09-19T16:32:00.002-04:00

In the September 19, 2010 Salon article "The perils of false equivalencies and self-proclaimed centrism," Glenn Greenwald suggests the exaggerations of political conservatives are much more egregious than those of progressives and Jon Stewart's implied similarity is misplaced.

How the tea party is rewriting the rule book for political organizing

2010-09-17T10:41:00.000-04:00

How the tea party is rewriting the rule book for political organizing

Rush Limbaugh falls for Wikipedia hoax

2010-09-16T16:28:00.000-04:00

The article "Rush Limbaugh falls for Wikipedia hoax" provides further evidence that Wikipedia is an unreliable source for academic research. Information on Wikipedia can be false and unreliable.

"I'm as mad as hell, and I'm not going to take this anymore!

2010-09-07T22:02:00.002-04:00

"I'm as mad as hell, and I'm not going to take this anymore!"
From the 1976 movie, Network.

How to Read the Current Job Market

2010-09-03T12:50:00.002-04:00

The unemployment rate increased to 9.6% in August 2010, but that may be a good indicator for job prospects in the near future if you understand how the statistic is calculated. .In the September 3, 2010 U.S. News & World Report article "5 Key Lessons in August's Jobs Report," Liz Wolgemuth provides some insight into why an increase in the unemployment rate might be a good signal for economic recovery.

August's jobs report is shining a little light on the ploddingly dreary labor market. Private employers added more jobs than economists expected last month, and the Labor Department revised the data to show bigger private sector gains for June and July. In July, private employers added 107,000 jobs, rather than the 71,000 initially reported. The unemployment rate last month ticked up to 9.6 percent from 9.5 percent in July, reflecting an increase in the size of the labor force.

This report offers some important lessons to help understand the current job market and how it's measured. Here are some things to keep in mind:

The headline number often doesn't mean much. The number of jobs lost or gained for the month will always be the first thing reported, but the truth is that it's often a very misleading figure. Let's look at August. Non-farm payroll employment fell by 54,000 jobs--that's the headline figure, and it's negative. More job losses are certainly the last thing anyone wishes to see at this point in the recovery. But if you look deeper, you'll see that the government cut 114,000 temporary census jobs last month. At the same time, total private sector employment increased by 67,000 jobs. Private-sector employment is the real barometer, not the sum of short-term government jobs.

Job numbers are just differences. Often, job data is reported in a way that can be confusing. Let's say a news report says "private sector employers added 67,000 jobs last month." That can sound a bit like all the private businesses in the country made just 67,000 hires altogether last month. In truth, American businesses hired millions of people last month. Consider that in June alone (the most recent month for which there is data) U.S. public and private employers made nearly 4.3 million hires. Retailers alone made 593,000 hires in June. The problem is that people lose or leave jobs in similar volumes. Economists call this "churn," and there's a lot of it--every month.

The long-term unemployed are missing out on the churn. Last month, there were 6.2 million people who had been out of work for six months or more. You might ask, given the millions of hires employers make each month, why some people have been unemployed for a year or two--or more: Wouldn't they eventually get caught up in the churn? This is one of the most troubling aspects of this recession. There could be several reasons. Many of the people struggling with long-term unemployment have found that their skills aren't matching up with what employers are looking for. Also, in general, the longer people are unemployed, the harder it is for them to find work, whether it's because they become stigmatized or because they are gradually become less aggressive job seekers. One possible policy response would be a tax credit for employers that hire a person who has been out of work for six or months or more.

A higher unemployment rate can actually be a good thing. Yes, this sounds ridiculous. Last month, the unemployment rate ticked up 0.1 percentage point to 9.6 percent. "It's worth noting that this was entirely attributable to a spike in the labor force--the household survey actually showed employment up 290,000 in August," Morgan Stanley economists Ted Wieseman and David Greenlaw said in morning note.

Consider an economy that's really in the dumps, with employers unwilling to hire. Hopeless job seekers run out of benefits and give up their job search instead relying on the income of a spouse or family member or another form of support. The people quitting their job search drive down the number of officially unemployed and shrink the labor force--and that can drive down the unemployment rate. Consider the opposite: Previously hopeless job seekers begin to see a better local job market, the headlines sound more promising, and their friends are beginning to find jobs, so they head back into the labor market. They pick up the phone and call a contact about an opening they spotted, or they fire off their resume online. They officially move back into the job market, but they aren't employed just yet--they're looking. This can drive the unemployment rate up, but it's a very positive thing for the economy that people are participating in the labor market again.

Back to August: "The labor force increased by 500,000 indicating that people are more encouraged about the labor market and decided to look for work boosting the jobless rate to 9.6 percent from 9.5 percent," says Sung Won Sohn, an economist at California State University-Channel Islands.

Slow growth will have Washington seeking stimulus. This may be a better-than-expected jobs report, but the job growth is still very small. The economy needs to be adding hundreds of thousands of jobs every month to absorb new people entering the job market and put the unemployed back to work. So lawmakers may be looking for more stimulus. "There is a good chance that the Obama Administration will introduce a set of targeted economic stimulus programs," Sohn says. "Payroll tax relief to encourage new hiring for small businesses is a good possibility. State and local governments are laying off employees as revenue falls. Some assistance from Washington could stem job losses here." Shortly after the release of the August jobs report Friday, President Obama encouraged lawmakers to pass a $55 billion bill that would provide additional loans to small businesses. Housing stimulus may also be coming--along with more unemployment benefit extensions, Sohn says.

The Gerson Institute

2010-09-01T17:16:00.002-04:00

According to its website, The Gerson Institute is:

a non-profit organization located in San Diego, California, dedicated to providing education and training in the alternative, non-toxic treatment of cancer and other disease, using the Gerson Therapy.

The Gerson Therapy is a safe, natural treatment developed by Dr. Max Gerson in the 1920s that uses organic foods, juicing, coffee enemas, detoxification and natural supplements to activate the body’s ability to heal itself. Over the past 60 years, thousands of people have used the Gerson Therapy to recover from so-called “incurable” diseases such as cancer, diabetes, heart disease and arthritis.

Founded by Charlotte Gerson (Dr. Gerson’s daughter) in 1977, we are the true source of information on the original, unmodified, proven Gerson Therapy. We refer people to licensed Gerson clinics and treatment centers, practitioners and caregivers. We also train health professionals, patients and others who want to learn this natural therapy. Visit our STORE for a wide selection of educational books, audio and video tapes.

You have the power to heal yourself. We can give you the tools and show you how!

The Gerson Institute
1572 Second Avenue
San Diego, CA 92101
888-443-7766

10-minute trainer

2010-09-01T10:06:00.004-04:00

Are you too busy to spend lots of time working out in a gym, but still want to look as though you do? Check out
10-Minute Trainer tools.
Please note that "Results may vary. Exercise and proper diet are necessary to achieve and maintain weight loss and muscle definition."

6 Signs That You've Made It To Middle Class

2010-08-27T21:27:00.000-04:00

In the August 27, 2010 Investopedia.com article "6 Signs That You've Made It To Middle Class," James E. McWhinney says you are middle-class if you (1) own a home, (2) own a car, (3) send your children to college, (4) save money for retirement, (5) have health care coverage, and (6) have enough income for family vacations.

Not so long ago, most people viewed the hallmarks of success as something along the lines of a house, a white picket fence, two weeks vacation, two children and the ability to send those kids to college. Today, the middle class is a vanishing breed according to nearly every survey and statistic on the topic. Its disappearance is of such grave concern to the fabric of American society that the U.S. government launched a task force to explore the issue. Despite all of the attention to the subject, defining "middle class" remains a challenge, as everyone wants to be in the middle regardless of their income. Instead of focusing on the dollars, let's take a look at the lifestyle benchmarks that define middle class status.

Have You Made it to the Middle?
A wide variety of numbers have been thrown around in an effort to define the middle. People earning 20% of the average income and people earning 80% all claim to be part of the middle class. More than a few millionaires make the claim too. While there is no official financial standard, the middle class as defined by the government task force is characterized in terms of six financial aspirations, which we can view as benchmarks.

Home Ownership
Home ownership remains the American dream. The step up from renting to owning signifies prosperity and achievement. With median home prices ranges differing by so much in different cities across the United States, the ability to achieve this goal varies significantly by geographical location. Someone earning an income in the 50% range in Detroit may not be able to afford even a small house in Los Angeles.

Automobile Ownership
Owning an automobile provides freedom of movement and the luxury of avoiding the limited schedules and cramped quarters offered by mass transportation options such as buses and subways. Here again, the cost of cars varying widely, as does the kind of automobile required. For one driver, a used Hyundai will do the trick. For another, a new BMW signifies the achievement of this goal.

A College Education for the Kids
Helping children get ahead in life is a primary goal for middle class families. Paying for a college education for children can cost anywhere from the low tens of thousands of dollars to hundreds of thousands. Decisions about which university of college to attend can have a significant impact on the price tag.

Retirement Security
Retirement is a goal nearly everyone wants to achieve. It demonstrates success and provides a reward for decades of hard work. Once again, definitions make a difference. The amount of gold required to support your golden years will vary significantly depending on whether you want a staff of 10 at your villa in the South of France or a townhouse in Peoria, Illinois.

Health Care Coverage
The ability to obtain healthcare is an important goal for middle class wager earners and their families. The high and rising cost of medical care and prescription drugs make healthcare coverage an ever-increasing need, as going without it can have serious negative financial implications in the event of a severe illness or injury.

Family Vacation
The family vacation is a middle class staple. Vacations demonstrate that a family has disposable income and has been successful enough to take time away from work to focus on leisure.

What Happened on the Way to the Dream?
Globalization and technological advances began to reverse the growth of the middle class. The manufacturing base in the United States changed, as good-paying jobs in factories and heavy industries went overseas to lower-paying markets and labor unions lost much of their ability to bargain for high wages and good benefits. Later, white-collar jobs from accounting and data entry to reading medical images and answering telephones in call centers were also sent offshore. Many jobs that remained in the U.S. were eliminated by computers and other technological advancements that increased productivity.

To achieve or maintain a middle-class lifestyle, many households became two-income families. Achieving middle class goals became more difficult as employers eliminated their pension plans and defined-benefit plans, the cost of a college education continued to rise and the cost of healthcare jumped. For most of the 20-year period following 1990, the Commerce Department reports that real median income grew at a rate of about 20%, while the cost of a college education grew between 43% and 60%, the cost of housing rose 56% and healthcare costs jumped by 155%.

How to Get There
Although there are significant challenges to obtaining middle class status, there are some proactive steps that can help make the dream a reality. Budgeting is one of the most obvious. Understanding where your money goes each month can help you determine the exact makeup of the benchmarks you are trying to match. Are you looking for a Hyundai or a BMW?

Planning is another crucial step. Are the kids going to a state university or a private college? Are scholarships an option? Some savvy families find money for college by participating in programs which can aide families with the costs related to sending a child to university.

Working is another one of the requirements. A second job or a side business might be just what you need to boost your income and achieve some of your goals. Putting your money to work is also an important consideration. Investing has helped build wealth for generations. In fact, income earners ranked in the top 1% enjoyed significant increases in wealth even as the middle class fell into decline. Most of that wealth came from investments. Even if you don't have the means to invest for current income, you can take a few dollars from each paycheck and save for your retirement.

The Bottom Line
Don't underestimate the role of hard work and luck. Sometimes being in the right place at the right time or taking one particular course of action over another can make all the difference. So keep watching for opportunities and make the most of them when you find them. As motion-picture mogul Samuel Goldwyn said, "The harder I work, the luckier I get."

How the Stimulus Is Changing America

2010-08-26T10:56:00.002-04:00

In the August 26, 2010 TIME magazine article "How the Stimulus Is Changing America," Michael Grunwald provides an analysis of its impact.

The American Recovery and Reinvestment Act of 2009 — President Obama's $787 billion stimulus — has been marketed as a jobs bill, and that's how it's been judged. The White House says it has saved or created about 3 million jobs, helping avoid a depression and end a recession. Republicans mock it as a Big Government boondoggle that has failed to prevent rampant unemployment despite a massive expansion of the deficit. Liberals complain that it wasn't massive enough.

It's an interesting debate. Politically, it's awkward to argue that things would have been even worse without the stimulus, even though that's what most nonpartisan economists believe. But the battle over the Recovery Act's short-term rescue has obscured its more enduring mission: a long-term push to change the country. It was about jobs, sure, but also about fighting oil addiction and global warming, transforming health care and education, and building a competitive 21st century economy. Some Republicans have called it an under-the-radar scramble to advance Obama's agenda — and they've got a point.

Yes, the stimulus has cut taxes for 95% of working Americans, bailed out every state, hustled record amounts of unemployment benefits and other aid to struggling families and funded more than 100,000 projects to upgrade roads, subways, schools, airports, military bases and much more. But in the words of Vice President Joe Biden, Obama's effusive Recovery Act point man, "Now the fun stuff starts!" The "fun stuff," about one-sixth of the total cost, is an all-out effort to exploit the crisis to make green energy, green building and green transportation real; launch green manufacturing industries; computerize a pen-and-paper health system; promote data-driven school reforms; and ramp up the research of the future. "This is a chance to do something big, man!" Biden said during a 90-minute interview with TIME.

For starters, the Recovery Act is the most ambitious energy legislation in history, converting the Energy Department into the world's largest venture-capital fund. It's pouring $90 billion into clean energy, including unprecedented investments in a smart grid; energy efficiency; electric cars; renewable power from the sun, wind and earth; cleaner coal; advanced biofuels; and factories to manufacture green stuff in the U.S. The act will also triple the number of smart electric meters in our homes, quadruple the number of hybrids in the federal auto fleet and finance far-out energy research through a new government incubator modeled after the Pentagon agency that fathered the Internet.

The only stimulus energy program that's gotten much attention so far — chiefly because it got off to a slow start — is a $5 billion effort to weatherize homes. But the Recovery Act's line items represent the first steps to a low-carbon economy. "It will leverage a very different energy future," says Kristin Mayes, the Republican chair of Arizona's utility commission. "It really moves us toward a tipping point."

The stimulus is also stocked with nonenergy game changers, like a tenfold increase in funding to expand access to broadband and an effort to sequence more than 2,300 complete human genomes — when only 34 were sequenced with all previous aid. There's $8 billion for a high-speed passenger rail network, the boldest federal transportation initiative since the interstate highways. There's $4.35 billion in Race to the Top grants to promote accountability in public schools, perhaps the most significant federal education initiative ever — it's already prompted 35 states and the District of Columbia to adopt reforms to qualify for the cash. There's $20 billion to move health records into the digital age, which should reduce redundant tests, dangerous drug interactions and errors caused by doctors with chicken-scratch handwriting. Health and Human Services Secretary Kathleen Sebelius calls that initiative the foundation for Obama's health care reform and "maybe the single biggest component in improving quality and lowering costs."

Any of those programs would have been a revolution in its own right. "We've seen more reform in the last year than we've seen in decades, and we haven't spent a dime yet," says Education Secretary Arne Duncan. "It's staggering how the Recovery Act is driving change."

That was the point. Critics have complained that while the New Deal left behind iconic monuments — courthouses, parks, the Lincoln Tunnel, the Grand Coulee Dam — this New New Deal will leave a mundane legacy of sewage plants, repaved roads, bus repairs and caulked windows. In fact, it will create new icons too: solar arrays, zero-energy border stations, an eco-friendly Coast Guard headquarters, an "advanced synchrotron light source" in a New York lab. But its main legacy will be change. The stimulus passed just a month after Obama's inauguration, but it may be his signature effort to reshape America — as well as its government.

"Let's Just Go Build It!"

After Obama's election, Depression scholar Christina Romer delivered a freak-out briefing to his transition team, warning that to avoid a 1930s-style collapse, Washington needed to pump at least $800 billion into the frozen economy — and fast. "We were in a tailspin," recalls Romer, who is about to step down as chair of Obama's Council of Economic Advisers. "I was completely sympathetic to the idea that we shouldn't just dig ditches and fill them in. But saving the economy had to be paramount." Obama's economists argued for tax cuts and income transfers to get cash circulating quickly, emergency aid to states to prevent layoffs of cops and teachers and off-the-shelf highway projects to put people to work. They wanted a textbook Keynesian response to an economy in cardiac arrest: adding money to existing programs via existing formulas or handing it to governors, seniors and first-time home buyers. They weren't keen to reinvent the wheel.

But Obama and Biden also saw a golden opportunity to address priorities; they emphasized shovel-worthy as well as shovel-ready. Biden recalls brainstorming with Obama about an all-in push for a smarter electrical grid that would reduce blackouts, promote renewables and give families more control over their energy diet: "We said, 'God, wouldn't it be wonderful? Why don't we invest $100 billion? Let's just go build it!' "

It wasn't that easy. Utilities control the grid, and new wires create thorny not-in-my-backyard zoning issues; there wasn't $100 billion worth of remotely shovel-ready grid projects. It's hard to transform on a timeline, and some congressional Democrats were less interested in transforming government than growing it. For instance, after securing $100 billion for traditional education programs, House Appropriations Committee chairman Dave Obey tried to stop any of it from going to Race to the Top, which is unpopular with teachers' unions.

Ultimately, even Obama's speed focused economists agreed that stimulus spending shouldn't dry up in 2010. And some Democrats were serious about investing wisely, not just spending more. So House Speaker Nancy Pelosi insisted on $17 billion for research. House Education and Labor Committee chairman George Miller fought to save Race to the Top. And while the grid didn't get a $100 billion reinvention, it did get $11 billion after decades of neglect, which could shape trillions of dollars in future utility investments.

It takes time to set up new programs, but now money is flowing to deliver high-speed Internet to rural areas, spread successful quit-smoking programs and design the first high-speed rail link from Tampa to Orlando. And deep in the Energy Department's basement — in a room dubbed the dungeon — a former McKinsey & Co. partner named Matt Rogers has created a government version of Silicon Valley's Sand Hill Road, blasting billions of dollars into clean-energy projects through a slew of oversubscribed grant programs. "The idea is to transform the entire energy sector," Rogers says. "What's exciting is the way it fits all together."

"They Won't All Succeed"

The green industrial revolution begins with gee-whiz companies like A123 Systems of Watertown, Mass. Founded in 2001 by MIT nanotechnology geeks who landed a $100,000 federal grant, A123 grew into a global player in the lithium-ion battery market, with 1,800 employees and five factories in China. It has won $249 million to build two plants in Michigan, where it will help supply the first generation of mass-market electric cars. At least four of A123's suppliers received stimulus money too. The Administration is also financing three of the world's first electric-car plants, including a $529 million loan to help Fisker Automotive reopen a shuttered General Motors factory in Delaware (Biden's home state) to build sedans powered by A123 batteries. Another A123 customer, Navistar, got cash to build electric trucks in Indiana. And since electric vehicles need juice, the stimulus will also boost the number of U.S. battery-charging stations by 3,200%.

