UN: 2000-2009 likely warmest decade on record

In the December 8, 2009 article "UN: 2000-2009 likely warmest decade on record," Associated Press special correspondent Charles J. Hanley summarizes a United Nations report that may be further evidence of global warming and climate change.

COPENHAGEN – This decade is on track to become the warmest since records began in 1850, and 2009 could rank among the top-five warmest years, the U.N. weather agency reported Tuesday on the second day of a pivotal 192-nation climate conference.

Only the United States and Canada experienced cooler conditions than average, the World Meteorological Organization said, although Alaska had the second-warmest July on record.

In central Africa and southern Asia, this will probably be the warmest year, but overall, 2009 will "be about the fifth-warmest year on record," said Michel Jarraud, secretary-general of the WMO.

The agency also noted an extreme heat wave in India in May and a heat wave in northern China in June. It said parts of China experienced their warmest year on record, and that Australia so far has had its third-warmest year. Extremely warm weather was also more frequent and intense in southern South America.

The decade 2000-2009 "is very likely to be the warmest on record, warmer than the 1990s, than the 1980s and so on," Jarraud told a news conference, holding a chart with a temperature curve pointing upward. The second warmest decade was the 1990s.

The current decade has been marked by dramatic effects of warming.

In 2007-2009, the summer melt reduced the Arctic Ocean ice cap to its smallest extent ever recorded. In the 2007-2009 International Polar Year, researchers found that Antarctica is warming more than previously believed. Almost all glaciers worldwide are retreating.

Meanwhile, such destructive species as jellyfish and bark-eating beetles are moving northward out of normal ranges, and seas expanding from warmth and glacier melt are encroaching on low-lying island states.

If 2009 ends as the fifth-warmest year, it would replace the year 2003. According to the U.S. space agency NASA, the other warmest years since 1850 have been 2005, 1998, 2007 and 2006. NASA says the differences in readings among these years are so small as to be statistically insignificant.

The U.N. agency reported that the global combined sea surface and land surface temperature for the January-October 2009 period is estimated at 0.44 degrees C (0.79 degrees F) above the 1961-1990 annual average of 14.00 degrees C (57.2 degrees F), with a margin of error of plus or minus 0.11 degrees C. Final data will be released early in 2010.

Negotiators at the two-week talks in Copenhagen turned Tuesday to "metrics," "gas inventories" and other dense technicalities, as delegates worked to craft a global deal to rein in carbon dioxide and other greenhouse gases and stem climate change.

Governments, meanwhile, jockeyed for position leading up to the finale late next week, when more than 100 national leaders, including President Barack Obama, will converge on Copenhagen for the final days of bargaining.

Preliminary drafts circulated at the conference showed marked differences between rich and poor countries over how to structure a final agreement. A leaked Danish document that was submitted before the conference came under heavy criticism from climate activists as an attempt by rich countries to exclude them from the bargaining.

"As the talks ramp up and big players put forward their proposals for the deal, it is vitally important that vulnerable countries are part of the debate," Oxfam spokesman Antonio Hill said.

U.N. climate chief Yvo de Boer played down the document, saying it was an "informal paper" and not a formal text for the conference.

In a series of reports beginning in the 1990s, the Intergovernmental Panel on Climate Change, a U.N.-sponsored scientific network, has warned that unless the world is weaned away from fossil fuels to greener sources of energy, the Earth will face the consequences of ever-rising temperatures: the extinction of plant and animals, the flooding of coastal cities, more extreme weather, more drought and the spread of tropical diseases.

Some governments have reacted slowly to the warnings because of concerns over the cost to business and consumers of converting economies to new energy sources, the influence of "old energy" industries on policy, and the reluctance of societies to change their ways.

Although temperatures have fluctuated up and down in the eons before record-keeping, as determined by tree rings, ice cores and other evidence, the causes were natural. The difference now is that they are being driven up by human activity, that modern civilization has many more coastal cities and needs to feed far more people, and that scientists believe humans can head off such dangerous warming.

On Monday, when the conference opened, the Obama administration gave the talks a boost by announcing steps that could lead to new U.S. emissions controls that don't require the approval of the U.S. Congress.

The U.S. Environmental Protection Agency said scientific evidence clearly shows that greenhouse gases "threaten the public health and welfare of the American people" and that the pollutants — mainly carbon dioxide from burning fossil fuels — should be reduced, if not by Congress then by the agency responsible for enforcing air pollution.

As Congress considers the first U.S. legislation to cap carbon emissions, the EPA finding will enable the Obama administration to act on greenhouse gases without congressional action, potentially imposing federal limits on climate-changing pollution from cars, power plants and factories.

The announcement gave Obama a new card in what is expected to be tough bargaining next week at the climate conference. In preparation, Obama met with former Vice President Al Gore, who won a Nobel for his climate change efforts, at the White House on Monday.