"Without government, there's no way we would've done this in the U.S.," A123 chief technology officer Bart Riley told TIME. "But now you're going to see the industry reach critical mass here."

The Recovery Act's clean-energy push is designed not only to reduce our old economy dependence on fossil fuels that broil the planet, blacken the Gulf and strengthen foreign petro-thugs but also to avoid replacing it with a new economy that is just as dependent on foreign countries for technology and manufacturing. Last year, exactly two U.S. factories made advanced batteries for electric vehicles. The stimulus will create 30 new ones, expanding U.S. production capacity from 1% of the global market to 20%, supporting half a million plug-ins and hybrids. The idea is as old as land-grant colleges: to use tax dollars as an engine of innovation. It rejects free-market purism but also the old industrial-policy approach of dumping cash into a few favored firms. Instead, the Recovery Act floods the zone, targeting a variety of energy problems and providing seed money for firms with a variety of potential solutions. The winners must attract private capital to match public dollars — A123 held an IPO to raise the required cash — and after competing for grants, they still must compete in the marketplace. "They won't all succeed," Rogers says. "But some will, and they'll change the world."

The investments extend all along the food chain. A brave new world of electric cars powered by coal plants could be dirtier than the oil-soaked status quo, so the stimulus includes an unheard-of $3.4 billion for clean-coal projects aiming to sequester or reuse carbon. There are also lucrative loan guarantees for constructing the first American nuclear plants in three decades. And after the credit crunch froze financing for green energy, stimulus cash has fueled a comeback, putting the U.S. on track to exceed Obama's goal of doubling renewable power by 2012. The wind industry added a record 10,000 megawatts in 2009. The stimulus is also supporting the nation's largest photovoltaic solar plant, in Florida, and what will be the world's two largest solar thermal plants, in Arizona and California, plus thousands of solar installations on homes and buildings.

The stimulus is helping scores of manufacturers of wind turbines and solar products expand as well, but today's grid can only handle so much wind and solar. A key problem is connecting remote wind farms to population centers, so there are billions of dollars for new transmission lines. Then there is the need to find storage capacity for when it isn't windy or sunny outside. The current grid is like a phone system without voice mail, a just-in-time network where power is wasted if it doesn't reach a user the moment it's generated. That's why the Recovery Act is funding dozens of smart-grid approaches. For instance, A123 is providing truckloads of batteries for a grid-storage project in California and recycled electric-car batteries for a similar effort in Detroit. "If we can show the utilities this stuff works," says Riley, "it will take off on its own."

Today, grid-scale storage, solar energy and many other green technologies are too costly to compete without subsidies. That's why the stimulus launched the Advanced Research Projects Agency-Energy (ARPA-E), a blue-sky fund inspired by the Pentagon's Defense Advanced Research Projects Agency (DARPA), the incubator for GPS and the M-16 rifle as well as the Internet. Located in an office building a block from the rest of the Energy Department, ARPA-E will finance energy research too risky for private funders, focusing on speculative technologies that might dramatically cut the cost of, say, carbon capture — or not. "We're taking chances, because that's how you put a man on the moon," says director Arun Majumdar, a materials scientist from the University of California, Berkeley. "Our idea is it's O.K. to fail. You think America's pioneers never failed?"

ARPA-E is funding the new pioneers — mad scientists and engineers with ideas for wind turbines based on jet engines, bacteria to convert carbon dioxide into gasoline, and tiny molten-metal batteries to provide cheap high-voltage storage. That last idea is the brainchild of MIT's Donald Sadoway, who already has a prototype fuel cell the size of a shot glass. The stimulus will help him create a kind of reverse aluminum smelter to make prototypes the size of a hockey puck and a pizza box. The ultimate goal is a commercial scale battery the size of a tractor trailer that could power an entire neighborhood. "We need radical breakthroughs, so we need radical experiments," Sadoway says. "These projects send chills down the spine of the carbon world. If a few of them work, [Venezuela's Hugo] Chávez and [Iran's Mahmoud] Ahmadinejad are out of power."

Then again, the easiest way to blow up the energy world would be to stop wasting so much. That's the final link in the chain, a full-throttle push to make energy efficiency a national norm. The Recovery Act is weatherizing 250,000 homes this year. It gave homeowners rebates for energy-efficient appliances, much as the Cash for Clunkers program subsidized fuel-efficient cars. It's retrofitting juice-sucking server farms, factories and power plants; financing research into superefficient lighting, windows and machinery; and funneling billions into state and local efficiency efforts.

It will also retrofit 3 in 4 federal buildings. The U.S. government is the nation's largest energy consumer, so this will save big money while boosting demand for geothermal heat pumps, LED lighting and other energy-saving products. "We're so huge, we make markets," says Bob Peck, the General Services Administration's public-buildings commissioner. GSA's 93-year-old headquarters, now featuring clunky window air conditioners and wires duct-taped to ceilings, will get energy optimized heating, cooling and lighting systems, glass facades with solar membranes and a green roof; the makeover should cut its energy use 55%. It might even beta-test stimulus-funded windows that harvest sunlight. "We'll be the proving ground for innovation in the building industry," Peck says. "It all starts with renovating the government."

The New Venture Capitalists

The stimulus really is starting to change Washington — and not just the buildings. Every contract and lobbying contact is posted at Recovery.gov, with quarterly data detailing where the money went. A Recovery Board was created to scrutinize every dollar, with help from every major agency's independent watchdog. And Biden has promised state and local officials answers to all stimulus questions within 24 hours. It's a test-drive for a new approach to government: more transparent, more focused on results than compliance, not just bigger but better. Biden himself always saw the Recovery Act as a test — not only of the new Administration but of federal spending itself. He knew high-profile screwups could be fatal, stoking antigovernment anger about bureaucrats and two-car funerals. So he spends hours checking in, buttering up and banging heads to keep the stimulus on track, harassing Cabinet secretaries, governors and mayors about unspent broadband funds, weatherization delays and fishy projects. He has blocked some 260 skate parks, picnic tables and highway beautifications that flunked his what-would-your-mom-think test. "Imagine they could have proved we wasted a billion dollars," Biden says. "Gone, man. Gone!"

So far, despite furor over cash it supposedly funneled to contraception (deleted from the bill) and phantom congressional districts (simply typos), the earmark-free Recovery Act has produced surprisingly few scandals. Prosecutors are investigating a few fraud allegations, and critics have found some goofy expenditures, like $51,500 for water-safety-mascot costumes or a $50,000 arts grant to a kinky-film house. But those are minor warts, given that unprecedented scrutiny. Biden knows it's early — "I ain't saying mission accomplished!" — but he calls waste and fraud "the dogs that haven't barked."

The Recovery Act's deeper reform has been its focus on intense competition for grants instead of everybody-wins formulas, forcing public officials to consider not only whether applicants have submitted the required traffic studies and small-business hiring plans but also whether their projects make sense. Already staffed by top technologists from MIT, Duke and Intel, ARPA-E recruited 4,500 outside experts to winnow 3,700 applications down to 37 first-round grants. "We've taken the best and brightest from the tech world and created a venture fund — except we're looking for returns for the country," Majumdar says. These change agents didn't uproot their lives to fill out forms in triplicate and shovel money by formula. They want to reinvent the economy, not just stimulate it. Sadoway, the MIT battery scientist, is tired of reporting how many jobs he's created in his lab: "If this works, I'll create a million jobs!"

Obama has spent most of his first term trying to clean up messes — in the Gulf of Mexico, Iraq and Afghanistan, on Wall Street and Main Street — but the details in the stimulus plan are his real down payment on change. The question is which changes will last. Will electric cars disappear after the subsidies disappear? Will advanced battery factories migrate back to China? Will bullet trains ever get built? The President wants to extend transformative programs like ARPA-E. But would they be substitutes for the status quo or just additions to tack onto the deficit? And would they survive a Republican Congress?

Polls suggest the actual contents of the Recovery Act are popular. But the idea of the stimulus itself remains toxic — and probably will as long as the recovery remains tepid. "Today, it's judged by jobs," Rogers says of the act. "But in 10 years, it'll be judged by whether it transformed our economy."

Building a Nation of Know-Nothings

2010-08-25T22:16:00.005-04:00

In the August 25, 2010 New York Times editorial "Building a Nation of Know-Nothings," Timothy Egan suggests that in the consideration of politics, many people are willfully ignorant of the truth.

Having shed much of his dignity, core convictions and reputation for straight talk, Senator John McCain won his primary on Tuesday against the flat-earth wing of his party. Now McCain can go search for his lost character, which was last on display late in his 2008 campaign for president.

Remember the moment: a woman with matted hair and a shaky voice rose to express her doubts about Barack Obama. “I have read about him,” she said, “and he’s not — he’s an Arab.”

McCain was quick to knock down the lie. “No, ma’am,” he said, “he’s a decent family man, a citizen.”

That ill-informed woman — her head stuffed with fabrications that could be disproved by a pre-schooler — now makes up a representative third or more of the Republican party. It’s not just that 46 percent of Republicans believe the lie that Obama is a Muslim, or that 27 percent in the party doubt that the president of the United States is a citizen. But fully half of them believe falsely that the big bailout of banks and insurance companies under TARP was enacted by Obama, and not by President Bush.

Take a look at Tuesday night’s box score in the baseball game between New York and Toronto. The Yankees won, 11-5. Now look at the weather summary, showing a high of 71 for New York. The score and temperature are not subject to debate.

Yet a president’s birthday or whether he was even in the White House on the day TARP was passed are apparently open questions. A growing segment of the party poised to take control of Congress has bought into denial of the basic truths of Barack Obama’s life. What’s more, this astonishing level of willful ignorance has come about largely by design, and has been aided by a press afraid to call out the primary architects of the lies.

The Democrats may deserve to lose in November. They have been terrible at trying to explain who they stand for and the larger goal of their governance. But if they lose, it should be because their policies are unpopular or ill-conceived — not because millions of people believe a lie.

In the much-discussed Pew poll reporting the spike in ignorance, those who believe Obama to be Muslim say they got their information from the media. But no reputable news agency — that is, fact-based, one that corrects its errors quickly — has spread such inaccuracies.

So where is this “media?” Two sources, and they are — no surprise here — the usual suspects. The first, of course, is Rush Limbaugh, who claims the largest radio audience in the land among the microphone demagogues, and his word is Biblical among Republicans. A few quick examples of the Limbaugh method:

“Tomorrow is Obama’s birthday — not that we’ve seen any proof of that,” he said on Aug. 3. “They tell us Aug. 4 is the birthday; we haven’t seen any proof of that.”

Of course, there is proof as clear as that baseball box score. Look here, www.factcheck.org, for starters, one of many places posting Obama’s Hawaiian birth certificate.

On the Muslim deception, Limbaugh has sprinkled lie dust all over the place. “Obama says he’s a Christian, but where’s the evidence?” he said on Aug. 19. He has repeatedly called the president “imam Obama,” and said, “I’m just throwing things out there, folks, because people are questioning his Christianity.”

You see how he works. He drops in suggestions, hints, notes that “people are questioning” things. The design is to make Obama un-American. Then he says it’s a tweak, a provocation. He says this as a preemptive way to keep the press from calling him out. And it works; long profiles of Limbaugh have largely gone easy on him.

Once Limbaugh has planted a lie, a prominent politician can pick it up, with little nuance. So, over the weekend, Kim Lehman, one of Iowa’s two Republican National Committee members, went public with doubts on Obama’s Christianity. Of course, she was not condemned by party leaders.

It’s curious, also, that any felon, drug addict, or recovering hedonist can loudly proclaim a sudden embrace of Jesus and be welcomed without doubt by leaders of the religious right. But a thoughtful Christian like Obama is still distrusted.

“I am a devout Christian,” Obama told Christianity Today in 2008. “I believe in the redemptive death and resurrection of Jesus Christ.” That’s not enough, apparently, for Rev. Franklin Graham, the partisan son of the great evangelical leader, who said last week that Obama was “born a Muslim because of the religious seed passed on from his father.”

Actually, he was born from two non-practicing parents, and his Kenyan father was absent for all of his upbringing. Obama came to his Christianity like millions of people, through searching and questioning.

Finally, there is Fox News, whose parent company has given $1 million to Republican causes this year but still masquerades as a legitimate source of news. Their chat and opinion programs spread innuendo daily. The founder of Politifact, another nonpartisan referee to the daily rumble, said two of the site’s five most popular items on its Truth-o-meter are corrections of Glenn Beck.

Beck tosses off enough half-truths in a month to keep Politifact working overtime. Of late, he has gone after Michelle Obama, whose vacation in Spain was “just for her and approximately 40 of her friends.” Limbaugh had a similar line, saying the First Lady “is taking 40 of her best friends and leasing 60 rooms at a five-star hotel — paid for by you.”

The White House said Michelle Obama and her daughter Sasha were accompanied by just a few friends — and they paid their own costs. But, wink, wink, the damage is done. He’s Muslim and foreign. She’s living the luxe life on your dime. They don’t even have to mention race. The code words do it for them.

Climate-change denial is a special category all its own. Once on the fringe, dismissal of scientific consensus is now an article of faith among leading Republicans, again taking their cue from Limbaugh and Fox.

It would be nice to dismiss the stupid things that Americans believe as harmless, the price of having such a large, messy democracy. Plenty of hate-filled partisans swore that Abraham Lincoln was a Catholic and Franklin Roosevelt was a Jew. So what if one-in-five believe the sun revolves around the earth, or aren’t sure from which country the United States gained its independence?

But false belief in weapons of mass-destruction led the United States to a trillion-dollar war. And trust in rising home value as a truism as reliable as a sunrise was a major contributor to the catastrophic collapse of the economy. At its worst extreme, a culture of misinformation can produce something like Iran, which is run by a Holocaust denier.

It’s one thing to forget the past, with predictable consequences, as the favorite aphorism goes. But what about those who refuse to comprehend the present?

Why are we so willing to repeat history's mistakes?

2010-08-20T20:56:00.002-04:00

In the August 20, 2010 Salon editorial "
Why are we so willing to repeat history's mistakes?," David Sirota suggests that the pursuit of money and devotion to ideology cause people to overlook important lessons from history:

Out of all the famous quotations, few better describe this eerily familiar time than those attributed to George Santayana and Yogi Berra. The former, a philosopher, warned that "those who cannot remember the past are condemned to repeat it." The latter, a baseball player, stumbled into prophecy by declaring, "It's déjà vu all over again."

As movies give us bad remakes of already bad productions (hello, "Predators"), television resuscitates ancient clowns (howdy, Dee Snider) and music revives pure schlock (I'm looking at you, Devo), we are now surrounded by the obvious mistakes of yesteryear. And it might be funny -- it might be downright hilarious -- if only this cycle didn't infect the deadly serious stuff.

Vietnam showed us the perils of occupation, then the Iraq war showed us the same thing -- and yet now, we are somehow doing it all over again in Afghanistan. The Great Depression underscored the downsides of laissez-faire economics, the Great Recession highlighted the same danger -- and yet the new financial "reform" bill leaves that laissez-faire attitude largely intact. Ronald Reagan proved the failure of trickle-down tax cuts to spread prosperity before George W. Bush proved the same thing -- and yet now, in a recession, Congress is considering more tax cuts all over again.

These are but a few examples of mistakes being repeated ad infinitum. In a Yogi Berra country, the jarring lessons of history are remembered as mere flickers of déjà vu -- if they are remembered at all. Most often, we forget completely, seeing in George Santayana's refrain not a dark warning, but a cheery celebration. And the logical question is: Why? Why have we become so dismissive of history's lessons and therefore so willing to repeat history's mistakes?

Some of it is the modern information miasma. Though the Internet makes eons of history instantly available, the 24-7, moment-to-moment typhoon of cable screamfests, blogs, tweets, e-mail alerts and "breaking news" graphics makes last week's news feel old, and last month's news feel positively paleolithic. Add to this reportage that is increasingly presented with zero context, and it's clear that journalism is sowing mass senility.

Politicians also make significant contributions to the problem. With the age of the permanent campaign intensifying and the era of the long-term electoral majority ending, both parties deliberately focus only on the very recent past -- and obscure the larger historical record. From the national debt to poverty to the downsides of American empire, Republicans tell us it's all the fault of Democrats' two-year-old reign, while Democrats blame it on Bush's eight-year presidency. This, even though these emergencies developed over decades.

And then, of course, there is ideology.

With the present so radically departing from our past, history has become a damning package of inconvenient truths -- and those truths are often shunned because they threaten today's most powerful ideological interests.

This is why in the debates over war, economics and taxes, we aren't urged to consider past conflicts; we aren't encouraged to remember that America experienced its most storied growth under the New Deal's aggressive financial regulation; and we aren't told that wages and job growth expanded in the mid-20th century with a top income tax bracket above 70 percent. We aren't reminded of these facts because they threaten the defense industry, Wall Street and high-income taxpayers, respectively -- and those forces exert enormous influence over our political discourse, whether through media sponsorship, political campaign contributions or lobbying.

No matter the issue, this axiom is the same: When money has a vested interest in burying history, history is inevitably buried, ultimately leading us from Santayana and Berra's aphorisms to Albert Einstein's definition of insanity: doing the same things over and over again and somehow expecting different results.

Basil Marceaux

2010-08-04T23:38:00.000-04:00

In this episode of The Colbert Report, "Basil Marceaux.com & Obama's Birthday,"
"Stephen reminds Tennessee viewers to vote for Basil Marceaux.com and refuses to celebrate President Obama's birthday. (02:16)"

Not all political candidates are as clueless as Marceaux, but too many of them are, especially on issues of economic policy.

The GOP Plot to Screw the Economy and the Middle Class

2010-07-28T19:26:00.000-04:00

Bob Cesca comments on The GOP Plot to Screw the Economy and the Middle Class.

Buffett warns Obama U.S. economy only halfway back

2010-07-16T09:58:00.004-04:00

Recent surveys suggest that U.S. citizens are increasingly dissatisfied with President Obama's leadership, primarily because unemployment remains high. What people fail to realize, however, is that economic recovery frequently takes time, regardless of the actions taken by political leaders. Billionaire Warren Buffett understands this and conveyed his feelings to the President.

Political leaders frequently receive too much blame for poor economic performance and too much credit for prosperity. A better understanding of the sources of economic growth might make public perceptions more accurate.

In the July 16 Reuters article "Buffett warns Obama U.S. economy only halfway back," Alister Bull summarizes Buffett's claim that the economic recovery will take time, regardless of the country's leadership.

WASHINGTON (Reuters) – President Barack Obama heard a sobering message from Warren Buffett when he asked for the investment guru's views about the economic recovery, according to an interview Obama gave NBC News on Thursday.

"I'll tell you exactly what Warren Buffett said. He said, 'We went through a wrenching recession. And so we have not fully recovered. We're about 40, 50 percent back. But we've still got a long way to go'," Obama told NBC during a visit to Holland, Michigan, to promote his job creation policies.

Obama chatted with Buffett in the Oval office on Wednesday as he sought ideas on how to translate higher U.S. growth into stronger hiring. This would help him deliver on an election year promise to tackle unemployment currently at 9.5 percent.

Buffett, who built an estimated $47 billion fortune running his insurance and investment company Berkshire Hathaway Inc, warned Obama the recession created a huge overhang of excess capacity in the economy that would simply take time to mop up.

Obama said Buffett specifically used the example of the U.S. housing market, noting 1.2 million new homes were built on average per year in the United States, according to historic trends. That number soared above 2 million during the property bubble, but construction activity has since collapsed.

"What Warren pointed out was, look, we're gonna get back to 1.2 (million). But right now we're soaking up a whole bunch of inventory. So a lot of -- the challenge is to work our way through this recession," Obama said.

High unemployment is another type of excess economic capacity. Obama's Democrats risk severe punishment by voters in midterm congressional elections on November 2 if he fails to convince them stronger U.S. growth means better times ahead.

New White House report claims more jobs from stimulus bill

2010-07-14T10:12:00.004-04:00

According to the July 14, 2010 article "New WH report claims more jobs from stimulus bill," the Obama administration claims the federal government stimulus spending program prevented unemployment in the U.S. from being worse than it was. Claims such as this are impossible to prove (or disprove), however. The report is an attempt to deflect blame from the President for the condition of the economy and to inform the public that the Obama administration has been pursuing the standard remedies for fighting economic recession: expansionary fiscal policy (in the forms of increased government spending and tax cuts) and expansionary monetary policy (in the form of low interest rates).

According to the article:

WASHINGTON – A new White House report says last year's $862 billion stimulus law has now "saved or created" between 2.5 million and 3.6 million jobs.

That's up from 2.2 million to 2.8 million in the last quarterly report from the White House Council of Economic Advisers.

Christina Romer, head of the council, says in congressional testimony prepared for Wednesday that every $1 from the stimulus bill is matched by $3 in private money.

She says the law "appears to be stimulating private investment and job creation at a time when the economy needs it most."

President Barack Obama has traveled the country telling voters that as bad as things are, they'd be worse without the stimulus. He acknowledges the message is a tough sell. Obama travels Thursday to Michigan.

Misunderstandings about Socialism

2010-07-13T23:18:00.004-04:00

The irony of this billboard is that it seems to be based in fear and ignorance, yet purports to inform its readers to be mindful of fear and naiveté. Socialism is fundamentally about the public ownership and operation of the means of production in an economy.

In the July 13, 2010 article "Billboard linking Obama, Hitler draws complaints," Associated Press writer Luke Meredith explains how the sign caused controversy, even within the tea party movement.

DES MOINES, Iowa – A billboard created by an Iowa tea party group that compares President Barack Obama to Adolf Hitler and Vladimir Lenin is drawing sharp criticism — even from fellow tea party activists who have condemned it as offensive and a waste of money.

The North Iowa Tea Party began displaying the billboard in downtown Mason City last week. The sign shows large photographs of Obama, Nazi leader Hitler and communist leader Lenin beneath the labels "Democrat Socialism," "National Socialism," and "Marxist Socialism."

Beneath the photos is the phrase, "Radical leaders prey on the fearful & naive."

The co-founder of the roughly 200-person group said the billboard was intended to send an anti-socialist message. But Bob Johnson admitted Tuesday that the message may have gotten lost amid the images of fascist and communist leaders.

"The purpose of the billboard was to draw attention to the socialism. It seems to have been lost in the visuals," Johnson said. "The pictures overwhelmed the message. The message is socialism." He said he didn't know of any plans to remove the sign.

But others in the tea party movement criticized the sign.

"That's just a waste of money, time, resources and it's not going to further our cause," said Shelby Blakely, a leaders of the Tea Party Patriots, a national group. "It's not going to help our cause. It's going to make people think that the tea party is full of a bunch of right-wing fringe people, and that's not true."

Blakely also expressed outrage at linking Obama to Hitler, the leader of Nazi Germany who oversaw the killing of 6 million Jews and whose invasions of neighboring countries led to World War II.

"When you compare Obama to Hitler, that to me does a disservice to the Jews who both survived and died in the Holocaust and to the Germans who lived under Nazi regime rule," Blakely said.

John White, an Iowa coordinator of the Tea Party Patriots, said that he can understand the North Iowa group's perception that Obama is "Hitler-esque," but he thinks the billboard is offensive and unproductive. White said that he planned to discuss the matter with national tea party officials.

"I fear they may end up in some kind of trouble over it, because it's basically slanderous," White said. "I don't know that it's the message we want to send. I'd much rather see billboards that say 'Remember in November. Get Out and Vote.'"

The billboard is owned by Waitt Outdoor of Omaha, Neb. Waitt general manager, Kent Beatty, said the company didn't have a problem with the message.

"We believe in freedom of speech," Beatty said. "It doesn't reflect our views, necessarily."

The White House declined to comment on the sign.

One person who welcomed the billboard was Dean Genth, a Democratic activist from Mason City, a city of 30,000 people just south of the Minnesota border, who said he thinks the sign lays bare the views of tea party supporters.

"I welcome them to continue to spew that kind of stuff because I think it's going to do a lot of good for the good Democrats around the state," Genth said.
___

The Only Debt You Should Hold

2010-07-13T10:07:00.003-04:00

The July 13, 2010 Bankrate.com article "Good Debt vs. Bad Debt" provides some guidelines on when it is wise and unwise to borrrow money:

Debt is a concept as intricately intertwined with America these days as baseball, Mom and apple pie.

The amount of personal debt in this country is ever-increasing, and a large part of the reason is that credit has never been easier to get. Whereas credit card issuers previously looked for customers who could repay, today card issuers relish the chance to reel in those who'll continuously charge beyond their means at 18 percent or 20 percent.

But debt is a complex concept. Not all of it is good -- a fact a surprising number of Americans fail to realize until they're in the hole -- and yet not all of it is bad. When used intelligently, debt can be of tremendous assistance in building wealth.

One of the secrets, therefore, to being smart with your money is to differentiate between good debt and bad debt. While the differences often seem logical, it is a logic that apparently is missed by many Americans.

"When you buy something that goes down in value immediately, that's bad debt," says David Bach, CEO of Finish Rich Inc., and author of "The Finish Rich Workbook." "If it has no potential to increase in value, that's bad debt."

Good Debt

"Good debt is investment debt that creates value; for example, student loans, real estate loans, home mortgages and business loans," says Eric Gelb, CEO of Gateway Financial Advisors and author of "Getting Started in Asset Allocation."
Robert D. Manning, a professor of finance at the Rochester Institute of Technology, also recommends taking on debts that are tax-deductible and debts that produce more wealth in the long run.

"If you are talking about reducing current debt, that's where it starts to get nuanced," says Manning. "If you take a home equity loan because you have 17 percent credit card, and you go with a 6 percent loan that's tax-deductible, that's good debt."

These general rules of thumb set some clear delineations -- buying a home or refinancing to get rid of excessively high rates is usually good debt, as is generating debt to buy high-return stocks, bonds and other investments.

Bad Debt

The concept of bad debt comes in when discussing the purchase of disposable items or durable goods using high-interest credit cards and not paying the balance in full.
"The trouble is most people are not organized enough to retire the entire balance before the due date," says Gelb.

Every month that you make a partial payment on your credit account you are charged interest. The disposable or durable item you purchased continues to lose value, and the amount you paid for it continues to increase.

"When you buy clothes, they're probably worth less than 50 percent what you pay for them when you walk out the door," says Bach. "So if you borrowed to pay for them, that's bad debt."

Credit Rating Effect

Not to mention what that debt could potentially do to your credit rating. "Total personal debt should not exceed 36 percent of your total income," says Gelb. Keeping the debt-to-income ratio in mind, it's also important not to miss payments. "Missed payments are trouble," he says. "A representative of Citibank said if you don't pay within 30 days, they report that to the credit bureaus."

When it comes to buying durable goods that won't contribute to wealth generation, Bach offers a basic rule of thumb. "My grandma used to say that if you're going to buy something that doesn't go up in value, and you can't afford to pay cash, then you can't afford it."

Exacerbating the bad debt factor is that people will apply for store credit for the savings offers that say if you open a credit card account today, you can take 10 percent to 20 percent off the cost of your purchase. What people often don't realize is how much of that savings will be destroyed by the high interest rate on the card if they fail to pay for the items immediately.

"You can open a store credit card account," says Bach, "and what they're not telling you is that after the first few months, the rate jumps to 20 percent or greater."

Driving Into Debt

Another bad debt area is auto debt. While most people need an automobile, and the ultimate cost of an auto is higher than many people can pay in one lump sum, the way people go about it -- namely, purchasing more car than they need -- turns it into bad debt.

When is it worth it?

"What we would normally consider bad debt can turn into good debt in certain circumstances," says Catie Fitzgerald, a personal finance coach and registered investment adviser in Henderson, Nev. "If you use debt to buy a car that gets better gas mileage than your old vehicle, you could end up better off financially."

Bach considers auto debt a Catch-22. "People borrow to buy cars before homes," says Bach, "and that's unfortunate. For most people, their first major loan is a car loan. That's guaranteed to go down in value. So you really want to borrow less. For example, instead of rushing out to borrow to buy a $50,000 BMW, you'd be better off buying a $25,000 car."

The Best Debt

The best type of debt is debt that builds wealth over the long run, and the No. 1 example of that is mortgage debt.

"Home values have increased an average of 6.5 percent a year over the past 30 years," says Bach. "So when you borrow to buy a home, chances are that's good debt. You'll build value."

Bach heavily promotes the idea of homeownership, saying that everyone needs to own where they live. "About 40 percent of Americans are renters," says Bach, "and the fastest way to wealth in America is buying where you live."

Bach cites some shocking numbers to back this up. "The average renter has a median net worth of $4,000, and the average homeowner has a median net worth of about $150,000."

Manning also emphasizes what a good time this is to build wealth through debt. "This is the most advantageous time ever to be in debt," says Manning, "in terms of opportunities to get low-interest loans or to renegotiate or refinance."

Duh, Debt?

One of the reasons so many Americans seem mired in bad debt (Bach reports that the average American carries approximately $8,400 in credit card debt) is that financial education is pratically nonexistent. "This type of commonsense stuff isn't taught in school," says Bach, "and most Americans don't realize how bad high-rate credit cards are hurting them."

Fitzgerald advises teaching your children the difference between good debt (debt that's used to buy assets that grow in value over time) and bad debt (debt that's used to buy things that will lose value) early on.

Gelb opts for a more hands-on approach. "Give your children an allowance (without strings) beginning when they're in kindergarten and offer them the opportunity to perform extra jobs around the house for money. Stop buying them everything, and teach them how to make choices with their own money-buying decisions." The mistakes they make will help them learn and grow.

"People are getting in debt before they have a job," says Manning. "Education is important. We used to encourage kids to save, and that has been missed. Students now refer to their credit cards as 'yuppie food stamps'. They see cards as entitlement, and see they will be in debt all their lives."

Fitzgerald recommends teaching by example. Treat credit cards like emergency safety nets and your children will likely learn some money management skills. "If you have to use your credit card, immediately revise your budget, paring back on nonessential spending. Allocate the saved dollars to a pay-off plan to bring your debt balance down to zero as soon as possible," she says.

Good Debt

• Mortgage
• School Loan
• Real Estate Loan
• Business Loan

Bad Debt

• Credit Card
• Store Credit Card
• Auto Loan

Debt commission leaders paint gloomy picture

2010-07-11T22:15:00.000-04:00

Debt commission leaders paint gloomy picture

By GLEN JOHNSON, Associated Press Writer Glen Johnson, Associated Press Writer Sun Jul 11, 9:30 pm ET

BOSTON – The heads of President Barack Obama's national debt commission painted a gloomy picture Sunday as the United States struggles to get its spending under control.

Republican Alan Simpson and Democrat Erskine Bowles told a meeting of the National Governors Association that everything needs to be considered — including curtailing popular tax breaks, such as the home mortgage deduction, and instituting a financial trigger mechanism for gaining Medicare coverage.

The nation's total federal debt next year is expected to exceed $14 trillion — about $47,000 for every U.S. resident.

"This debt is like a cancer," Bowles said in a sober presentation nonetheless lightened by humorous asides between him and Simpson. "It is truly going to destroy the country from within."

Simpson said the entirety of the nation's current discretionary spending is consumed by the Medicare, Medicaid and Social Security programs.

"The rest of the federal government, including fighting two wars, homeland security, education, art, culture, you name it, veterans, the whole rest of the discretionary budget, is being financed by China and other countries," said Simpson. China alone currently holds $920 billion in U.S. IOUs.

Bowles said if the U.S. makes no changes it will be spending $2 trillion by 2020 just for interest on the national debt.

"Just think about that: All that money, going somewhere else, to create jobs and opportunity somewhere else," he said.

Simpson, the former Republican senator from Wyoming, and Bowles, the former White House chief of staff under Democratic President Bill Clinton, head an 18-member commission. It's charged with coming up with a plan by Dec. 1 to reduce the government's annual deficits to 3 percent of the national economy by 2015.

Bowles led successful 1997 talks with Republicans on a balanced budget bill that produced government surpluses the last three years Clinton was in office and the first year of Republican George W. Bush's presidency. Simpson, as the Senate's GOP whip in 1990, helped round up votes for a budget bill in which President George H.W. Bush broke his "read my lips" pledge not to raise taxes.

Despite their backgrounds, both Simpson and Bowles said they were not 100 percent confident of success this time around.

Simpson labeled the commission members "good people of deep, deep difference, knowing the possibility of the odds of success are rather harrowing to say the least."

Bowles also said Congress had to be ready to accept the commission's findings.

"What we do is not so hard to figure out; it's the political consequences of doing it that makes it really tough," he said.

Arkansas Gov. Mike Beebe was one of those leaders who sat in rapt attention during the presentation, one of the first in public by the commission leaders.

"I don't know that I ever heard a gloomier picture painted that created more hope for me," said Beebe, commending its frankness.

___

Online:

http://www.fiscalcommission.gov/

African-American women struggle to overcome wealth gap

2010-07-05T16:52:00.001-04:00

In the July 5, 2010 BBC News article "African-American women struggle to overcome wealth gap," Paul Adams highlights some of the difficulties associated with poverty.

7.9 million jobs lost, many forever

2010-07-02T23:50:00.001-04:00

In the July 2, 2010 CNNMoney article "7.9 million jobs lost, many forever," Chris Isidore reports that many of the jobs lost recently will not return.

Job market not growing fast enough for big rebound

2010-07-02T23:10:00.001-04:00

In the July 2, 2010 article "Job market not growing fast enough for big rebound," Associated Press economics writers Jeannine Aversa and Christopher S. Rugaber report:

WASHINGTON – A second straight month of lackluster hiring by American businesses is sapping strength from the economic rebound.

The jobless rate fell to 9.5 percent in June, still far too high to signal a healthy economy. It came in slightly lower than the month before only because more than a half-million people gave up looking for work and were no longer counted as unemployed.

The private sector added just 83,000 jobs for the month. Looked at from that angle or almost any other, from a teetering housing market to falling factory orders, the recovery is limping along as it enters the year's second half. And that is when the benefits of most of the government's stimulus spending will begin to wear off.

The fate of the economy will hinge on whether it can stand on its own. President Barack Obama acknowledged the slow pace of the recovery and used the new jobs figures to argue for more stimulus spending and extended unemployment benefits.

"We're not headed there fast enough for a lot of Americans," the president said. "We're not headed there fast enough for me, either."

Overall, the nation's total payroll actually shrank last month by 125,000, the first decline in six months, the Labor Department said Friday. The loss reflected the end of 225,000 temporary jobs helping the U.S. Census Bureau complete its 10-year head count.

The 83,000 jobs added by the private sector was a better performance than in May, when private job creation nearly stalled. But it fell far short of what the economy needs — at least 200,000 jobs a month — to bring down the unemployment rate.

Nobody, from Obama to Federal Reserve Chairman Ben Bernanke to private economists, expects that anytime soon. And the government has mostly exhausted its realistic options for nudging the economy along faster.

Benchmark interest rates, which at low levels can encourage borrowing to spur economic growth, are already near zero. Republicans in Congress object to additional stimulus spending.

Unemployment is expected to stay above 9 percent through the midterm elections in November. And the Fed predicts joblessness could still be as high as 7.5 percent two years from now. Normal is considered closer to 6 percent, and economists say it will probably take until the middle of this decade to achieve that.

The jobless rate did come down in June from 9.7 percent the month before. But that was mainly because 652,000 people abandoned their job searches.

Even among Americans with secure jobs, confidence is fading. One gauge of consumer confidence fell in June to about 53, down nearly 10 points in a single month. And it's well below the reading of 90 typically seen in a healthy economy.

Add to that jitters over Europe's debts, an edgy stock market and cautious consumer spending, and the result is an economy essentially moving sideways. It's no surprise that businesses are reviewing their orders and seeing no reason to add to payrolls.

Few big companies say they plan to step up hiring in the second half of the year. Most auto, airline and railroad companies, for example, say they expect little or no job growth, blaming weak demand.

One that does plan to hire, Chrysler Group LLC, expects to add engineers and other workers as it updates its aging line of cars and trucks. The company has announced 1,000 factory jobs in Detroit to meet demand for the new Jeep Grand Cherokee SUV.

But other companies, like American Airlines, have no plans to significantly boost hiring this year. And major railroads, which have furloughed thousands since the recession, say they have no plans to add employees in the coming months.

In June, manufacturers, the leisure and hospitality industries, temporary staffing agencies, and education and health services providers all added jobs. Retailers, construction firms and financial service providers cut payrolls. So did state and local governments, which are wrestling with budget shortfalls.

On Wall Street, stocks sagged yet again on the news. The Dow Jones industrial average finished down 46 points, its seventh consecutive losing session. The Dow lost more than 10 percent of its value in the second quarter.

Trying to put a positive outlook on the report, Obama said it showed that "we are headed in the right direction." At the same time, he acknowledged there is a "great deal of work to do to repair the economy and get the American people back to work."

His options are limited. Senate Republicans concerned about record budget deficits this week blocked his efforts to extend unemployment benefits for millions of out-of-work Americans.

"The two things that are growing fastest in this Democrat economy are the size of the federal government and the crushing burden of the national debt," said Senate Republican leader Mitch McConnell of Kentucky, who led opposition to the extension.

All told, 14.6 million people were unemployed in June. An additional 11.2 million have given up their job searches or are working part-time but would prefer full-time work. That adds up to nearly 26 million Americans, and an "underemployment" rate of 16.5 percent.