European climate change officials welcomed the U.S. move.

"This is meaningful because it is yet a sign that the Americans have more to offer. My evaluation is that the U.S. can offer much more," EU environment spokesman Andreas Carlgren told reporters Tuesday in Stockholm.

De Boer said the EPA finding gives Obama "something to fall back on."

"I think that will boost people's confidence" at the Copenhagen talks in the Americans' ability to offer more, he said.

The European Union has pledged to reduce greenhouse gas emissions by 20 percent by 2020, compared with 1990, and is considering raising that to 30 percent if other governments also aim high. EU leaders will have an opportunity to make such a move at an EU summit this Thursday and Friday in Brussels.

In Britain, Prime Minister Gordon Brown urged fellow Europeans to raise their bid on reducing greenhouse gas emissions to pressure the U.S. and others to offer more at Copenhagen.

"We've got to make countries recognize that they have to be as ambitious as they say they want to be. It's not enough to say 'I may do this, I might do this, possibly I'll do this.' I want to create a situation in which the European Union is persuaded to go to 30 percent," Brown was quoted as saying by Britain's Guardian newspaper.

The EU had called for a stronger bid by the Americans, who thus far have pledged emissions cuts much less ambitious than Europe's. The U.S. has offered a 17 percent reduction in emissions from their 2005 level — comparable to a 3-4 percent cut from 1990 levels.

Whether the prospect of EPA action will satisfy such demands — and what China may now add to its earlier offer — remains to be seen. And success in the long-running climate talks hinges on more than emissions reductions. Most important, it requires commitments of financial support by rich countries for poor nations to help them cope with the impact of a changing climate.

Swedish negotiator Anders Turesson said the U.S. 17 percent reductions "are insufficient and we hope more would come out of that."

He suggested the U.S. buy more carbon credits on the international market, where emissions reductions by developing countries can be credited and sold to the industrialized world.

New poll shows 'Tea Party' more popular than Republican Party

In the December 7, 2009 article "New poll shows 'Tea Party' more popular than Republican Party," Brett Michael Dykes suggests that the popularity of the Tea Party movement may be bad for the Republican Party.

A new Rasmussen poll finds that the tea party movement's popularity is growing, so much so that it garners more support than the Republican party on a generic Congressional ballot. The poll hints that the burgeoning discontent among conservatives within the GOP threatens to splinter the party at a time when the popularity of President Obama and the Democratic-controlled Congress are waning as we head into an election year.

The tea party movement was conceived out of antipathy for President Obama's economic stimulus plan and cultivated by groups like Freedom Works and conservative commentators such as Glenn Beck. Its guiding principals are centered around opposition to tax increases and the expansion of federal government spending. The movement rose to prominence when it organized highly-publicized protest gatherings across the country on April 15th of this year.

As reported by Talking Points Memo, the respondents to the Rasmussen poll were asked the following question:

"Okay, suppose the Tea Party Movement organized itself as a political party. When thinking about the next election for Congress, would you vote for the Republican candidate from your district, the Democratic candidate from your district, or the Tea Party candidate from your district?"

The response of all those who were polled was Democratic 36%, Tea Party 23% and Republican 18%. Further, the poll found that independents are more inclined to vote for a tea party candidate over Democratic or Republican candidates.

While some Republicans have expressed dismay over the emergence of the tea party movement, others have suggested that the GOP should embrace the group and its issues.

Tea party sympathizers recently proposed a resolution to make the RNC withhold its endorsement and funding unless candidates pass an "ideological purity test." The movement will hold its first national convention this January in Nashville, and Glenn Beck has indicated that he intends to stake out a more activist role in politics going forward by holding seminars across the country to educate conservatives on how to run for office without the support of a major political party.

But the Republican party has yet to determine whether or not they can harness the energy emanating from the right wing without being pulled out of the mainstream. This dilemma was highlighted by the GOP's November loss of a congressional seat it had held since the 1800s, after a tea party-supported candidate pressured the establishment Republican out of the race. That race suggested something rather striking: while the GOP may not be able to win without the support of the tea party movement, they might not be able to win with it running the show either.

A Letter from Prominent Economists Outlining How the Political Process is Destroying Benefits of Health Care Reform

Prominent economists sent the following letter to Senate Majority Leader, Harry Reid, to outline how politicians, succumbing to pressure from special interests, have removed important features of health care reform:

December 7, 2009

Senator Harry Reid
Majority Leader, United States Senate
Washington, DC

Dear Senator Reid:

We thank you for your leadership in bringing forward the Patient Protection and Affordable Care Act. This draft bill has four elements that several of us, in a November 17 letter to President Obama, identified as crucial to health reform: 1) deficit neutrality, 2) an excise tax on high-cost insurance plans, 3) an independent Medicare commission, and 4) delivery system reform. The Congressional Budget Office estimates that the proposed legislation will not only achieve deficit neutrality but will reduce the deficit. The draft bill’s tax on high cost insurance plans should encourage efficiency and innovation in health insurance. As you and your colleagues continue to discuss health reform, we urge you to retain these elements. For the fiscal strength of the nation and to ensure Americans receive the best possible care, we also urge the Senate to strengthen both the role of the Independent Medicare Advisory Board and the delivery system reforms.