Among the 225,000 census workers who lost their temporary jobs in June are people who had been unemployed before and now are again. One of them is Michael Stein, who worked for the census in Phoenix on and off since April 2009, after losing his job with an architectural firm.

It all ended for good two weeks ago.

Jobless again, Stein, 49, at least feels better off with the census experience on his resume.

"I was told the State of Arizona is hiring again," he said. "Because of the people I met at the census, there's a possibility if they could find the right position, they'll put in a good word for me."

Eric Model, co-owner of Seal & Co., a shop in Summit, N.J., that sells accessories and toys, said he has not replaced the two back-office workers he let go two years ago. Not including a summer hire, Model has four employees, plus himself.

"It would be nice to get some support," Model said. "But I don't want to go out on a limb and hire somebody, anticipating things will improve. I would rather run with low expenses."

Those Americans who still have jobs drew smaller paychecks last month. Average hourly wages fell 2 cents to $22.53. Workers' hours were cut, too. Those factors could dampen consumer spending in the months ahead and further weaken the recovery.

It all threatens to perpetuate a vicious cycle for the economy.

"It is a Catch-22 situation," said Sung Won Sohn, professor at California State University, Channel Islands. "Businesses are reluctant to hire for fear of a 'double-dip' recession. Without jobs, people are watchful of their spending, a danger to the recovery."

8 Problems That Could Trigger a Double-Dip Recession

2010-07-01T18:28:00.000-04:00

8 Problems That Could Trigger a Double-Dip Recession

So what exactly is a 'double-dip' recession?

2010-07-01T17:42:00.000-04:00

In the July 1, 2010 article "So what exactly is a 'double-dip' recession?," Associated Press economics writer Jeannine Aversa explains the answer:

WASHINGTON (AP) -- Concerns are rising that the economy is at risk of slipping into a "double-dip" recession.

High unemployment, Europe's debt crisis, a slowdown in China, a teetering housing market and sinking stock prices are all weighing on a fragile U.S. recovery.

So what exactly is a double-dip recession?

Robert Hall has an idea of what one looks like but no precise definition. He's chairman of the National Bureau of Economic Research, a group of academic economists that officially declares the starts and ends of recessions.

In Hall's view, a double dip is akin to a continuous recession that's punctuated by a period of growth, then followed by a further decline in the economy.

The NBER doesn't define a double dip any more specifically than that, says Hall, an economics professor at Stanford University.

In econo-speak, Hall explains: "The idea -- hypothetical because it has yet to happen -- is that activity might rise for a period, but not far enough to complete a cycle, then fall again, and finally rise above its original level, only then completing the cycle."

Hall says the closest the United States has come to a double dip was in 1980 and 1981. But the NBER concluded that those were two distinct, though closely spaced, recessions -- "not a double dip," he says.

Not so, says Sung Won Sohn, professor at California State University, Channel Islands. Sohn says the back-to-back recessions of the early '80s fit his definition of a double dip: A recession followed by a short period of growth followed by a recession.

Brian Bethune, economist at IHS Global Insight, has a view similar to Hall's: A period in which the economy shrinks, starts growing again and then shrinks again -- for at least six months.

"There is no mathematical formula; it's a judgment call," Bethune says.

The NBER has declared the economy fell into a recession in December 2007. It hasn't yet pinpointed an end to the recession. It said in April that it would be "premature" to do so.

Many other economists say the recession ended in June or July of last year. The economy returned to growth again in the third quarter of 2009, after four straight quarters of declines. More recently, the economy has added jobs in each of the first five months of this year.

Still, the threats to the recovery from overseas and at home are growing. So are the risks that the recovery will fade out. Economists say the odds of that remain low but have crept up since a couple of months ago. Analysts are downgrading their growth forecasts for the second half of this year.

In determining the starts and stops of recessions, the NBER reviews data that make up the nation's gross domestic product. The GDP measures the value of goods and services produced in the United States. The NBER also reviews incomes, employment and industrial activity.

The panel, based in Cambridge, Mass., tends to take its time in declaring when a recession has started or ended.

It announced in December 2008 that the recession had actually started one year earlier -- in December 2007.

And it declared in July 2003 that the 2001 recession was over. It had actually ended 20 months earlier -- in November 2001.

In President George W. Bush's eight years in office, the United States fell into two recessions. The first started in March 2001 and ended that November. The second started in December 2007; its end date is pending the NBER's determination.

The timing of the NBER's decision likely means little to ordinary Americans now muddling through a sluggish economic recovery and weak job market.

Many will continue to struggle. Unemployment usually keeps rising well after a recession ends. After the 2001 recession, for instance, unemployment didn't peak until June 2003 -- 19 months later.

U.S. Is Richest Nation, But Not Happiest

2010-07-01T09:13:00.001-04:00

In the July 1, 2010 LiveScience article "U.S. Is Richest Nation, But Not Happiest," Jeanna Bryner reports on a study that questions the relationships between money and happiness:

The United States may be the richest nation on Earth, a new study indicates, but it's not the happiest.

The new analysis of Gallup World Poll data suggests, however, that trying to compare the happiness of one nation to another is not straightforward.

Rather, there are two major categories of happiness: overall life satisfaction; and more moment-to-moment enjoyment of life. And while overall satisfaction of life is strongly tied to income, meaning richer nations and individuals have more of this overall bliss, how much one enjoys life (by measures such as laughing and smiling) depends more on social and psychological needs being met. These include having social support and using one's abilities, as opposed to sitting at a mind-numbing job.

The United States, which had the highest gross domestic product per capita, came in at No. 16 for overall well-being and No. 26 for enjoyment, referred to as positive feelings. The No. 1 spot for overall well-being went to Denmark, and New Zealand landed the No. 1 slot for positive feelings. [Happiest States Revealed]

"Everybody has been looking at just life satisfaction and income," said study researcher Ed Diener of the University of Illinois and the Gallup Organization. "And while it is true that getting richer will make you more satisfied with your life, it may not have the big impact we thought on enjoying life."

The positive feelings aspect of happiness could have evolutionary roots. "Whereas life satisfaction reflects whether people are obtaining their values and goals in a long-term and big picture sense, positive feelings seem to arise from momentary things that are prewired, since feeling good about the support of others and about using skills are both necessary for humans to thrive and survive," Diener told LiveScience.

The findings are detailed this month in the Journal of Personality and Social Psychology.

Tallying happiness

The data was collected from a representative sample of more than 136,000 people across 132 nations from 2005 to 2006. The poll used telephone surveys in more affluent areas, and door-to-door interviews in rural or less-developed regions.

For global life satisfaction, respondents indicated how they would rate their lives on a scale from zero (worst possible life) to 10 (best possible life). Participants also answered questions about positive or negative emotions experienced the previous day.

On average respondents were relatively happy, judging their current life as slightly above neutral and experiencing frequent positive feelings and infrequent negative ones. While the majority of participants indicated their psychological needs are met, about 25 percent don’t have basic needs met.

Overall satisfaction with life went up with both personal and national income, suggesting societal circumstances play an important role in happiness. But positive feelings, which were slightly higher in relation to higher income, were much more strongly tied to feeling respected, having autonomy and social support and working at a fulfilling job.

"Some of the nation rankings are indeed surprising, at least if we assumed that money was the only type of wealth," Diener said. "How do some mid-level nations in terms of income, such as Costa Rica, do so well? And conversely, why do some relatively rich nations such as South Korea do less well than expected? In part, because of the quality of social relationships."

Of course there were places that got either mostly stellar or mostly dismal happiness marks. No. 1 in overall satisfaction, Denmark also came in at No. 7 for positive feelings. Impoverished nations in Africa generally scored low on both happiness measures.

While Northern European and Anglo societies are currently most successful in the economic area, Latin American societies proved to be relatively high in social-psychological well-being. Sierra Leone scored consistently low, but other nations showed divergent rankings across the measures. For instance, Russia and South Korea had substantially lower scores for meeting social-psychological needs and in positive feelings than for income.

Why money brings overall happiness

Some economists think money increases happiness at the low end of the pay scale as it helps people meet their basic needs, but doesn’t do much once a person is lifted out of poverty. This new study suggests the link between money and happiness goes beyond basic needs. While the steepest rise in overall well-being with money occurred in the poorer individuals and nations, there was still a bump in overall happiness at the higher socioeconomic status regions.

"Money is an object that many or most people desire, and pursue during the majority of their waking hours," Diener and his colleagues write.

Since most people want money, they use their financial success as a measure of overall success and a reference for how "good" their lives are.

The study also showed the income-happiness link was tied to a person’s ownership of luxury conveniences and their satisfaction with standard of living.

“We don't know why there's a strong link between income and life satisfaction, but most economists would say it's because dollars buy stuff and humans like stuff," said Andrew Oswald, a professor of behavioral science at the Warwick Business School in England, who was not involved in the current study.

He doesn’t think "stuff" fully answers the happiness question. In addition, and possibly a more critical link between money and life satisfaction, is security. "I think it has more to do with money providing a kind of buffer against the bad shocks and insecurities of life. If you have a low income and little money in the bank, you feel much more vulnerable to the threat of layoff or the threat of sickness in your family," Oswald said in a telephone interview.

As for what happiness really means, Oswald said, "We're only beginning to scratch the surface on what happiness means and ways to measure it. It’s a multifaceted concept and researchers will be working for the next 200 years trying to get to the bottom of this."

Inverted Pyramid Format for Writing

2010-06-03T15:35:00.004-04:00

A common mistake in the papers submitted by my students is a failure to prioritize information. The reader should not have to search through numerous pages to find the main point. I recommend that students use the inverted pyramid format in their writing. It is explained further here:

http://mtsu32.mtsu.edu:11178/171/pyramid.htm

Comeback America by David M. Walker

2010-05-30T16:31:00.001-04:00

Comeback America by David M. Walker

www.comebackamericathebook.com

2010 Graduates: How to Become a Millionaire

2010-05-27T16:14:00.000-04:00

2010 Graduates: How to Become a Millionaire

More Hypocrisy from Advocates of Smaller Government

2010-05-25T15:41:00.000-04:00

In the May 25, 2010 Florida Times-Union blog entry, "Small-government Rubio said it may be time for federal takeover of cleanup ops", David Hunt highlights the hypocrisy inherent in many advocates of free markets, smaller government and lower taxes. When insufficiently regulated markets create socially undesirable outcomes, such as the oil spill in the Gulf of Mexico, those harmed by the market failure scream that the government should do more. You cannot have it both ways. It is easy to support free markets and smaller government when one fails to consider the negative consequences. Rational economists argue those consequences always should be considered.

According to David Hunt's blog:

During a campaign stop in Jacksonville, former Florida House Speaker Marco Rubio said he's been disturbed by the lack of technology to harness the oil leak in the Gulf of Mexico.

Although Rubio presents himself as a small-government candidate for U.S. Senate, he said it may be time for a government takeover of operations.

Here's what he had to say:

There's an increasing loss of patience with British Petroleum and, quite frankly, with the federal government. I think one of the things we've learned, sadly, is that cleanup technologies have not advanced at all over the last 30 years. They're basically making it up as they go along. The fact that they were drilling at such a deep level, and there wasn't the technology to deal with a spill if it happened, is in and of itself frightening. Those questions have to be answered.

Priority number one has got to be focus on preventing this from getting worse. If that means the federal government has to step in and take over than that's what needs to happen.

The second thing, we need to figure out why this happened so that it never happens again. You know how when there's an airline accident, how the FAA treats that very seriously? They investigate it down to the thread as to what caused that accident so that airline travel in America is exceedingly safe. The same needs to happen here.

The Meaning of Wealth Translated Around the World

2010-05-24T15:51:00.000-04:00

"The Meaning of Wealth Translated Around the World"

Robert Frank
Wall Street Journal
May 24, 2010

Fiscal crises threaten Europe's generous benefits

2010-05-23T23:10:00.000-04:00

In the May 23, 2010 article "Fiscal crises threaten Europe's generous benefits," Associated Press writer Michael Weissenstein reports:

LONDON (AP) -- Six weeks of vacation a year. Retirement at 60. Thousands of euros for having a baby. A good university education for less than the cost of a laptop.

The system known as the European welfare state was built after World War II as the keystone of a shared prosperity meant to prevent future conflict. Generous lifelong benefits have since become a defining feature of modern Europe.

Now the welfare state -- cherished by many Europeans as an alternative to what they see as dog-eat-dog American capitalism -- is coming under its most serious threat in decades: Europe's sovereign debt crisis.

Deep budget cuts are under way across Europe. Although the first round is focused mostly on government payrolls -- the least politically explosive target -- welfare benefits are looking increasingly vulnerable.

"The current welfare state is unaffordable," said Uri Dadush, director of the Carnegie Endowment's International Economics Program. "The crisis has made the day of reckoning closer by several years in virtually all the industrial countries."

Germany will decide next month just how to cut at least 3 billion euros ($3.75 billion) from the budget. The government is suggesting for the first time that it could make fresh cuts to unemployment benefits that include giving Germans under 50 about 60 percent of their last salary before taxes for up to a year. That benefit itself emerged after cuts to an even more generous package about five years ago.

"We have to adjust our social security systems in a way that they motivate people to accept regular work and do not give counterproductive incentives," German Finance Minister Wolfgang Schaeuble told news weekly Frankfurter Allgemeine Sonntagszeitung on Saturday.

The uncertainty over the future of the welfare state is undermining the continent's self-image at a time when other key elements of post-war European identity are fraying.

Large-scale immigration from outside Europe is challenging the continent's assumptions about its dedication to tolerance and liberty as countries move to control individual clothing -- the Islamic veil -- in the name of freedom and equality.

Deeply wary of military conflict, many nations now find themselves nonetheless mired in Afghanistan on behalf of what was supposed to be a North Atlantic alliance, shying away from wholesale pullout while doing their utmost to keep troops from actual combat.

Demographers and economists began warning decades ago that social welfare was doomed by the aging of Europe's baby boomers. Some governments had been trimming and reforming, but now almost all are scrambling to close deficits in order to prevent a wider collapse of confidence in the euro.

"We need to change, to adapt ... for the sake of the protection of our social model," European Union Commissioner Joaquin Almunia of Spain told reporters in Stockholm Thursday.

The move is risky: experts warn the cuts could undermine the growth needed to pull budgets back on a sustainable path.

On Monday, Britain unveils 6 billion pounds ($8.6 billion) in cuts -- mostly to government payrolls and expenses. The government has promised to raise the age at which citizens receive a state pension -- up from 60 to 65 for women, and from 65 to 66 for men. It also plans to toughen the welfare regime, requiring the unemployed to try to find jobs in order to collect benefits.

Britain says it will limit child tax credits and scrap a 250-pound ($360) payment to the families of every newborn. Ministers are reviewing the long-term affordability of the country's generous public sector pensions.

Funding for Britain's nationalized health care service will be protected under the new government, however, and should rise each year to 2015.

France's conservative government is focusing on raising the retirement age. Many workers can now retire at 60 with 50 percent of their average salary. Extra funds are available for retired civil servants, those with three or more children, military veterans and others.

A parliamentary debate is planned for September. Unions in France are organizing a national day of protest marches and strikes on Thursday to demand protection of wages and the retirement age.

In Spain, billions in cuts to state salaries go into effect next month, and the Socialist government has frozen increases in pensions meant to compensate for inflation for at least two years.

"They've hit us really hard," said Federico Carbonero, 92, a retired soldier. He said he was unlikely to live long enough to see the worst of the pension freeze, but had no doubts he would have to start relying on savings to maintain his lifestyle.

Spain is cutting assistance payments for disabled people by 300 million euros ($375 million) and did away with a three-year-old bonus of 2,500 euros ($3,124.25) per new baby. It also has proposed hiking the retirement age for men from 65 to 67.

Countries in northern Europe have done a far better of reforming social welfare and have unemployment systems that focus on re-employing people instead of making their unemployment comfortable, said Gayle Allard, a professor of economic environment and country analysis at the Instituto de Empresa in Madrid.

Denmark and other Nordic countries are known for the world's highest taxes and most generous cradle-to-grave benefits. Denmark has implemented a system known broadly as "flexicurity," which combines flexibility for employers to hire and fire workers with financial security and training to prepare for new jobs.

Denmark had a 7.5 percent unemployment rate in the first quarter of this year, well below the EU average of 9.6 percent. Swedish and Finnish unemployment stood at 8.9 percent. Norway, with some of the world's most generous unemployment benefits fully funded by oil for the forseeable future, has Europe's lowest jobless rate, just 3 percent in April.

Southern European countries that have not moved toward reforming welfare in the same ways are paying a steep price.

After sharp cutbacks imposed as the condition of an international bailout this month, Greeks must now contribute to pension funds for 40 instead of 37 years before retiring, and the age of early retirement is set to 60 at the earliest.

Civil servants with monthly salaries of above 3,000 euros ($3,750) will lose two extra months of salary -- one paid at Christmas, the other split between Easter and summer vacation.

In Portugal, seen as another potential candidate for bailout, the government is focusing on hikes in income, corporate and sales taxes and has avoided drastic changes to welfare entitlements. Unemployment benefits will be cut somewhat and the out-of-work will have to accept any job paying more than 10 percent more than what they would receive in unemployment benefits.

The government is also stepping up checks on welfare claims, freezing public sector pay and slicing public investment.

"There's been a lack of willingness to shift away from welfare as purely social protection towards an approach which has been in much of northern Europe in recent years, which is welfare as social investment," said Iain Begg, a professor at the London School of Economics and Political Science's European Institute.

Otto Fricke, a budget expert for the Free Democrats, the coalition partner of German Chancellor Angela Merkel's Christian Democratic Union, told The Associated Press that no decisions on cuts have been made, but everything is on the table except education, pension funds and financial aid to developing countries. At least one high-ranking CDU member has called for the idea of protecting education to be re-examined, however.

German public education, which was virtually free until 2005, when some of Germany's 16 states started charging tuition fees of 1000 euros ($1,250) a year.

Virtually all Germany's students pay that much or less to attend state-funded universities, including elite institutions. Education isn't as cheap elsewhere in Europe but the 3,290 pounds ($4,720) per year paid by British students at Cambridge is still far less than Americans pay at comparable schools like Harvard, where annual tuition comes in just shy of $35,000.

The idea of cutting education is proving hard to swallow in the face of Germany's promise to contribute up to 147.6 billion euros ($184.5 billion) in loan guarantees to protect Greece and other countries that use the euro from bankruptcy.

"I am worried that this crisis will also affect me on a personal level, for example, that universities in Germany will raise the tuition in order to pay the loan they give to Greece," said Karoline Daederich, a 22-year-old university student from Berlin.

David M. Walker assesses the tax tea party movement

2010-05-21T21:17:00.001-04:00

David M. Walker served as the comptroller general of the United States and head of the Government Accountability Office (GAO) from 1998 to 2008. In these positions, he was considered to be the chief accountant of the U.S: federal government.