Independent Medicare Advisory Board

The Independent Medicare Advisory Board can help Congress modernize Medicare. The Board will offer proposals to improve the quality, efficiency, and financial viability of the Medicare program. Yet the Board’s effectiveness will be diminished by restrictions that the draft bill places on the circumstances under which the Board’s recommendations will receive “fast track”
status in Congress. One restriction is on the breadth of recommendations the Board can make. Physician and hospital payments, which account for more than half of Medicare expenditures, are excluded until 2019 – two years after the 2009 Medicare Trustees Report projects that the Hospital Insurance Trust Fund will be exhausted. The Board’s recommendations should encompass diverse aspects of Medicare , including changes to payments affecting physicians and hospitals, and all of its recommendations should be considered for “fast track” action in Congress.

Even after 2019 Congress will only “fast track” the Board’s recommendations if Medicare spending per person rises more than overall health care spending per person. We do not believe that this will be enough to constrain excess growth in health care spending. The Board’s recommendations should receive “fast track” status even if spending thresholds are not exceeded. These changes will enable the Board more effectively to do its part to ensure Medicare’s long- term viability and to improve the quality of care Medicare beneficiaries receive.

Finally, the Senate might consider expanding the authority of the Medicare Commission so it does not only address Medicare policies but can provide recommendations on changes to Medicaid and other Federal health programs.

Delivery System Reform

Some of the most far-reaching effects of health reform will come from changes in the delivery of care. The proposed legislation has many provisions to encourage such change. For example, it will help shift payment for care so that physicians and hospitals will be rewarded for achieving better health outcomes, not simply for delivering more services.

The proposed incentives, however, would be much more effective if they were strengthened and implemented earlier. For example, the draft bill imposes a financial penalty on hospitals that readmit patients for complications of hospitalization, but the penalty applies to just 3 conditions and is too small. It does not start until 2013, and even then the penalty will be limited to 1%, rising to only 3% two years later. The penalties for hospital-acquired infections are even smaller and delayed longer. The Senate Finance Committee recommendations do more to reward doctors and hospitals for providing better health rather than more services.

Furthermore, despite the great interest in bundling payments for medical services, the draft bill calls for bundling only in a limited set of circumstances, mainly concerning hospitalization. The impact of the payment changes would be greater if they allowed bundled payments for chronic conditions such as congestive heart failure and diabetes over an entire year. After all, care for these chronic conditions accounts for more than half of all health care spending and avoidable services. The Secretary should be authorized to implement pilots that improve the quality of care and lower its cost on a national scale unless legislation is specifically enacted that prohibits the Secretary from doing so.

You and your colleagues should be applauded for including the four essential elements of a successful, fiscally responsible reform strategy. Much more could be achieved if the Senate strengthens the Medicare Commission and the delivery system reforms. Doing so would help to ensure that health reform both improves the health care that Americans receive and slows the growth of spending. We are ready to work with you to achieve these goals.

Sincerely,

Dr. Henry Aaron, The Brookings Institution
Dr. Kenneth Arrow, Stanford University, Nobel Laureate in Economics
Dr. Alan Auerbach, University of California, Berkeley
Dr. Martin Bailey, The Brookings Institution
Dr. Gary Burtless, The Brookings Institution
Dr. David Cutler, Harvard University
Dr. Laura D’Andrea Tyson, University of California, Berkeley
Dr. Angus Deaton, Princeton University
Dr. Peter Diamond, Massachusetts Institute of Technology
Dr. Victor Fuchs, Stanford University
Dr. Alan Garber, Stanford University
Dr. Harold Luft, University of California, San Francisco
Dr. Daniel McFadden, Massachusetts Institute of Technology, Nobel Laureate in Economics
Dr. David Meltzer, University of Chicago
Dr. Joseph P. Newhouse, Harvard University
Dr. Uwe Reinhardt, Princeton University
Dr. Robert Reischauer, The Urban Institute
Dr. Alice Rivlin, The Brookings Institution
Dr. Meredith Rosenthhal, Harvard University
Dr. Isabel Sawhill, The Brookings Institution
Dr. Charles Schultze, The Brookings Institution
Dr. William Sharpe, Stanford University, Nobel Laureate in Economics
Dr. John Shoven, Stanford University
Dr. Jonathan Skinner, Dartmouth University
Dr. Robert Solow, Massachusetts Institute of Technology, Nobel Laureate in Economics
Dr. Richard Zeckhauser, Harvard University

Disclaimer:
This letter represents the personal views of the signers, not of the institutions with which they are affiliated. The institutions are listed for identification purposes only.

Can the Federal Government Really Create Jobs?

In the December 7, 2009 TIME article "Can the Federal Government Really Create Jobs?," Barbara Kiviat outlines four ways the government might reduce unemployment in the short run.

The Obama Administration is out to create jobs. Let's not get our hopes up.

The day before the Labor Department announced a second month of 10%-plus unemployment last week, the White House hosted a get-together to hear from executives, labor leaders and academics about how the federal government might jolt job growth. "We're looking for fresh perspectives," the President said. "I am open to every demonstrably good idea."

That may sound promising, but the truth is, drumming up new jobs on short notice isn't exactly in the government's wheelhouse. In the long term, what the government does and doesn't do is incredibly important to the health of the labor market. Trade policy, corporate tax rates, the structure of health care — these things all have a real impact on economic growth. But Washington's toolkit doesn't work nearly as well in the short run. Right now companies aren't hiring for a very specific reason: there's not as much demand for their products and services. Callous as it may sound, high unemployment at the front end of an economic recovery is perfectly normal.

Of course, for the 15 million people out of work, that's little consolation. So the government is poised to act. Here's a rundown of four sorts of ideas being bandied about, and how much we can realistically expect from each.

Target an Industry and Stimulate Demand

Cash for Clunkers — the program that paid people $4,500 to turn in their old cars and buy new ones — is one of the most demonstrably successful federal efforts at stimulating the economy so far. Over the summer, General Motors and other car companies ramped up production — adding shifts and running plants on overtime — to meet the increase in demand. Now policymakers are talking about Cash for Caulkers, a program that would give homeowners an incentive to better weatherize their houses. The goal would be to create work for a construction industry that still hasn't found its feet in the wake of the real estate bust, while also pushing through a bit of the Administration's green agenda.

Such a targeted type of program has a good shot at doing what it sets out to do. The downside: intervening in the economy in such a precise way is almost by definition not expandable. Cash for Caulkers would give building contractors a boost, but they represent a small slice of the economy. To next help out, say, bakers, policymakers would have to design a brand-new program. Plus, if such a program had an expiration date, we'd feel not just a rise in demand, but a fall later on as well. Car manufacturers and the people who work for them certainly did after the Cash for Clunkers discounts ended.

Pay Companies to Hire People

If we want firms to go out and hire, why not give them an economic incentive to do so? This could be done by flat-out paying companies to hire, or by reducing their share of payroll taxes (the money that gets withheld from workers' paychecks to pay for Social Security and Medicare). Either way, adding a new worker becomes cheaper. We last tried this in the 1970s — the mechanism was a tax credit for hiring — and the results weren't particularly remarkable, though part of that could have had something to do with the structure of the credit.

The goal of this sort of approach is to accelerate the way an economy naturally comes out of recession. Since there has been less demand for goods and services, firms hesitate to add workers. Instead, companies squeeze more productivity out of their current ones. This is a trend we've been seeing. Paying companies to hire would ostensibly push them into the next phase of recovery: adding more employees.

But there are reasons to question how effective and efficient such a program would be. First of all, it is misleading to imply that companies aren't hiring because workers aren't cheap enough. As Dale Mortensen, a professor of economics at Northwestern University, points out, workers are a real bargain right now. Unit labor costs — how much a company has to pay people to produce a unit of whatever it is that the company makes — have been flat or falling for all of 2009. Between the second and third quarters, labor costs dropped at an annual rate of 2.5%. "If you just look at the cost side, this should be a labor boom," says Mortensen.

It is also misleading to imply that companies aren't hiring. They are — about 4 million workers a month. There is always a lot of churn in the American labor market and that doesn't stop during a recession. (We don't particularly feel the hiring right now because companies are letting workers go at a higher rate.) In a best-case scenario — if using tax dollars to subsidize corporate hiring works exactly as it should — we'd wind up paying for 4 million hires a month that we would have otherwise gotten for free.

Hire More People to Work for the Government

Perhaps the easiest way for the government to create jobs is for it to create government jobs. The example quoted most often: the federal Works Progress Administration (WPA), which during the late 1930s employed more than 8 million people. The jobs were project-based and largely in construction — we got a lot of highways and airports out of it — but also occasionally in professional fields such as teaching, nursing and writing.

Do we want the federal government deciding which jobs should be created in our economy? In capitalism, the answer to this question in the long term is no. However, in the short term, there is a different economic argument that could plausibly take over.