In the May 21, 2010 Jacksonville.com blog post, "Former U.S. Comptroller General (an accountability guy) on the tea party," David Hunt provides David Walker's reply to a question about the tax tea party movement in the United States. According to Walker:

"On one hand, I share a lot of their concerns. On the other, I think we have to realize that the answers to our problems are not in the extremes. They're not in the far left or far right. There's a sensible center. While you want to change direction, you don't want to polarize Washington into further extremes. I understand public discontent, but I want it to be informed and constructive - not destructive - and not cause an increase in ideological divide. ... There is no party of fiscal responsibility. Neither Republicans or Democrats have proven that to us when they were in power. Maybe the mantra is "when in doubt, throw them out," but there needs to be an informed view."

Walker earned a bachelor's degree in accounting from Jacksonville University in 1973. Since March 2008, Walker has been the president of the Peter G. Peterson Foundation where he tries to educate the public on the need for fiscal discipline and possible ways to achieve it. Walker's 2010 book, Comeback America: Turning the Country Around and Restoring Fiscal Responsibility provides elaboration of Walker's ideas.

You are richer than you think you are.

2010-05-11T21:19:00.000-04:00

In the May 11, 2010 MainStreet article "How Rich Are You?," Jeanine Skowronski reports:

You're richer than you think.

At least according to Poke, a London-based creative company that specializes in interactive media. Their Web site, The Global Rich List generates a wealth ranking for its users based on their annual income.

For example, if you make $52,000 a year (the median American household income for 2009), you are the 58,252,719 richest person in the world (or in the top 0.97 percentile of all moneymakers).

Someone who makes half of that ($26,000 a year) is still in the top 10%, ranked 569,942,529 on the Global Rich List.

These calculations are based on figures from the World Bank Development Research Group. To calculate an individual's position on the list, Poke assumes that the world's total population is 6 billion and the average worldwide annual income is $5,000.

The site uses your wealth ranking to invite you to share your wealth with others. It told me, for example, I could buy 25 fruit trees for farmers in Honduras for just $8 (as opposed to 12 organic oranges for the same price) or a $30 first aid kit for a village in Haiti (instead of an ER DVD box set). However silly these suggestions may be (who spends $30 to watch ER?), charitable giving is clearly the point.

According to the site, Poke "wanted to do something which would help people understand, in real terms, where they stand globally. They want us to realize that, in fact, most of us who are able to view this web page are in the privileged minority."

So in case you're missing the subtext here … the site doesn't exist just so you can tell all of your friends just how rich you are.

Employment Situation News Release

2010-05-07T13:21:00.003-04:00

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The latest Employment Situation news release (http://www.bls.gov/news.release/pdf/empsit.pdf) was issued today by the Bureau of Labor Statistics. Highlights are below.
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Nonfarm payroll employment rose by 290,000 in April, the unemployment rate edged up to 9.9 percent, and the labor force increased sharply. Job gains occurred in manufacturing, professional and business services, health care, and leisure and
hospitality. Federal government employment also rose, reflecting continued hiring of temporary workers for Census 2010.
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News releases archives:
http://www.bls.gov/schedule/archives/all_nr.htm
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The Fed is not as Independent as Designers Planned It to Be

2010-04-29T05:10:00.003-04:00

The Federal Reserve System was designed to be independent of political influence. The seven members of the Board of Governors serve 14-year terms. Thus, appointees can be in office longer than the U.S. President who appoints them. And the terms are staggered so that one term expires every two years, minimizing the influence of one President on the makeup of the Board. However, resignations and retirements can give a President opportunities to appoint a majority of the Board. As the article below explains, Barack Obama will soon make his fifth appointment and thus will have reshaped the composition of the U.S. central bank that guides monetary policy, controls the money supply, and oversees the banking system.

In the April 29, 2010 article "Obama to name Yellen as Fed's No. 2," Associated Press writer Darlene Superville reports:

WASHINGTON – Putting a bigger stamp on the Federal Reserve, President Barack Obama is set to name Janet Yellen as vice chairwoman of the central bank and fill two other vacancies on the board, which has enormous power over Americans' pocketbooks.

The nominations are subject to Senate approval. If the Senate confirms all three nominees, Obama will have appointed five of the seven members of the Federal Reserve Board.

Obama's moves come as the Fed, whose decisions influence economic activity, employment and inflation, is facing political and economic challenges.

The Fed is steering the economy out of the worst recession since the 1930s, and legislation to overhaul the financial system would eliminate some of the Fed's authority while giving it new responsibilities. Some lawmakers think the Fed overstepped its authority by bailing out some big financial firms during the 2008 financial crisis.

Fed interest rate decisions affect the rates consumers pay on home mortgages and other consumer and business loans. On Wednesday, the Fed ended a two-day meeting by sticking to its pledge to hold rates at historic lows for an "extended period" to help energize the recovery.

Yellen is president of the Federal Reserve Bank of San Francisco. As vice chair, the second-highest ranking Fed official, her duties would include helping build support for policy positions staked out by Fed Chairman Ben Bernanke, who has begun a second term.

Obama also is expected to nominate Sarah Raskin and Peter Diamond to the Fed board. Raskin is the Maryland commissioner of financial regulation. Diamond is an economist at the Massachusetts Institute of Technology.

An official with advance knowledge of the moves spoke to The Associated Press on condition of anonymity because the announcement was pending.

Yellen was a top adviser to President Bill Clinton and is considered a dove on monetary policy. That means she would be expected to be more concerned about high unemployment, currently holding at 9.7 percent nationally, than about rising inflation.

She would succeed Donald Kohn, who plans to depart at the end of June. Kohn has been a member of the Fed board since 2002.

Yellen and Diamond, who is an authority on Social Security, pensions and taxation, are Ph.D. economists. With Kohn's departure, the Fed would have just one professional economist, Bernanke. Of its other current members, Daniel Tarullo was a Georgetown University law professor, Kevin Warsh brought Wall Street experience and Elizabeth Duke was a banker. Warsh and Duke were nominated by President George W. Bush.

Raskin, who served as counsel to the Senate Banking Committee, would expand the Fed's expertise over financial regulation. That would include consumer issues, which are important to Obama and Congress as they seek to impose tighter oversight on the financial industry.
___
On the Net:
Federal Reserve: http://www.federalreserve.gov

Bill Clinton Sees 'More Immigrants' As A Way To Reduce Deficit

2010-04-28T14:56:00.000-04:00

Bill Clinton Sees 'More Immigrants' As A Way To Reduce Deficit

Dan Froomkin Dan Froomkin
Wed Apr 28, 2:26 pm ET

Former President Bill Clinton enthusiastically weighed into the blistering national debate on immigration today with a resounding assertion that America needs more immigrants -- not fewer -- to ensure its long-term fiscal future.

At a symposium on deficit reduction today (see my earlier story), Clinton said that one key to avoiding massive debt is to maintain a good ratio between people paying into the system, and those receiving payouts (through such programs as Social Security.)

That means more jobs and more people working, he said. "Which to me means more immigrants."

Clinton said he supports immigration reform as proposed by President Obama or as supported by Sen. John McCain before he changed his mind.

Clinton spoke glowingly of the immigrant experience in the United States. "We've got somebody from everywhere here, and they do well," he said.

And looking at the overall budget numbers, comparing money in to money out, "I don't think there's any alternative for us but increasing immigration," he said. "I just don't see any palatable way out of this unless that's part of the strategy."

Clinton didn't mention it, but it's not just legal immigrants who contribute to the plus side of the Treasury's balance sheet. In fact, undocumented immigrants are even more lucrative for the government, particularly Social Security. Many undocumented workers have payroll taxes automatically withheld from their wages, but because they use fake numbers, never collect the benefits.

A Vote for Lower Taxes May Be a Vote for Higher Taxes

2010-04-24T23:56:00.000-04:00

When Florida voters approved Amendment 1 to the state constitution with the perceived promise that everyone would pay less in property taxes, most of them failed to consider the economic concept of tradeoffs and the reality that government services must be adequately funded. Amendment 1 essentially allows more of the assessed value of all property to be excluded from taxation. For example, a home valued at $150,000 previously would be liable for taxes on $125,000. With the new provision, only $100,000 is subject to the property tax. Yet, another provision of the amendment allowed the wealthy to exclude as much as $400,000 from taxation when they sold a house and moved. So the benefits of the amendment went overwhelmingly to the rich.

But with more property excluded from taxation, revenues to fund local government services have declined significantly. Marginal tax rates may increase over time in an effort to recoup the lost revenues. In the meantime, however, other taxes and fees are being raised to generate funding for the government services citizens expect. An early response to the amendment from the city council in Jacksonville was the implementation of a new household tax to fund garbage collection. As the article below explains, city leaders want to increase that tax. Property tax savings for people of moderate means have been more than offset by increases in other taxes and fees. The overall tax burden for residents of Florida is being increasingly shifted from the wealthy to everyone else.

So some of the people who voted for amendment 1 in the expectation of paying less in overall taxes are now paying more. Their vote for lower property taxes has increased their overall tax burden.

In the April 24, 2010 Florida Times-Union article "Proposal to double Jacksonville's garbage fee up for vote Tuesday," Matt Galnor reports on the higher garbage fees:

When the City Council first passed a new garbage fee three years ago, it outlined gradual increases to try to cover the actual costs by 2014.

On Tuesday the council is expected to vote on a bill that would blow through that schedule and more than double the fee come Oct. 1.

The fee proposal is part of Mayor John Peyton's plan to bring city fees closer in line with how much the city spends providing the service.

If all of the new fees are approved Tuesday, it will bring in about $25 million to city coffers - and more than $20 million of the new dollars come from raising the garbage fee.

The annual garbage fee would go from $72 to more than $150 - contrary to the 2007 bill that would bring the fees up no more than $12 each year.

"We're catching hell paying this, how we going to pay more?" Southside resident Robert Blackshear said, sitting with friends in a lot off Old St. Augustine Road. "But they don't see it that way downtown."

Council Vice President Jack Webb helped lead the charge for a closer look at all city fees - some of which hadn't been changed in 25 years.

The analysis looked at everything from building permits and facility rentals to zoning change applications and the cost to rename a street.

The increases are tough, especially the garbage fee, Webb said, but added to the reality is the city has to try to capture its costs.

"It's bitter medicine, but we've got to do something to get our financial house in order," Webb said.

Councilman John Crescimbeni said Friday he's preparing an amendment that would change some of the fees.

For example, the fee to apply for a Planned Unit Development is now $1,500, but it costs the city more than $3,500 to process. The proposed fee is $2,000.

"The premise that this thing is being sold on - recovering costs - should be for everybody or nobody," Crescimbeni said.

The garbage fee would cover the cost of collecting residential waste, but there's another $28 a year per household in disposal costs that won't be covered by the new fees, Peyton spokeswoman Misty Skipper said.

The proposal passed two council committees last week - including a narrow 5-4 vote in the Finance Committee.

Crescimbeni was among those voting against it, as were Don Redman and Bill Bishop. Both Redman and Bishop said they were against it because of the original 2007 plan to increase the monthly fee by $1 every year.

"It's going back on our word," Redman said.

Peyton is proposing a $58 million shortfall for the budget that will begin Oct. 1. The mayor says the primary cause is rising employee costs and the city has so far been unsuccessful in getting unions to agree to a 3 percent pay cut and a less lucrative pension for new hires.

matt.galnor@jacksonville.com, (904) 359-4550

Links:
[1] http://jacksonville.com/sites/default/files/JacksonvilleNews1_9.jpg

AP survey: Recovery to remain sluggish into 2011

2010-04-12T20:37:00.002-04:00

In the April 12, 2010 article "AP survey: Recovery to remain sluggish into 2011," Associated Press economics writer Jeannine Aversa says a survey of economists suggests U.S. economic growth will remain quite modest until at least 2011.

"Among the first survey's key findings:
• The unemployment rate will stay stubbornly high the next two years. It will inch down to 9.3 percent by the end of this year and to 8.4 percent by the end of 2011. The rate has been 9.7 percent since January. When the recession started in December 2007, unemployment was 5 percent.
• Home prices will remain almost flat for the next two years, even after plunging an average 30 percent nationally since their peak in 2006. The economists forecast no rise this year and a 2.3 percent gain next year.
• The economy will grow 3 percent this year, which is less than usual during the early phase of a recovery and the reason unemployment will stay high. It takes growth of 5 percent for a year to lower the jobless rate by 1 percentage point, economists say."

Tea Party Supporters of Smaller Government Advocate Volunteer State Militias

2010-04-12T20:27:00.001-04:00

One way to reduce the size of the U.S. federal government is to decrease military expenditures. Some people advocate a return to state militias as a response to increased federalism. According to the April 12, 2010 article "Okla. tea parties and lawmakers envision militia," members of the Oklahoma tea party movement are considering it.

Interest Rates Have Nowhere to Go but Up

2010-04-11T14:53:00.000-04:00

Interest Rates Have Nowhere to Go but Up

Murdoch rips competitors for bias even as more Fox critics emerge on the right

2010-04-07T22:08:00.001-04:00

Murdoch rips competitors for bias even as more Fox critics emerge on the right

Nearly half of US households escape fed income tax

2010-04-07T18:01:00.001-04:00

In the April 7, 2010 article "Nearly half of US households escape fed income tax," Associated Press writer Stephen Ohlemacher reports that almost half of all U.S. households pay no income tax. Does this infer that the Tea Party movement is people of modest means advocating for more financial gains for the wealthy?

According to Ohlemacher:

WASHINGTON (AP) -- Tax Day is a dreaded deadline for millions, but for nearly half of U.S. households it's simply somebody else's problem.

About 47 percent will pay no federal income taxes at all for 2009. Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability. That's according to projections by the Tax Policy Center, a Washington research organization.

Most people still are required to file returns by the April 15 deadline. The penalty for skipping it is limited to the amount of taxes owed, but it's still almost always better to file: That's the only way to get a refund of all the income taxes withheld by employers.

In recent years, credits for low- and middle-income families have grown so much that a family of four making as much as $50,000 will owe no federal income tax for 2009, as long as there are two children younger than 17, according to a separate analysis by the consulting firm Deloitte Tax.

Tax cuts enacted in the past decade have been generous to wealthy taxpayers, too, making them a target for President Barack Obama and Democrats in Congress. Less noticed were tax cuts for low- and middle-income families, which were expanded when Obama signed the massive economic recovery package last year.

The result is a tax system that exempts almost half the country from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education. It is a system in which the top 10 percent of earners -- households making an average of $366,400 in 2006 -- paid about 73 percent of the income taxes collected by the federal government.

The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment.

"We have 50 percent of people who are getting something for nothing," said Curtis Dubay, senior tax policy analyst at the Heritage Foundation.

The vast majority of people who escape federal income taxes still pay other taxes, including federal payroll taxes that fund Social Security and Medicare, and excise taxes on gasoline, aviation, alcohol and cigarettes. Many also pay state or local taxes on sales, income and property.

That helps explain the country's aversion to taxes, said Clint Stretch, a tax policy expert Deloitte Tax. He said many people simply look at the difference between their gross pay and their take-home pay and blame the government for the disparity.

"It's not uncommon for people to think that their Social Security taxes, their 401(k) contributions, their share of employer health premiums, all of that stuff in their mind gets lumped into income taxes," Stretch said.

The federal income tax is the government's largest source of revenue, raising more than $900 billion -- or a little less than half of all government receipts -- in the budget year that ended last Sept. 30. But with deductions and credits, especially for families with children, there have long been people who don't pay it, mainly lower-income families.

The number of households that don't pay federal income taxes increased substantially in 2008, when the poor economy reduced incomes and Congress cut taxes in an attempt to help recovery.

In 2007, about 38 percent of households paid no federal income tax, a figure that jumped to 49 percent in 2008, according to estimates by the Tax Policy Center.

In 2008, President George W. Bush signed a law providing most families with rebate checks of $300 to $1,200. Last year, Obama signed the economic recovery law that expanded some tax credits and created others. Most targeted low- and middle-income families.

Obama's Making Work Pay credit provides as much as $800 to couples and $400 to individuals. The expanded child tax credit provides $1,000 for each child under 17. The Earned Income Tax Credit provides up to $5,657 to low-income families with at least three children.

There are also tax credits for college expenses, buying a new home and upgrading an existing home with energy-efficient doors, windows, furnaces and other appliances. Many of the credits are refundable, meaning if the credits exceed the amount of income taxes owed, the taxpayer gets a payment from the government for the difference.

"All these things are ways the government says, if you do this, we'll reduce your tax bill by some amount," said Roberton Williams, a senior fellow at the Tax Policy Center.

The government could provide the same benefits through spending programs, with the same effect on the federal budget, Williams said. But it sounds better for politicians to say they cut taxes rather than they started a new spending program, he added.

Obama has pushed tax cuts for low- and middle-income families and tax increases for the wealthy, arguing that wealthier taxpayers fared well in the past decade, so it's time to pay up. The nation's wealthiest taxpayers did get big tax breaks under Bush, with the top marginal tax rate reduced from 39.6 percent to 35 percent, and the second-highest rate reduced from 36 percent to 33 percent.

But income tax rates were lowered at every income level. The changes made it relatively easy for families of four making $50,000 to eliminate their income tax liability.

Here's how they did it, according to Deloitte Tax:

The family was entitled to a standard deduction of $11,400 and four personal exemptions of $3,650 apiece, leaving a taxable income of $24,000. The federal income tax on $24,000 is $2,769.

With two children younger than 17, the family qualified for two $1,000 child tax credits. Its Making Work Pay credit was $800 because the parents were married filing jointly.

The $2,800 in credits exceeds the $2,769 in taxes, so the family makes a $31 profit from the federal income tax. That ought to take the sting out of April 15.

Internal Revenue Service: http://www.irs.gov

Tax Policy Center: http://www.taxpolicycenter.org

Signs the economy is really getting better

2010-04-06T22:28:00.004-04:00

In the April 6, 2010 U.S. News & World Report article How To Tell When The Recession Is Really Over, Rick Newman says "the recession is officially over, but many Americans won't feel the recovery until these things happen."

There are two kinds of recessions: the one that economists measure, and the one that ordinary people feel.

The official recession is over. That's because the economy is growing again after a sharp decline, with GDP back to the levels of mid-2008. For people who have kept their jobs, suffered no loss of income and enjoyed a rebound in their investments thanks to the year-long stock market rally, things are pretty good.

Then there's the unofficial recession, which clearly persists. More than 8 million people have lost their jobs over the past two years, and the economy has barely started to add those back. Many others have had their pay or hours cut. The housing bust, in its fourth year, still isn't over. Foreclosures continue to mount, businesses and consumers remain gloomy, and many families are struggling to get by on reduced income. "It's a recovery, but it sure doesn't feel like it," says Nariman Behravesh, chief economist for forecasting firm IHS Global Insight. Here are five things that still must happen for a robust recovery to kick in.