Coming out of a recession is a tricky thing. Companies feel like it might be time to start ramping production back up, but demand hasn't fully returned, so they hesitate to hire. The conundrum: demand in the United States is overwhelmingly consumer-driven and people need to have jobs to feel like it's once again safe to spend money. It's classic chicken-or-the-egg matter. Direct hiring by the government could, theoretically, sidestep the impasse. The question then becomes whether or not such a program creates more economic benefit than it does economic inefficiency by having the government dictate job creation. Consider that one criticism of the WPA was that it prevented people from moving to jobs where they would have been more economically productive — and actually slowed down the post-Depression recovery.

Boost Access to Credit for Growing Businesses

Small businesses — or, to be more precise, young businesses — create a disproportionate share of new jobs. To do that, they need to grow, and to do that, they often need access to credit. While the ability of large firms to borrow has pretty much returned to normal, many smaller firms are still struggling to get the money they need from banks. It's a problem even Federal Reserve Chairman Ben Bernanke has talked about in recent weeks. The seeming solution: help get small, growing companies loans and the jobs will follow.

The government has already taken a number of steps in this realm, largely through the Small Business Administration. The issue with increasing access to credit, though, is that easy money was one of the main reasons we wound up on the brink of economic calamity in the first place. Taken as a group, new businesses may be job creators, but any sort of average masks the fact that many young companies completely combust. Lending to them is risky, and while it may be desirable to lend more in an attempt to create jobs, there is a flip side to the coin. There is a reason banks right now are hesitating to lend too readily — they've recently learned a lesson about where that can lead.

If it seems like there are few obvious steps for a government looking to create jobs, that's because there are, in fact, few obvious steps. Governmental programs that would have the clearest impact are, by their nature, limited in scale. Broad-based programs come with caveats and knock-on effects.

At the end of the day, the thing the government may be best at doing job-creation-wise is sticking to the thing it is in more of a position to control: long-term strategy. With major legislation taking shape on a range of issues, from health care to climate change, it is not at all clear what the business landscape will look like in coming months and years. "There's a lot of evidence that suggests uncertainty right now is enormous," says John Haltiwanger, a professor of economics at the University of Maryland. "If some of these things were resolved, businesses might be able to get a clearer map of what things will look like in the future." Including, perhaps, how much they'll want to have some new workers on board.

LACK of Government Intervention in the Marketplace Leads to Dozens of Deaths

In the December 6, 2009 article "4 detained in Russian club fire; death toll at 112," Associated Press writer Mansur Mirovalev reports that lax building codes and insufficient enforcement of fire safety rules led to dozens of deaths in a single incident at a Russian nightclub. Markets can be great at allocating products and resources, but insufficient regulation of them leads to numerous undesirable social outcomes.

PERM, Russia – Four people were ordered to remain in jail on Sunday pending an investigation into a nightclub fire that killed at least 112 people in Russia's worst blaze in decades, investigators said.

About 130 remained hospitalized, many in critical condition, with injuries from the early Saturday blaze, which witnesses said was sparked by onstage fireworks that shot into the decorative twig ceiling of the Lame Horse club in the Ural Mountains industrial city of Perm. Shocked and grieving relatives on Sunday began to bury the victims of the disaster.

The federal Investigative Committee said the suspects — the club's owner, the executive director, the artistic director and a businessman hired to install pyrotechnics on the night of the blaze — were ordered taken into custody Sunday by Leninsky District Court.

The commitee's Web site said they were suspected of negligence causing multiple deaths and violating fire safety rules causing multiple deaths.

Russian news agencies named the owner as Anatoly Zak. The pyrotechnics expert was named as Sergei Dergunov by his lawyer, Yekaterina Golysheva.

Mourning residents were indignant over the alleged negligence, which President Dmitry Medvedev also criticized in a nationally televised videoconference on Saturday.

Emergency Situations Minister Sergei Shoigu said that the club managers had been fined twice in the past for breaking fire safety regulations, which he did not specify. Russian clubs and restaurants often cover ceilings with plastic insulation and a layer of willow twigs to create a rustic look, one of many uses of combustible materials in buildings by businessmen who bribe officials to look the other way.

Nadezhda Zhizhina placed flowers on the icy ground outside the Perm City Morgue in memory of her 21-year-old son, Sergei.

She said she wasn't expecting the compensation officials have promised to other victims' relatives because Sergei earned pocket money at the club as an unofficial administrator.

"I can't even imagine what to do," Zhizhina said, weeping. "He was a golden boy."

She said Sergei's wife, Yulia, was eight months pregnant.

The disaster has shaken this town of over 1 million, mobilizing even those who didn't lose relatives — such as Marina Dryonina.

"This is nothing but criminal negligence," she said. "A terrible tragedy for our town."

Many victims were trapped in a panicked crush for the exit as they attempted to escape the flames and thick black smoke.

Emergency Ministry spokeswoman Darya Kochneva said a man flown to a Moscow hospital had died of severe burns, bringing the toll to at least 112.

Enforcement of fire safety standards is infamously poor in Russia and there have been several catastrophic blazes at drug-treatment facilities, nursing homes, apartment buildings and nightclubs in recent years. The nation records up to 18,000 fire deaths a year, several times the per-capita rate in the United States and other Western countries.

Medvedev demanded that lawmakers draft changes to toughen the criminal punishment for failing to comply with fire safety standards.

Monday has been designated a national day of mourning, with entertainment events and television programs canceled.

War costs, while high, are small part of U.S. budget deficit

In the December 6, 2009 Miami Herald article "War costs, while high, are small part of U.S. budget deficit," David Lightman says the "wars in Iraq and Afghanistan are not the main reason the publicly held national debt has doubled since the 2001 terrorist attacks."

WASHINGTON -- President Barack Obama insisted last week that as the nation confronts record government debt and pressing economic needs at home, it cannot afford a lengthy, ambitious nation-building effort in Afghanistan -- but limiting U.S. involvement is unlikely to make much of a dent in the record federal debt.

Liberals complain the war has been a big contributor to the nation's budget problems, and are insisting some way be found to pay for the buildup.

But the wars in Iraq and Afghanistan, though they have virtually all been funded by deficit spending, are not the main reason why the publicly held national debt has more than doubled -- from $3.339 trillion to $7.709 trillion -- since the Sept. 11, 2001, terrorist attacks.

"It's a small part of the deficit,'' said Todd Harrison, fellow in defense budget studies at the Center for Strategic and Budgetary Assessments, a Washington research group.

That's not to say the war costs don't matter.

"Over the short term, we are certainly spending a large chunk of money of the wars, money that could be devoted to other priorities or for deficit reduction, at least once the economy improves,'' noted Josh Gordon, policy director at the Concord Coalition, a bipartisan research group devoted to fiscal discipline.

But over the long term, he stressed, "Our fiscal challenges are substantially larger, and just ending the wars would not change those projections -- because they all assume peacetime budgets.''

Obama last week said he would deploy an additional 30,000 to 35,000 U.S. troops to Afghanistan. This year's expected $30 billion to $40 billion price tag for that should boost the total cost of wars in Iraq and Afghanistan past $1 trillion over the last nine years, according to the nonpartisan Congressional Budget Office (CBO).

That spending accounts for only about one-fifth of publicly held debt accumulated in that time.

National defense spending accounted for 20.7 percent of the federal budget last year. While that's higher than peacetime lows of around 16 percent in the late 1990s, it's less than the 26-28 percent annual shares between 1975, when U.S. involvement in Vietnam ended, and 1992, when first the Cold War and then the 1991 Gulf War ended.

What's driven the bulk of this decade's deficit boom has been spending growth in programs such as Medicare and Social Security. Human resources, which include those and other domestic programs, consumed 63.8 percent of the budget last year, compared to only 49 percent as recently as 1990.

The antidote to high deficits, say independent experts, is making tough choices on domestic spending and taxes.

"The purpose of a budget is to set priorities and make trade-offs,'' said Susan Tanaka, director of citizen education and engagement at the Peterson Foundation, a New York-based fiscal watchdog group.

STILL COUNTING

Since the U.S. invaded Afghanistan shortly after the 2001 terrorist attacks, CBO estimates the U.S. has spent $943.8 billion through Sept. 30, 2009, to meet war and war-related needs, and could spend another $1.6 trillion over the next decade -- no small sum, indeed.

Other estimates put the cost higher: A 2008 study by Nobel Prize-winning economist Joseph Stiglitz and Harvard University professor Linda Bilmes dubbed the conflicts the "$3 trillion war.''

That figure appears consistent with current spending levels, since it assumes the U.S. will continue to spend on the war and related activities through 2019, a mission CBO estimates could cost $1.6 trillion.

Also adding to the cost is interest on war-related debt; that has totaled at least $100 billion.

Interest on future debt and other indirect costs are difficult to calculate, such as the cost of replacing equipment and providing benefits and healthcare to military veterans and families.

Direct war costs dropped in 2009, to about $154 billion, after reaching $187 billion in 2008. The administration had sought $130 billion in fiscal 2010; the defense spending legislation is still pending in Congress; that figure is now likely to grow by at least $30 billion.

A small band of congressional liberals insists that too much is being spent on the war, and that it's driving up the national debt.

War spending "has contributed to our economic crisis, exploded the lid off our national debt, and diverted funds from desperately needed domestic priorities,'' said Rep. Lynn Woolsey, D-Calif.