Banks need to lend more. The government's emergency measures helped stabilize the financial system, but banks haven't taken the next step and increased lending. With trillions in bad loans still on their books, many banks continue to hoard cash and turn down loan applications. That depresses the market for homes, cars, appliances and other costly items that many consumers can't pay for in cash. It also squeezes small businesses, which often rely on credit to meet payroll, order supplies, invest and grow. Behravesh predicts that lending could bottom out and start to pick up by late this year or early next year--although that would probably be the point at which the Federal Reserve starts to raise interest rates to subdue inflation. A few things that will signal improvements in the credit market: a drop in the required down payment for well-qualified home buyers, which is typically 30 percent or more now; increased availability of car loans for subprime borrowers with a credit score below 680; and banks' willingness to increase their customers' credit-card limits, if asked.

Incomes need to rise. Median income was stagnant for about a decade leading up to the recession, and it probably fell 5 percent or more over the past couple of years. Some economists worry that reduced incomes could indefinitely curtail consumer spending, which has long fueled the U.S. economy. A glut of unemployed workers will keep wages low in many industries for years. And since many families have lost wealth because of falling home values or declining investment portfolios, or both, they need to save more to prepare for retirement. That leaves less money to buy stuff. The good news is that inflation is low and energy prices are stable, which helps stretch a dollar.

Housing needs to stabilize. Most of the pain is probably in the past, but home values continue to erode in many regions. Moody's Economy.com predicts that house prices, which have fallen more than 30 percent from their 2006 peaks, could still fall another 5 to 10 percent through the end of this year. Since many families still have the majority of their wealth invested in their homes, the economy can't really get healthy again as long as such a huge asset is falling in value. The end of the federal home-buyer tax credit and other government programs throughout the year will test whether the housing market can stand on its own. If it can't, the government could step back in, but that would only signal further weakness in a sector that accounts for more than 15 percent of the economy. The silver lining is that falling prices make it a great time to buy, for those with enough cash or the ability to get a mortgage.

Confidence needs to rebound. Americans remain gloomy, with most consumer-confidence surveys showing only modest improvements from the low points hit during the recession. The most obvious reasons are the weak job market and a sense that the recovery will be weak at best. Businesses are downbeat too, with CEOs worried that strapped consumers will put their wallets away. That makes them reluctant to hire, which perpetuates the malaise. Confidence is a perplexing psychological phenomenon, and economists aren't sure what it will take to make consumers upbeat enough to propel a robust recovery. But once home prices stop falling, jobs seem more secure, and people feel like the bloodletting is over, that will certainly help.

Jobs need to return. The availability--or lack--of jobs is the single biggest factor in the economy, and unfortunately, a pickup in hiring is likely to be painfully slow. Many of the 8 million lost jobs are probably gone forever, as manufacturers downsize their operations and many companies substitute technology or cheaper foreign labor for American workers. The unemployment rate, which is 9.7 percent now, might even rise throughout the year, as workers who gave up looking for jobs try again and the labor force swells.

Still, economists recognize some familiar patterns in the job market that suggest things are finally getting better instead of worse. Corporate profits are strong, thanks to aggressive cost-cutting over the past two years. That means companies can afford to hire workers, if they decide to. And productivity gains have hit record levels recently, which means companies are extremely efficient; if demand picks up, they may only be able to meet it through increased staffing. A good indicator of real improvement would be several consecutive months of six-figure job gains, due to permanent hiring and not temporary factors like the census or weather-related events. "The recent resumption of employment growth will be sustained and gather strength over time," insists T. Rowe Price chief economist Alan Levenson. That's not the kind of roaring endorsement most Americans want to hear, but it suggests that sooner or later, the recovery in your neighborhood will catch up with the one that economists see in the data.

$1 million isn't enough for retirement anymore

2010-03-21T11:54:00.004-04:00

In the March 21, 2010 article "$1 Million Doesn't Cut It for Retirement, Joe Mont explains that "A majority of experts now say $1 million is not nearly enough for a truly secure retirement."

Conventional wisdom says you need to save $1 million for retirement.

That target may be easy to remember, but it falls short of the true cost of what's required for post-career comfort. Longer life spans, the threat of inflation and the uncertain future of Social Security benefits make this long-touted savings advice inadequate for most, advisers say.

Scottrade recently polled 226 registered investment advisers on the topic and found that 71% don't believe $1 million is enough for the average American family. Most said families need to save double, or more than triple, the amount.

"Younger generations, especially, need to set their retirement goals higher than other generations and start saving as early as possible," says Craig Hogan, Scottrade's director of customer-relationship management and reporting.

The survey solicited opinions about the current investment habits of Americans. Questions were broken down by generations to determine advisers' opinions on average investment goals in today's dollars for various groups.

Generation Y (ages 18 to 26) needs to save at least $2 million, according to 77% of advisers. Forty percent put the figure at $3 million.

Nearly half of advisers (46%) said Generation X (ages 27 to 42) should at least double the $1 million goal. Twenty-two percent suggested more than $3 million.

For Boomers (ages 43 to 64), 35% recommended $2 million to $3 million. Thirty percent suggested $1.5 million to $2 million.

According to Scottrade's analysis, seniors are the only generation that may come close to needing only $1 million. Forty-four percent of advisers said $500,000 to $1.5 million is sufficient for average families in that age bracket.

Bill Smith, president of Ohio-based Great Lakes Retirement Group, is among the advisers who took part in the survey. As he sees it, too many people rely on online retirement calculators. Much of that guidance uses a target based on making do with 70% to 80% of pre-retirement income.

"I've never been a big fan of planning to earn less in retirement than you are making now," he says. "I'd like to see an individual continue making the same amount of retirement as when he was working. Who wants to set themselves up in retirement to make less?"

While most people will spend less when they retire, inflation or the onset of a long-term illness could wipe out savings without proper protection or planning.

That said, there's no secret to meeting a retirement goal: maximize your contribution rate, have a greater tolerance for risk when you're younger and downshift to bonds as you grow older. Successful preparation, however, begins with setting a realistic goal and understanding your true financial picture.

Debt needs to be carefully considered as well as leaving money for the kids.

"There are two extremes," Smith says. "There are individuals who say, 'We don't care if we have anything left the day we die -- we are OK with that last check bouncing when we are gone.' Then there are the individuals who don't do anything in retirement because all of their decisions are made around, 'I've got to leave it for the kids.' "

John Stewart's parody of Glenn Beck illustrates the folly of jumping to wild conclusions on the basis of unsound reasoning.

2010-03-19T12:54:00.001-04:00

John Stewart's parody of Glenn Beck illustrates the folly of jumping to wild conclusions on the basis of unsound reasoning.

http://www.huffingtonpost.com/2010/03/19/jon-stewart-glenn-beck-parody_n_505329.html

What Happens If Greece Really Defaults?

2010-03-15T16:57:00.001-04:00

In the March 11, 2010 U.S. News & World Report article "What Happens If Greece Really Defaults?," Matthew Bandyk reports:

Earlier this week, Greek Prime Minister George Papandreou traveled to the United States to promote a message: We're in this together. The debt crisis that has threatened the Greek economy and the stability of the European Union's monetary policies "very much involves America's interests," Papandreou stated in a speech at the Brookings Institution in Washington.

The prime minister--who was born in St. Paul, Minn.--even connected the current crisis to the Great Depression as well as the Great Recession. "If the European crisis metastasizes, it could create a new global financial crisis with implications as grave as the U.S.-originated crisis two years ago," he said.

But the path from a Greek crisis to a U.S. crisis is not a direct one. The European Union is hoping it can contain Greece's debt crisis before the problems spread across the continent--threatening the stability of all countries that use the euro, or the euro zone--and then over the Atlantic.

The crisis began shortly after the election last fall of the new socialist government led by Papandreou. State officials revealed that Greece's budget deficit was at 14 percent of GDP--almost twice what the official Greek government statistics had reported. Two months later, Moody's downgraded Greece's debt to A2, raising the possibility of Greece defaulting on its debt.

If Greece defaults, "it risks exacerbating the economic downturns and could even reignite an acute financial crisis" through higher interest rates, Marc Chandler, global head of currency strategy at investment firm Brown Brothers Harriman, wrote in a report.

A Greek default would hit Americans hard in one major area: exports. According to the Economic Report of the President by the White House's Council of Economic Advisers, in order to "fill the gaps left in demand" by the recession, "net exports need to rise." President Obama announced in his State of the Union address a goal of doubling exports over the next five years. That goal might be hard to reach if Greece's debt crisis is not contained. "Under the scenario where things get much worse in Europe, the dollar would get strengthened relative to the euro, and that would create a policy headache for the Obama administration," says Steve Hanke, an economist at Johns Hopkins University. A stronger dollar would make U.S. exports more expensive. In addition, as interest rates in Europe soar and the euro falls in value in response to the credit crunch, Europeans would be unable to buy as many U.S. products.

The likelihood of that scenario depends partially on what the European Union decides to do about Greece. In reaction to this panic in Greece, much of the rest of Europe became frustrated over Greece's ability to hurt the rest of the continent economically but with little accountability owing to the fact that Greece is an independent state. Because Greece uses the euro, its fiscal problems can weaken the currency and lead to higher interest rates for all Europeans. A February poll found that a majority of Germans want Greece out of the euro zone.

Greek officials have received reassuring signs from Europe's leaders that the European Union will bail out the country in some way to assure creditors that it will not default on its debt. Jose Manuel Barroso, president of the European Commission, also announced this week that whatever mechanisms the EU uses to help Greece will be in line with the laws of the EU--assuaging fears that a bailout would violate the Maastricht Treaty, the agreement that created the euro.

But it is not guaranteed that bailing out Greece will save it and, by extension, the euro zone. Hanke worries that even with a bailout, wealthy Greeks and foreign investors will not stop withdrawing their money from Greek banks, from which they have already pulled out billions of euros. In order to get the rest of Europe's support for a bailout, Greece has had to promise to fill in its budget with more tax revenue. But paradoxically, those taxes might cause even more people to flee the Greek financial system, says Hanke. "In effect, with bank runs coupled with capital flights, you would get a collapse in credit in Greece," he says.

Such a collapse would have two major potential effects. First, a credit crunch would spread to other European countries that have vulnerable economies. For example, "if you had a lot of capital flight out of Greece, all of a sudden people in Spain say, 'We're going to be next,' " says Hanke.

Second, the credit crunch would increase the likelihood of Greece defaulting on its debt. In such a scenario, Greece could temporarily leave the euro zone and return to its former currency, the drachma, which would be heavily devalued against the euro.

There are still several signs that Greece can use the market to navigate out of the crisis without a default. Last week, Athens sold 10 billion euros of 10-year sovereign bonds to foreign investors. But an amount of 23 billion euros is needed to meet government obligations through May. And Greece has only begun to implement changes to its budget that will bring it out of a fiscal hole. Earlier this month, the government announced a plan of cuts to wages of government employees, tax hikes on tobacco and alcohol, and other measures expected to raise 4.8 billion euros. But these steps will reduce Greece's budget deficit by only 2 percent of GDP. It now stands at 12.7 percent of GDP, well above the European Union's target of 3 percent. Even the changes so far have not been easy politically. Several of the country's labor unions are striking in protest of the spending cuts and tax increases.

Perhaps, however, Greece can breathe its biggest sigh of relief over the fact that the international investors who recoiled in horror over the country's fiscal problems just a few months ago appear now to be softening their stance. Investors trade credit-default swaps on Greek sovereign debts, which are contracts that function as a kind of insurance on the chance the government will default. According to credit-default-swap prices from financial information company Markit, the annual cost to insure a five-year government bond for Greece hit a high of $425,000 on February 4. That was a 67 percent increase from the previous three months. But as of March 9, the cost had fallen to $289,000, down to the levels of December.

Social Security to start cashing Uncle Sam's IOUs

2010-03-14T12:39:00.002-04:00

In the March 14, 2010 article "Social Security to start cashing Uncle Sam's IOUs," Associated Press writer Stephen Ohlemacher reports the Social Security system will pay out more in benefits than it collects in revenues this year. As baby-boomers increasingly shift from working and paying into the system to retiring and collecting benefits, this problem will exacerbate:

PARKERSBURG, W.Va. – The retirement nest egg of an entire generation is stashed away in this small town along the Ohio River: $2.5 trillion in IOUs from the federal government, payable to the Social Security Administration.

It's time to start cashing them in.

For more than two decades, Social Security collected more money in payroll taxes than it paid out in benefits — billions more each year.

Not anymore. This year, for the first time since the 1980s, when Congress last overhauled Social Security, the retirement program is projected to pay out more in benefits than it collects in taxes — nearly $29 billion more.

Sounds like a good time to start tapping the nest egg. Too bad the federal government already spent that money over the years on other programs, preferring to borrow from Social Security rather than foreign creditors. In return, the Treasury Department issued a stack of IOUs — in the form of Treasury bonds — which are kept in a nondescript office building just down the street from Parkersburg's municipal offices.

Now the government will have to borrow even more money, much of it abroad, to start paying back the IOUs, and the timing couldn't be worse. The government is projected to post a record $1.5 trillion budget deficit this year, followed by trillion dollar deficits for years to come.

Social Security's shortfall will not affect current benefits. As long as the IOUs last, benefits will keep flowing. But experts say it is a warning sign that the program's finances are deteriorating. Social Security is projected to drain its trust funds by 2037 unless Congress acts, and there's concern that the looming crisis will lead to reduced benefits.

"This is not just a wake-up call, this is it. We're here," said Mary Johnson, a policy analyst with The Senior Citizens League, an advocacy group. "We are not going to be able to put it off any more."

For more than two decades, regardless of which political party was in power, Congress has been accused of raiding the Social Security trust funds to pay for other programs, masking the size of the budget deficit.

Remember Al Gore's "lockbox," the one he was going to use to protect Social Security? The former vice president talked about it so much during the 2000 presidential campaign that he was parodied on "Saturday Night Live."

Gore lost the election and never got his lockbox. But to illustrate the government's commitment to repaying Social Security, the Treasury Department has been issuing special bonds that earn interest for the retirement program. The bonds are unique because they are actually printed on paper, while other government bonds exist only in electronic form.

They are stored in a three-ring binder, locked in the bottom drawer of a white metal filing cabinet in the Parkersburg offices of Bureau of Public Debt. The agency, which is part of the Treasury Department, opened offices in Parkersburg in the 1950s as part of a plan to locate important government functions away from Washington, D.C., in case of an attack during the Cold War.

One bond is worth a little more than $15.1 billion and another is valued at just under $10.7 billion. In all, the agency has about $2.5 trillion in bonds, all backed by the full faith and credit of the U.S. government. But don't bother trying to steal them; they're nonnegotiable, which means they are worthless on the open market.

More than 52 million people receive old age or disability benefits from Social Security. The average benefit for retirees is a little under $1,200 a month. Disabled workers get an average of $1,100 a month.

Social Security is financed by payroll taxes — employers and employees must each pay a 6.2 percent tax on workers' earnings up to $106,800. Retirees can start getting early, reduced benefits at age 62. They get full benefits if they wait until they turn 66. Those born after 1960 will have to wait until they turn 67.

Social Security's financial problems have been looming for years as the nation's 78 million baby boomers approached retirement age. The oldest are already there. As that huge group of people starts collecting benefits — and stops paying payroll taxes — Social Security's trust funds will shrink, running out of money by 2037, according to the latest projection from the trustees who oversee the program.

The recession is making things worse, at least in the short term. Tax receipts are down from the loss of more than 8 million jobs, and applications for early retirement benefits have spiked from older workers who were laid off and forced to retire.

Stephen C. Goss, chief actuary for the Social Security Administration, says the crisis has been years in the making. "If this helps get people to look more seriously at that in the nearer term, that's probably a good thing. But it's only really a punctuation mark on the fact that we have longer-term financial issues that need to be addressed."

In the short term, the nonpartisan Congressional Budget Office projects that Social Security will continue to pay out more in benefits than it collects in taxes for the next three years. It is projected to post small surpluses of $6 billion each in 2014 and 2015, before returning to indefinite deficits in 2016.

For the budget year that ends in September, Social Security is projected to collect $677 million in taxes and spend $706 million on benefits and expenses.

Social Security will also collect about $120 billion in interest on the trust funds, according to the CBO projections, meaning its overall balance sheet will continue to grow. The interest, however, is paid by the government, adding even more to the budget deficit.

While Congress must shore up the program, action is unlikely this year, said Rep. Earl Pomeroy, D-N.D., who just took over last week as chairman of the House subcommittee that oversees Social Security.

"The issues required to address the long-term solvency needs of Social Security can be done in a careful, thoughtful and orderly way and they don't need to be done in the next few months," Pomeroy said.

The national debt — the amount of money the government owes its creditors — is about $12.5 trillion, or nearly $42,000 for every man, woman and child in the country. About $8 trillion has been borrowed in public debt markets, much of it from foreign creditors. The rest came from various government trust funds, including retirement funds for civil servants and the military. About $2.5 trillion is owed to Social Security.

Good luck to the politician who reneges on that debt, said Barbara Kennelly, a former Democratic congresswoman from Connecticut who is now president of the National Committee to Preserve Social Security and Medicare.

"Those bonds are protected by the full faith and credit of the United States of America," Kennelly said. "They're as solid as what we owe China and Japan."
___
On the Net:
Social Security Administration: http://www.socialsecurity.gov/
Trustees' reports: http://www.ssa.gov/OACT/TR/
National Committee to Preserve Social Security and Medicare: http://www.ncpssm.org/
The Senior Citizens League: http://www.seniorsleague.org/
Bureau of Public Debt: http://www.publicdebt.treas.gov/
Congressional Budget Office: http://tinyurl.com/ydgrl5d

Young war veterans returning home to unemployment

2010-03-12T23:55:00.000-05:00

In the March 12, 2010 article "Young war veterans returning home to unemployment," Associated Press writer Kimberly Hefling reports:

WASHINGTON – The unemployment rate last year for young Iraq and Afghanistan veterans hit 21.1 percent, the Labor Department said Friday, reflecting a tough obstacle combat veterans face as they make the transition home from war.

The number was well above the 16.6 percent jobless rate for non-veterans of the same ages, 18 to 24.

As of last year, 1.9 million veterans had deployed for the wars since the Sept. 11, 2001, terrorist attacks. Some have struggled with mental health problems, addictions, and homelessness as they return home. Difficulty finding work can make the adjustment that much harder.

The just-released rate for young veterans was significantly higher than the unemployment rate of young veterans in that age group of 14.1 percent in 2008.

Many of the unemployed are members of the Guard and Reserves who have deployed multiple times, said Joseph Sharpe, director of the economic division at the American Legion. Sharpe said some come home to find their jobs have been eliminated because the company has downsized. Other companies may not want to hire someone who could deploy again or will have medical appointments because of war-related health problems, he said.

"It's a horrible environment because if you're a reservist and you're being deployed two or three times in a five-year period, you know you're less competitive," Sharpe said. "Many companies that are already hurting are reluctant to hire you and time kind of moves on once you're deployed."

One veteran looking for work is Dario DiBattista, 26, of Abingdon, Md., a graduate student who did two tours in Iraq in the Marine Reserves with a civil affairs unit. He said he's found that a lot of military skills don't readily transfer into the workplace, and in many cases, there aren't jobs to apply for even if companies want to hire veterans.

"If you don't have a strong family support system ... it's hard to get over the hump to make the decision of where you're going to live, what you do for work, where you're going to go to school, if you can even qualify to get into school," DiBattista said.

Justin Wilcox, a 30-year-old Iraq veteran who is participating in a work-study program at a vet center operated by the Veterans Affairs Department in Charleston, W.Va., said he hasn't just had problems finding jobs, but keeping them. He's done work as a coal miner, as a salesman selling drill bits and in other positions, but he said mental health problems stemming from the war with side effects such as anger and difficulty concentrating have made it difficult.

There's a lack of understanding about the needs some veterans have, said Wilcox, who is studying to become a teacher.

"Basically, it's been a real hard time for me. Because when I do get a job, it's not a real high paying job," Wilcox said. "I have a difficult time relating to people and ... one job that I had that paid really good, I couldn't comprehend what I was supposed to do and how I was supposed to do it."

For veterans of all ages from the recent wars, the unemployment rate in 2009 was 10.2 percent. Historically, younger veterans have had more difficulty than their older counterparts finding a job because they often have less training and job experience. Some joined the military right out of high school.

Lisa Rosser, an Army veteran and company owner who sits on the advisory board of the Call of Duty Endowment that funds projects focused on veterans employment issues, said she encourages veterans to emphasize to prospective employers what they learned about managing people in a stressful combat environment.

"If they talk about their general leadership skills and their ability to supervise and to manage people, especially at a very young age, that is a good sell ... because the average 24-year-old and 27-year-old in the military has similar supervisory and managerial experience as someone in their 30s on the civilian side," Rosser said.

One possible solution is to make it easier for veterans to transfer certifications they have for jobs they did in the military into the civilian workforce, Sharpe said.

The Labor and Veterans Affairs departments have a variety of programs addressing the problem, including one that educates employers about how to work with veterans with special needs. The hope is that another program, the Post-9/11 GI Bill rolled out last year, will be particularly effective. Under it, $78 billion is expected to be paid out in education benefits over the next decade for veterans of the recent wars to attend school.

The national unemployment rate last year was 9.3 percent, the highest since 1983.
____
On the Net:
Department of Labor: http://www.dol.gov/
Department of Veterans Affairs: http://www.va.gov/
Call of Duty Endowment: http://www.callofdutyendowment.org/
American Legion: http://www.legion.org/

Why Rush Limbaugh would go to Costa Rica if Obama's healthcare plan passes

2010-03-11T19:36:00.002-05:00

In the March 11, 2010 Christian Science Monitor article "Why Rush Limbaugh would go to Costa Rica if Obama's healthcare plan passes," Chrissie Long reports:

San José, Costa Rica – Conservative talk-show host Rush Limbaugh said this week he’d go to Costa Rica for medical treatment if Congress passes proposed reforms to the US healthcare system.

That might sound like an unusual choice, since this is a country with one of the longest standing socialized healthcare systems on the planet. Everyone here (including resident foreigners), are required to pay into the government-run health system, whether they use it or not.

But Limbaugh’s choice may also serve to advertise what many Americans traveling here for medical treatment already know: Costa Rica is a fabulous place for medical tourism.

Life expectancy in this little Central American country surpasses that of the United States and at one point, back in the early 2000s when the World Health Organization rated countries’ general health, Costa Rica ranked higher (No. 36) than its northern neighbor (No. 37), despite spending 87 percent less on health care per capita.

Some who've studied Costa Rican health care consider it better overall, and attribute that to the fact that free coverage extends to 86.8 percent of the population.

But the Cadillac-style private hospitals at Chevy Aveo prices are what really draw 25,000 Americans to Costa Rica every year.

“People travel to Costa Rica (and) receive the same quality of medical services for a fraction of the cost,” said Jorge Cortés, president of the Council for International Promotion of Costa Rica Medicine and medical director of Hospital Biblica, one of three internationally-accredited private hospitals in Costa Rica. “When people see they can get the same surgery for three or four times less, they decide to get medical care abroad.”

Lower labor costs and fewer malpractice suits keep the prices down here. In Costa Rica’s private system, a teeth-cleaning might run $40 and a general check-up costs $50.

A facelift averages $2,800 to $3,200 in Costa Rica, compared to $7,000 to $9,000 in the United States. A knee replacement may cost $11,000 in Costa Rica, but can be as much as $45,000 in the United States.

But there’s another arm of the country’s medical system – the public system – which is relied upon by a majority of the population. While celebrated by Costa Ricans for “universal access,” it’s often criticized for long wait times and delays in treatment.

“There’s a difference between the healthcare system that serves people living in Costa Rica versus that which is known to foreigners,” said Robert Book, a healthcare economist for the conservative think tank, the Heritage Foundation. “It’s the private option for foreigners that Mr. Limbaugh was referring to when he said he would go to Costa Rica.”

On Tuesday, Mr. Limbaugh clarified his comment about leaving the United States, after “the liberal media” celebrated his vow of self-imposed exile, viewing healthcare reform as a way to rid themselves of the conservative talk show host.

“If I have to get thrown into this massive government health care insurance business and end up going to the driver's license office every day when I need to go to the doctor, yeah, I'll go to Costa Rica for treatment, not move there,” he told listeners Tuesday, according to a transcript on his website.

Mr. Cortés said Limbaugh would not be alone in traveling abroad for medical care. He’s expecting medical tourism to increase by 5-7 percent over the next year, regardless of what happens with the US healthcare reform bills.

And that increase is building upon a growth Costa Rica has already seen. Since the recession forced many Americans out of jobs, Costa Rica has seen a surge in the number of their northern neighbors coming here for health services. In fact, there’s an entire industry catering to the medical tourist, including post-surgery spa services, sightseeing packages, hotels, and transportation.

But, if Limbaugh did move to Costa Rica and chose to initiate the process of residency, he’d be required to pay into the government-run social security system – which runs the health care system too. Under law, all people employed in Costa Rica must contribute 5.5 percent of their salary to the state-run social security system and employers are required to match their payment with 9.25 percent. Even those here for retirement are obligated to contribute under new immigration laws, regardless of whether they hold private insurance.

“The strengths of our health system (is) that it is universal, that it’s based on the idea of solidarity and that it’s fair,” says Dr. Ana Morice, vice health minister in Costa Rica. “What we need to improve is access to health services. Many times someone requests an appointment and doesn’t receive it until a year later. In that area, we have much to improve.”

Of course, if Limbaugh decided to move to or buy real estate in Costa Rica, he wouldn’t be the first celebrity. His neighbors might include actor Mel Gibson, model Gisele Bundchen, AOL executive Steve Case, or Vice President Joe Biden’s brother, Frank.

Tax soda, pizza to cut obesity, researchers say

2010-03-08T21:21:00.003-05:00

In the March 8, 2010 article "Tax soda, pizza to cut obesity, researchers say," Julie Steenhuysen reports that excise taxes on pizza and soda might help reduce obesity.

CHICAGO (Reuters) – U.S. researchers estimate that an 18 percent tax on pizza and soda can push down U.S. adults' calorie intake enough to lower their average weight by 5 pounds (2 kg) per year.

The researchers, writing in the journal Archives of Internal Medicine on Monday, suggested taxing could be used as a weapon in the fight against obesity, which costs the United States an estimated $147 billion a year in health costs.

"While such policies will not solve the obesity epidemic in its entirety and may face considerable opposition from food manufacturers and sellers, they could prove an important strategy to address overconsumption, help reduce energy intake and potentially aid in weight loss and reduced rates of diabetes among U.S. adults," wrote the team led by Kiyah Duffey of the University of North Carolina at Chapel Hill.

With two-thirds of Americans either overweight or obese, policymakers are increasingly looking at taxing as a way to address obesity on a population level.

California and Philadelphia have introduced legislation to tax soft drinks to try to limit consumption.

CDC director Dr. Thomas Frieden supports taxes on soft drinks, as does the American Heart Association.

There are early signs that such a policy works.

Duffey's team analyzed the diets and health of 5,115 young adults aged age 18 to 30 from 1985 to 2006.

They compared data on food prices during the same time. Over a 20-year period, a 10 percent increase in cost was linked with a 7 percent decrease in the amount of calories consumed from soda and a 12 percent decrease in calories consumed from pizza.

The team estimates that an 18 percent tax on these foods could cut daily intake by 56 calories per person, resulting in a weight loss of 5 pounds (2 kg) per person per year.

"Our findings suggest that national, state or local policies to alter the price of less healthful foods and beverages may be one possible mechanism for steering U.S. adults toward a more healthful diet," Duffey and colleagues wrote.

In a commentary, Drs. Mitchell Katz and Rajiv Bhatia of the San Francisco Department of Public Health said taxes are an appropriate way to correct a market that favors unhealthy food choices over healthier options.

They argued that the U.S. government should carefully consider food subsidies that contribute to the problem.

"Sadly, we are currently subsidizing the wrong things including the product of corn, which makes the corn syrup in sweetened beverages so inexpensive," they wrote.

Instead, they argued that agricultural subsidies should be used to make healthful foods such as locally grown vegetables, fruits and whole grains less expensive.

Is There Too Much Worry About the Debt?

2010-03-08T12:06:00.003-05:00

In the March 15, 2010 TIME magazine article "Is There Too Much Worry About the Debt?," Zachary Karabell argues that the U.S. should not lose sight of the things that increase productivity and lead to real economic growth (which in turn, increase tax revenues): investment in physical capital (infrastructure, factories and machines), human capital (education and skills training), and technology.

Mort Zuckerman: Political Leaders Must Deal With the National Debt or Future Generations Will Pay

2010-03-05T13:34:00.000-05:00

Mort Zuckerman: Political Leaders Must Deal With the National Debt or Future Generations Will Pay

Ronald Reagan speaks out against Socialized Medicine - Audio

2010-03-04T11:08:00.003-05:00

Ronald Reagan speaks out against Socialized Medicine, circa 1961. Audio file.

For more information, visit The Ronald Reagan Presidential Foundation & Library.

Republican Party's 2010 fundraising strategy: fear

2010-03-03T18:46:00.000-05:00

Republican Party's 2010 fundraising strategy: fear

The ultimate deficit hawk says spend more -- on jobs!

2010-03-01T20:26:00.000-05:00

In the March 1, 2010 Salon editiorial "The ultimate deficit hawk says spend more -- on jobs!," Joe Conason says "The Republican noise machine, from Beck to McCain, loves David Walker. But now he is rejecting their rigid ideology."

Whenever conservative lobbyists, tea-party fanatics and Republican politicians start to scream about government spending, which is almost every day now, the authority they cite most confidently is David M. Walker. The former comptroller general and GAO chief has bipartisan credentials and the backing of billionaire Pete Peterson, who has put his personal fortune behind Walker’s warnings about an America doomed by debt and deficits.

From Glenn Beck and his followers to John McCain, Walker is the favorite expert of the harshest critics of the Obama administration’s stimulus spending (and any other federal effort to increase employment). During his presidential campaign, McCain promised that if elected, he would hire Walker to help balance the federal budget.

As for Beck, he has conducted more than one fawning interview with Walker; in fact, the excitable Fox News personality hosted him two weeks ago to discuss his latest book, titled "Comeback America." Beck clearly feels that Walker’s worries about fiscal balance somehow support his own demagogic predictions.

But Walker’s fans on the right may not be so quick to mention his latest insight, for as he reveals in an important essay he co-authored with Lawrence Mishel of the Economic Policy Institute, he now believes that employment is the overriding issue that must be addressed before any attempt to reduce deficits.

Mishel and Walker explain that the only way to bring spending back in line with revenues is to stimulate growth and employment. The entire piece is well worth reading, especially because the authors come from different sides of the political divide, but these paragraphs summarize their argument well:

Though a concern, most of the recent short-term rise in the deficit is understandable. Furthermore, public spending can help compensate for the fall in private spending, and help stem the pain of substantial job losses.

With more than a fifth of the work force expected to be unemployed or underemployed in 2010, there is an economic and a moral imperative to take action. Persistently high unemployment drives poverty up, makes it harder for families to find decent housing, increases family stress and, ultimately, harms children’s educational achievement. For young workers entering the workforce, the current jobs crisis reduces the amount they will earn over their lifetime.

In deep recessions, businesses tend to make fewer critical investments in research and development that can improve our economy’s productive capacity over the long term. Entrepreneurs usually find credit hard to obtain if they want to start a new business. These factors hurt U.S. global competitiveness and growth potential.

That’s why we agree that job creation must be a short-term priority. Job creation plans must be targeted so we can get the greatest return on investment. They must be timely, creating jobs this year and next. And they must be big enough to substantially fill the enormous jobs hole we’re in. They must also be temporary — affecting the deficit only in the next couple of years, without exacerbating our large and growing structural deficits in later years.

So government must create more jobs now, for economic as well as moral reasons. The current deficit matters much less than growing the economy out of recession. And the nation's future depends on spending more, not less.

All this is precisely the opposite of current Republican policy and conservative ideology, including the imbecile slogans of Beck and his tea-party drones. If the Democrats were any smarter, they would bring Walker up to Capitol Hill to tell them why federal jobs spending is imperative -- and then we would see what Beck, McCain and the rest of the wingers would say about the wisdom of their erstwhile idol.

David M. Walker, the former Comptroller General of the United States (i.e., the chief accountant) is a graduate of Jacksonville University.

The Hidden U.S. Debt Problem

2010-03-01T09:21:00.000-05:00

In the March 1, 2010 CNNMoney article "America's hidden debt problem," Jeanne Sahadi says"America's total debt load is on pace to top $13 trillion this year, and $22 trillion by 2020 -- and that's just the debt we're counting."

What's not being counted: potential debt bombs that don't get factored into most budget analysis.

When anyone talks about U.S. debt, they typically refer to two numbers.

The first is the debt held by the public. That's money owed to those who have bought U.S. Treasurys, most notably big bond mutual funds and foreign governments. Debt held by the public today is roughly $8 trillion and rising.

The second number is the money the federal government owes to government trust funds, such as those for Medicare and Social Security. The government has used revenue collected for those programs to cover other outlays. Currently, the debt to the trust funds is approaching $5 trillion.

The two combined is the total gross debt that's accounted for. But deficit hawks also worry about what's not on the books.

Here is just a sampling of the unseen or underplayed obligations that could worsen the debt outlook:

Losses from Fannie Mae and Freddie Mac

Mortgage giants Fannie Mae and Freddie Mac are private companies that for years had the implicit backing of the federal government. That backing assured investors that if anything went seriously south for the companies Uncle Sam likely -- although not absolutely -- would step in.

Well, things did go south, and now both are run by the federal government.

While the implicit guarantee has become explicit for Fannie and Freddie, its treatment in the budget is up in the air.

"Our budget doesn't have Fannie Mae and Freddie Mac on it, even though it's owned lock, stock and barrel by the American taxpayer," said Rudolph Penner, a former director of the Congressional Budget Office (CBO) during a conference held by the Peterson-Pew Commission on Budget Reform.

Last year, the CBO did start to account for both companies as if they were federal agencies on the budget. But the White House Budget Office only includes some potential costs because the future of the two companies is still under consideration. Last week, a Republican congressman introduced a bill that would require the two agencies be put on the budget.

It's still not clear what the companies' total hit to the federal budget will be. Amherst Securities, a broker-dealer in residential mortgage-backed securities, estimated that the total loss on the mortgages backed by the companies could reach $448 billion, with a portion of that covered by reserves or assumed by outside parties. The CBO estimated the net costs to the government could top $370 billion by 2020.

These are just estimates. But what's clear is that Fannie and Freddie are not cheap dependents.

That's why some argue that lawmakers should assess the potential costs of implicit government guarantees well before things go to pot.

"Their costs are largely unmeasured, unrecognized in the budget and unmanaged," federal budget expert Marvin Phaup wrote in a recent paper. "A troubling aspect of current policy aimed at restarting the financial markets is the likely expansion of implied guarantees to include the obligations of additional private financial institutions."

Unfunded promises

The governments' accrued debt to the Social Security and Medicare trust funds is known. And making those payments -- which begin in earnest this decade --won't be easy given the drop in federal revenue and the surge in government spending.

"[Lawmakers] need to acknowledge they have no way of funding them right now," said tax expert Len Burman, a professor of public administration and economics at Syracuse University.

But the piece of future entitlement debt that's not reflected under current budget protocols is what the government will have to pay into the system after its payments to the trust funds end -- which will happen by 2037 for Social Security and within the next decade for Medicare.

At that point, the programs will only be collecting enough in taxes to pay a portion of the benefits currently promised. There will be enormous pressure on the government to make up the difference, and Uncle Sam would have to borrow a lot of money to do so.

Some budget experts like Stuart Butler, vice president for domestic and economic policy at the conservative Heritage Foundation, would like to see the long-term obligations to Medicare and Social Security included in lawmakers' annual consideration of the federal budget.

Right now, money allocated to both entitlement programs is considered "mandatory" spending and therefore the spending increases for the programs are on autopilot and the financial commitment is uncapped in future years.

True cost of tax breaks

Everybody loves tax breaks. And there's more than a trillion dollars of them to love.

That's the amount of money the Treasury foregoes in annual revenue as a result of the many breaks in the tax code. And that effectively increases the government's need to borrow.

But that trillion-plus isn't really up for consideration during annual budget discussions. "Tax expenditures are basically hidden," Burman said.

No one advocates abolishing tax breaks altogether. But Burman and others believe tax breaks should be treated as discretionary spending. The idea is to bring them into the open so lawmakers can make a conscious decision annually about what they spend on tax breaks and recognize the costs associated with that decision.

Long-term costs of new rules

This year is the first year in which high-income investors with traditional IRAs or 401(k)s -- both of which let savings grow tax-deferred until withdrawn -- will have a chance to convert their accounts into Roth IRAs, where investments grow tax-free.

The new conversion rule is scored as a revenue raiser on the federal budget over the next decade because those who convert must pay the tax owed on their traditional IRA savings the year they convert.

But long-term it's a different story. Since investments in the converted accounts will grow tax-free, Uncle Sam will collect less revenue than he otherwise might have had the investors kept their ever-larger savings in a traditional IRA and paid taxes on them in retirement.

"It will cost federal coffers a lot beyond the 10-year window," Burman said.