"We believe that if this war is to be fought, it's only fair that everyone share the burden,'' said House Appropriations Committee Chairman David Obey, D-Wis., who had pushed for a war surtax.

The surtax effort was seen as more a political than a fiscal initiative.

"Look at who's pushing this. It's people opposed to the war,'' said Roberton Williams, budget analyst at the Urban Institute-Brookings Institution Tax Policy Center.

House Speaker Nancy Pelosi, D-Calif., sensing scant support for the surtax, effectively killed the idea on Thursday.

DROP IN THE BUCKET

The war cost will help boost a federal deficit that CBO estimates will reach $1.4 trillion this year, roughly the same as last year, and add to a total national debt that now tops $12 trillion when including debt held in government accounts. But Obama's extra $30 billion is only a drop in the $1 trillion, $400 billion deficit bucket.

CBO sees huge deficits ahead. Its latest projections show even with stricter fiscal policies and a reviving economy, federal deficits are expected to total $7.1 trillion over the next decade, still reaching $722 billion in fiscal 2019 alone.

Those projections assume a continuation of current war policies. Should troop levels decline "significantly'' over a three year period, as Obama hopes, the cost would drop to about $1.1 trillion over 10 years, or roughly $140 billion a year, which would still leave large deficits.

Unexpected drop in jobless rate sparks optimism

In the December 4, 2009 article "Unexpected drop in jobless rate sparks optimism," Associated Press economics writers Jeannine Aversa and Christopher S. Rugaber suggest the lower than expected unemployment rate for November may be a sign that the economy is improving.

WASHINGTON – Two years of steep job cuts all but ended last month, unexpectedly pulling down the unemployment rate and raising hopes for a lasting economic recovery.

Federal figures released Friday showed that the rate fell from 10.2 percent in October to 10 percent as employers shed the fewest number of jobs since the recession began two years ago. The government also said far fewer jobs were lost in September and October than first reported.

And the so-called underemployment rate, counting part-time workers who want full-time jobs and laid-off workers who have given up their job hunt, also fell, from 17.5 percent in October to 17.2 percent.

The better-than-expected figures provided a rare dose of good news for the economy, but the respite may be temporary. Job creation is still so weak that more than 15 million out-of-work Americans face fierce competition for few openings.

"We will need very substantial job growth to get unemployment lower, especially when the labor force ... starts growing again," said Lawrence Mishel, president of the Economic Policy Institute, a liberal think tank.

Even counting last month's decline, the unemployment rate has more than doubled from 4.9 percent when the recession began.

The report showed how hard it remains to find work. The number of people jobless for at least six months rose last month to 5.9 million. And the average length of unemployment has risen to more than 28 weeks, the longest on record dating to 1948.

Carolyn Malone of Milwaukee had not looked for work in decades — until she was laid off from her customer-service job in May.

Malone, 62, laughed when asked Friday how many jobs she had applied for. She can't remember. But she does recall how many landed her an interview: One. It didn't lead to a job.

"I just want to get my toe in the door," she said, scrolling through her e-mail at a hiring center.

Still, economists and investors drew hope from Friday's Labor Department report. Employers sliced just 11,000 jobs in November, compared with a loss of 111,000 jobs in October. It was the best reading since December 2007 — the last time the economy added jobs and the start of the worst recession since the 1930s.

The unemployment rate had not fallen since July, when it declined from 9.5 percent to 9.4 percent.

Factories, retailers, construction companies — hardest hit by the recession — all slowed the pace of layoffs in November. So did transportation companies and those in leisure and hospitality.

Job gains were produced in education, health care and professional and business services, which mostly reflected temporary hiring. The government added workers, too. Those included states and localities, mainly reflecting the hiring of teachers.

President Barack Obama welcomed the news but lamented that too many Americans "have felt the gut punch of a pink slip."

Facing the prospect of high unemployment well into the 2012 presidential election year, Obama is drafting a proposal to try to stimulate hiring.

"We need to grow jobs and get America back to work as quickly as we can," he said.

Just a month ago, an unexpected spike in the unemployment rate caused some economists to predict it could climb as high as 11 percent. But Friday's report lessened that pessimism, and economists doubted the rate would reach that point.

Still, the jobless rate is expected to resume moving higher, perhaps to 10.5 percent or more by the middle of next year, before drifting down. That's because the recovery is likely to be too weak to spur the job creation needed to quickly drive down the unemployment rate.

The Federal Reserve has estimated that the rate could remain as high as 7.6 percent in 2012.

"The economic storm destroyed more than 7 million jobs over the last two years, and it will take more than two years to get them back," said Bill Cheney, chief economist at John Hancock. "The economy is still weak."

Competition for jobs is so intense that Marla Goldman of Spring Hill, Tenn., has heard back from only six prospective employers out of 100 she's applied to since losing her job with an electronics systems company in October.