A Common Misunderstanding of Free Markets

2010-02-28T23:33:00.002-05:00

It is not the FREEDOM of markets that is beneficial to an economy, but rather the existence of sufficient COMPETITION to ensure that market outcomes are a reasonable balance of efficiency and fairness. Markets sometimes need to be regulated to prevent the concentration of market power.

Much of the recent struggles in financial markets could have been prevented by not allowing banks and similar institutions to become “too big to fail.”

Ideological devotion to free markets, such as seems to be currently popular in the guise of patriotism, illustrates a fundamental lack of understanding of most great economic thinkers since the 18th century.

Address Jobs Now and Deficits Later

2010-02-24T21:43:00.000-05:00

In the February 24, 2010 Politico article "Address jobs now and deficits later," Lawrence Mishel and David M. Walker explain the role of economic growth in increasing government revenues and argue the U.S. may need to increase short-term deficits to promote long-term prosperity.

President Barack Obama is in a difficult position when it comes to deficits. Today's high deficits will have to go even higher to help address unemployment. At the same time, many Americans are increasingly concerned about escalating deficits and debt. What's a president to do?

The answer, from a policy perspective, is not that hard: A focus on jobs now is consistent with addressing our deficit problems ahead.

The difficulty is that many politicians and news organizations often cast deficit debates as a dichotomy: You either care about them or you don’t.

But this is rarely accurate. The fact that the two of us, who have philosophical differences on the proper role of government, find much to agree on about deficits is a testament to the importance of dropping this useless dichotomy and finally talking about deficits in a reasonable way.

As in every economic downturn, federal revenues have fallen steeply because individuals and corporations earn less in a recession. High unemployment also results in higher expenditures for safety net programs, like Medicaid, unemployment benefits and food stamps.

Not surprisingly then, a huge recession can yield a huge deficit. Efforts to put people back to work and help restore the economy, like the recovery package passed last February, can also increase short-term deficits.

Though a concern, most of the recent short-term rise in the deficit is understandable. Furthermore, public spending can help compensate for the fall in private spending, and help stem the pain of substantial job losses.

With more than a fifth of the work force expected to be unemployed or underemployed in 2010, there is an economic and a moral imperative to take action. Persistently high unemployment drives poverty up, makes it harder for families to find decent housing, increases family stress and, ultimately, harms children’s educational achievement. For young workers entering the workforce, the current jobs crisis reduces the amount they will earn over their lifetime.

In deep recessions, businesses tend to make fewer critical investments in research and development that can improve our economy’s productive capacity over the long term. Entrepreneurs usually find credit hard to obtain if they want to start a new business. These factors hurt U.S. global competitiveness and growth potential.

That’s why we agree that job creation must be a short-term priority. Job creation plans must be targeted so we can get the greatest return on investment. They must be timely, creating jobs this year and next. And they must be big enough to substantially fill the enormous jobs hole we’re in. They must also be temporary — affecting the deficit only in the next couple of years, without exacerbating our large and growing structural deficits in later years.

Funding key investment and infrastructure projects to promote economic growth and offering a job creation tax credit are among the policy ideas that meet all these standards. In addition, temporarily renewing extended unemployment benefits can lead to more jobs throughout the economy.

But these problems, and the resulting short-term deficits they cause, should not be confused with the primary deficit challenge facing our nation: structural deficits. These deficits are projected to exist in coming years — even when the country is at peace, even when the economy is growing, even when unemployment falls.

Specifically, the deficit could approach an already unsustainable 6 percent of gross domestic product 10 years from now, and will continue to rise thereafter.

While we address our short-term unemployment challenges, we must also immediately establish a path to address our large, and growing, structural deficits.

The Congressional Budget Office projects that after the economy has returned to full employment, spending will still substantially outstrip revenues. Over time, Medicare and Medicaid will be the key drivers of these structural deficits. This is primarily because these programs’ costs tend to mirror overall cost increases for health care, which have risen much faster than overall economic growth for decades, but also because of demographic changes.

Our nation's fiscal picture will darken further with the passage of time, especially if interest rates increase.

These structural deficits are too substantial to close the gap without addressing both sides of the ledger: spending and revenues.

In doing so, it is important to distinguish critical and effective programs and tax policies from outdated and ineffective ones.

We must be careful to maintain the type of public investments that can help fuel broad-based economic growth while strengthening the safety net for our most vulnerable populations. And we should take into account growing retirement insecurity as employer pension systems erode and personal savings falter.

People should be able to count on government benefits they are promised. It is, therefore, critical that federal benefit and funding levels be reconciled.

None of this will be easy — not the policy or the politics. It will require hard choices, and an extraordinary process to engage the American people and to make recommendations to the Congress on budget controls, spending cuts and revenue increases.

Getting the deficit under control cannot be accomplished by simply ending “waste, fraud and abuse,” stopping all foreign aid or exiting Iraq and Afghanistan. Substantial progress could be made though by ending the tax cuts of 2001 and 2003, or paying for their extension through spending reductions. In the end, Congress must step up to the plate, not just with hearings, but with votes.

For all the disagreement in Washington, we both know that, like us, there are many who see the critical importance of addressing these challenges. We must accept higher deficits in the short-term in order to put people back to work.

At the same time, we must take immediate steps to agree on a path and a process for reducing the structural deficits that lie ahead.

In a town of division, this is one area where we need a real consensus now.

Lawrence Mishel is president of the Economic Policy Institute. David Walker is president and CEO of the Peter G. Peterson Foundation.

Tax Fraud: Debunking the claim that higher income-tax rates reduce GDP.

2010-02-23T15:43:00.002-05:00

In the February 23, 2010 Slate article "Tax Fraud: Debunking the claim that higher income-tax rates reduce GDP," Eliot Spitzer explains that the rich and powerful have a long history of saying that paying taxes has a devastating effect on economic output, but it is untrue.

True Unemployment Figure Reveals Recession Far From Over

2010-02-19T16:48:00.000-05:00

In the February 19, 2010 article "True Unemployment Figure Reveals Recession Far From Over," Simon Maierhofer reports one of the lesser-used measures of labor market activity suggests conditions are worse that the more popular metrics suggest.

Surprising as it is, for nearly a year, investors have shrugged off mounting jobless claims and rising unemployment as an ingredient that is not really required for an economic recovery. They have begun to believe in a non-existent phenomenon; a 'jobless recovery.'

The Dow Jones, S&P 500, and Nasdaq after losing about 3% each, are now in a state of flux marking the first time in months that concerns over unemployment were raising suspicions.

Does that mean that the trend of the 'new bull market' in stocks has changed? Or are we in for further declines?

The real numbers

Today's headline reports reveal that the unemployment numbers, surprisingly, seem to be improving.

In reality, unemployment spiked to an all-time high of 18%. Yes, 18%! This is the official number reported by the Bureau of Labor Statistics (BLS).

The BLS publishes different sets of data on a regular basis. The main focus tends to be on the U-3 unemployment rate (currently 9.7%, seasonally adjusted).

U-3 is the 'official' unemployment rate and illustrates total unemployed persons as a percentage of the civilian labor force. U-4 is another category that includes unemployed workers plus discouraged workers. A discouraged worker is someone who's available to work but has stopped actively seeking for work.

U-5 unemployment includes the number of unemployed workers, plus discouraged workers, plus marginally attached workers. A marginally attached worker is someone who is able and willing to work but is not actively seeking work.

U-6 is as close to the real unemployment figure as government reporting gets. This number includes unemployed workers, plus discouraged workers, plus marginally attached workers, plus workers that are forced to work part-time because they are not able to find a full-time job. Put another way, it's the most realistic picture of today's job market as any.

According to the Bureau of Labor Statistics, the number of U-6 unemployed workers is 18% (not seasonally adjusted - 16.5%). This is the highest number of record.

Keep in mind that neither of the above categories encompasses another important element of the labor force; 'unemployed self-employed' workers. If you're a handyman or contractor next door, or a small business owner who can't secure work, you are not included! Adding these folks to the mix would put the real unemployment number above 20%!

No one is spared

Unfortunately, job cuts have affected every industry sector. Job cuts in the technology sector (NYSEArca: XLK - News) have reached the highest level in four years.

Even WalMart, a low-price leader and a virtually recession proof outfit, continues to cut jobs. This trend has spilled over and continues in the entire consumer staples (NYSEArca: XLP - News) and consumer discretionary sector (NYSEArca: XLY - News). Ericsson and Pfizer are just a few companies eliminating employees at a record pace.

According to a report by global outplacement firm Challenger, Gray & Christmas, U.S. employers began the year 2010 by announcing 71,482 planned job cuts, the highest tally in five months. The report, however, said that the increase in layoffs should not be seen as a sign of 'recession relapse.'

Recession relapse?

How do you define a recession relapse? How do you even figure a recession is over?

There has been a huge disconnect between what's happening on Wall Street and on Main Street. Since March 2009, the U.S. stock market (NYSEArca: TMW - News) has been steadily rising, as has unemployment. You'd expect stock prices to go up and unemployment claims to go down, but that hasn't been the case.

When putting the pieces together, it helps to understand why stocks have been able to stage a relentless ten-month rally.

From October 2007 to March 2009, the Dow Jones (NYSEArca: DIA - News), S&P 500 (NYSEArca: SPY - News) and secondary indexes like the MidCap SPDRs (NYSEArca: MDY - News) and small caps (NYSEArca: IWM - News) have lost more than half their value. Financials (NYSEArca: XLF - News) lost over three quarters of the market capitalization.

In March, investor pessimism has reached an extreme of historic proportions. In fact, on March 9th, the Wall Street Journal made a case for Dow 5,000 and Goldman Sachs slashed earnings growth by over 37%.

Exactly at that time, the ETF Profit Strategy Newsletter send out a Trend Change Alert (on March 2, 2009) predicting the biggest rally since the October 2007 all-time highs with a upper target range of Dow 10,000. For 18 months (10-2007 - 3-2009) investors had resisted their urge to buy. This was about to change.

I want it now

It was this pent-up urge to buy that sent stocks higher. No bad news could prevent the market from rising. Investors simply wanted to own stocks again and recapture some of their hefty losses.

Just as extreme pessimism marked the bottom of the down-turn, the ETF Profit Strategy Newsletter predicted that extreme optimism would make a top. In fact, the late stages of this rally could be identified by a 'the worst is over' sentiment.

No progress but much change
Throughout the fourth quarter of 2009 stocks moved higher. Even though the major indexes gained only a few percentage points from October - January, the resilience against any bad news had transformed a record number of investors into long-term bulls.

By early January, investor optimism had reached extremes not seen since 1987, 2000 and 2007 (depending on the data used). For the first time investors had more money invested in stocks than at the height of the technology boom in early 2000.

For contrarian investors, this was a huge red flag. On January 15, 2010, the ETF Profit Strategy Newsletter's Market Meter stated the following: 'Dow 10,710 and S&P 1,148 might very well mark the high water mark for 2010. A major trend reversal at current prices would be consistent with all our indicators.'

The market staged one more minor high two trading days later and has fallen precipitously since. Recommended ETFs like the Direxion Daily Financial Bear 3x Shares (NYSEArca: FAZ - News), UltraShort QQQ ProShares (NYSEArca: QID - News), and UltraShort Financial ProShares (NYSEArca: SKF - News) have gained 10%, 15% and more.

The one constant

On a daily basis, economic news comes and goes. Some will influence the market, others won't. If you've been following news reports and corresponding stock prices, you will have noticed that the correlation between good news and higher prices or bad news and lower prices is less than obvious.

What remains constant, however, is the pattern of behavior investors have established for hundreds of years. Extremes in sentiment which invariably result in extreme reactions. This is called the herding effect and is rather predictable.

Crowd behavior of investors is largely driven by perception. The perception that stocks will continue to rise is starting to change, if it hasn't already. Soon investors will refocus on valuations to see if a stock is worth its price tag. It was the return to due diligence that pummeled stock prices throughout 2008.

Interestingly, the 2008 declines were also preceded by extreme optimism and a feeling that stocks have nowhere to go but up.

Historically, stocks are grossly overvalued and due for another major correction. How major?

The ETF Profit Strategy Newsletter includes a detailed short, mid and long-term forecast along with a target-range for the ultimate market bottom based on historically indisputable evidence.

Why Politicians Can't Create Real Jobs

2010-02-16T16:44:00.002-05:00

In the February 16, 2010 U.S. News & World Report article "Why Politicians Can't Create Real Jobs," Rick Newman says "The history of recessions offers some unwelcome news for all those in Washington who think they have the power to boost hiring."

Jobs used to return quickly after recessions. After the downturn that ended in 1975, it took only two months for the unemployment rate to peak and then start falling. In 1982, unemployment peaked the very same month that the recession ended and then dropped as sharply as it had risen. That was when the U.S. economy was less globalized and more self-contained. Foreign companies found it difficult to compete with American ones. When recessions ended, things went back to normal and many employers simply rehired the people they had laid off.

That's not how it works anymore. After the 1991 recession, it took 15 months for the unemployment rate to peak and net job growth to resume. After the 2001 recession, it took 19 months. Technology is one reason; it allows firms to be more productive with fewer workers and put off hiring once a recovery begins. Globalization also allows firms to replace expensive American workers with cheaper ones overseas, and there's no better pretext for paring labor costs than a grueling recession.

Jobless recoveries are now the norm. And that's what we're in right now. The official arbiters haven't yet declared when (or if) the recession has technically ended, but many economists date the end of the recession to around August 2009. The economy is growing again, following the steepest decline since the Depression—but it's not adding new jobs. And the recent recession was obviously far worse than the fairly mild ones in 1991 and 2001. So the politicians are on the case, with plans to spend billions more to encourage firms to start hiring.

The general idea is that business-tax breaks specifically linked to new hires will lower the cost of adding employees, so more firms will boost their payrolls. To be fair, it might have some effect. Moody's Economy.com estimates that an aggressive jobs program could help create a maximum of 727,000 jobs, while a more modest effort could create up to 250,000 jobs. But even the most optimistic outcome would be a drop in an ocean of unemployed, amounting to less than 10 percent of the 8.4 million jobs lost since the recession began. And it could be much less effective than that, since job-based tax credits are uncommon and unproven.

One approach is to forgive $5,000 worth of payroll taxes for every new hire, which doesn't add up to much for a typical company. Think of it this way: If the average worker costs about $50,000 per year in pay and those ever costlier benefits, the tax credit would (temporarily) lower the payroll cost of a new employee by 10 percent. When was the last time a 10 percent discount persuaded you to buy something you wouldn't have purchased otherwise?

It's also worth reviewing the trillions that have already been spent to aid the economy—leaving unemployment close to 10 percent. The first stimulus package, now forgotten, was a $168 billion tax rebate President Bush signed in 2008. That was supposed to boost consumer spending, and thus jobs, by putting some extra cash into consumers' pockets. It ended up being as effective as an umbrella in a hurricane.

The following year came the $787 billion Obama stimulus plan, which aimed to create or save 3.5 million jobs through a combination of tax cuts and government spending. The White House says it has nearly accomplished that, though others think the claim is wildly inflated. Whatever the number of jobs, they may disappear anyway once the stimulus money runs out. Many are teaching, public-service, or construction jobs funded by state governments, and states are in desperate shape; as federal aid recedes, they'll be forced to cut.

Then there were the bank bailouts and other measures meant to stabilize the financial markets, stimulate lending, and … create jobs. They did help stabilize the markets, but the buck stopped there. Lending remains far from normal—one of the biggest drags on economic growth—and firms that can't get loans aren't likely to hire.

There's also a misperception that Washington can somehow control the overall direction of the economy through a few tweaks in the tax code. Not even close. For the economy to get back on track, hiring needs to resume in the industries with the most jobs, and many of them—such as housing, construction, real estate, retail, and even financial services—seem to be in the midst of long-term contraction. No business is going to ramp up hiring if revenue is falling and there's no pickup in sight, regardless of the tax savings.

Other industries are subject to transformative forces far stronger than any counterforces the government can mount. The manufacturing sector has lost 2.2 million jobs since 2007, for example, and many of those are probably gone for good, outsourced to cheaper countries or replaced by technology, producing corporate savings that far outstrip any tax credit.

Obama also wants to keep investing government money in futuristic fields like clean energy and green technology, which is probably smart, but the payoff will be relatively modest. "These industries are too small to create the millions of jobs that are needed right away," write James Manyika and Byron Auguste of the McKinsey Global Institute. They point out that the clean-tech industry—things like wind turbines and solar panels—accounts for just 0.6 percent of the U.S. workforce. Two other high-wage industries targeted for growth—semiconductors and biotech—add up to less than 1 percent of the workforce. Growth in those industries does generate a collateral gain elsewhere in the economy but not nearly enough to correct a massive unemployment problem.

Obama tacitly acknowledges that there's not much more the government can do about jobs. The president's 2010 economic report contains dreadful projections about the labor market, predicting that the unemployment rate will average 10 percent this year, 9.2 percent in 2011, and 8.2 percent in 2012. That portends a stark, sustained drop in living standards for many Americans. And, hope being audacious, every White House leans toward rosy economic projections. Moody's Economy.com predicts that unemployment will peak at close to 11 percent this year, and some economists see it going higher than that. The politicians might get credit for trying, if they're lucky, but they're just about out of tricks.

Citi Field bonds cut to 'junk' status

2010-02-10T20:19:00.005-05:00

Bonds are classified as "junk" when they are perceived as having excessive risk of default. But because they are riskier, they frequently offer a higher rate of return than bonds with a better credit rating. The February 10, 2009 article "Citi Field bonds cut to 'junk' status" provides an example of junk bonds:

NEW YORK – Citi Field's bonds have been lowered to junk status by Standard & Poors and Moody's Investors Service because the company that insures the reserve fund for many of them is having financial troubles.

The bonds' underlying rating was dropped from Baa3, an investment grade, to Ba1, a speculative grade, by Moody's last Thursday.

Standard and Poors cut the bonds from BBB to BB+ on Tuesday while still giving them a "stable outlook."

The Mets sold $613.1 million of three types of bonds in 2006 and an additional $82.28 million of bonds last year. Ambac Assurance Corp., the company having financial difficulty, insured $547.6 million of the 2006 PILOT bonds (payment in lieu of taxes).

"We lowered all the bonds ratings because the 2006 PILOT bonds do not have a reserve fund with adequate liquidity to support any disruption in project cash flow," Standard & Poors said. "Because Ambac is currently rated speculative grade, the creditworthiness of the debt service reserve fund supported by the surety policy is below the creditworthiness of the bonds."

S&P said the stable outlook "reflects the expectation that the project will perform in line with expectations."

The $800 million ballpark opened last year, and the Mets went a dismal 72-90.

"This is related specifically to Ambac, which insures the 2006 bonds, and is not based on our operations or the strength of the underlying credit," the Mets said in a statement.