She made it to a fifth interview with a company, which booked her a plane ticket to Florida and even sent her an itinerary. But two days later, the company decided to wait on the job until after Jan. 1.

"There are just far more candidates for every job than there are jobs," said Goldman, 50.

To rev up hiring, Obama plans to send Congress a list of ideas, including new tax breaks for small businesses that hire, some new spending on roads, bridges and other construction and grants to state and local governments to avoid layoffs, according to an official who spoke on condition of anonymity because the package was still being crafted.

Congress is not likely to take up a job-creation package until after New Year's.

The administration credits its $787 billion package of tax cuts and increased government spending with improving employment, though Republicans argue it did not help much. The Fed's record-low interest rates, along with other moves to drive down loan rates and stimulate borrowing, have supported the economic rebound.

Most economists said they did not think the better-than-expected jobs news would cause the Fed to raise rates sooner. That's because they predict the jobless rate will remain high and job creation too sluggish. Most analysts do not expect the economy to add jobs consistently each month until spring.

Until employers gain confidence in the recovery, they will be reluctant to ramp up hiring. The few industries creating jobs will probably include health care, education, legal services, data processing, transportation, high-tech manufacturing, electrical power generation and jobs involved in making homes and buildings more energy-efficient, according to Labor Secretary Hilda Solis and private economists.

But November's report suggested that the worst of the job losses are past. And figures out Friday showed that job losses in September and October were not nearly as deep as previously estimated.

The government said 159,000 few jobs were cut in those two months combined. Such revisions are based on more complete information the government gets from companies it surveys. From January through March, the economy lost at least 600,000 jobs each month.

Employment has improved more in some other countries. Canada, for instance, said Friday that its economy added 79,000 jobs last month, reducing its jobless rate to 8.5 percent from 8.6 percent. Canada did not suffer the type of housing meltdown and financial crisis that slammed the U.S. economy last year.

U.S. Unemployment Rate Drops to 10.0% in November 2009.

---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------

The unemployment rate edged down to 10.0 percent in November, and
nonfarm payroll employment was essentially unchanged (-11,000). In
the prior 3 months, payroll job losses had averaged 135,000 a month.
In November, employment fell in construction, manufacturing, and
information, while temporary help services and health care added jobs.


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To subscribe or unsubscribe to BLS news releases
please visit http://www.bls.gov/bls/list.htm
For help, email news_service@bls.gov
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The Bernanke Record

The December 4, 2009 Wall Street Journal editorial "The Bernanke Record" asks "Will he repeat the mistakes of his four years?"

Federal Reserve Chairman Ben Bernanke faces his Senate renomination hearing today, amid signs that the confirmation skids are greased. We nonetheless think someone should say that, as a matter of accountability for the financial crisis and looking at the hard monetary choices to come, the country needs a new Fed chief.

We say this not because of Mr. Bernanke's performance during the financial panic of 2008, for which he has been widely and often deservedly praised. Like others in the regulatory cockpit at the time, he had to make difficult choices with imperfect information and when the markets were shooting with real bullets.

He supplied ample liquidity when it was most needed last autumn, and he has certainly been willing to pull out every last page of the central banker playbook. If some of those decisions were mistakes, the conditions the Fed faced were extraordinary. Anyone at the helm would have made calls that in hindsight he'd regret.

The real problem is Mr. Bernanke's record before the panic, with its troubling implications for a second four years. When George W. Bush nominated the Princeton economist four years ago, we offered the backhanded compliment that at least he'd have to clean up the mess that the Alan Greenspan Fed had made. That mess turned out to be bigger than even we thought, but we also didn't know then how complicit Mr. Bernanke was in Mr. Greenspan's monetary decisions.

Now we do, thanks to the release of the Federal Open Market Committee transcripts from 2003. They show (see "Bernanke at the Creation," June 23, 2009) that Mr. Bernanke was the intellectual architect of the decision to keep monetary policy exceptionally easy for far too long as the economy grew rapidly from 2003-2005. He imagined a "deflation" that never occurred, ignored the asset bubbles in commodities and housing, dismissed concerns about dollar weakness, and in the process stoked the credit mania that led to the financial panic.

This, too, might be forgivable if Mr. Bernanke had made any attempt in recent months to acknowledge the Fed's role in the mania. Treasury Secretary Tim Geithner, Dallas Fed President Richard Fisher and others have conceded that monetary policy was too loose. How central banks can minimize, if not prevent, asset bubbles without inducing recessions would seem to be a subject for candid Fed debate.

But Mr. Bernanke and Vice Chairman Don Kohn have formed an intellectual moat around the Fed, blaming the credit bubble on the "global savings glut" that they themselves helped to create. They are the Edith Piafs of central banking, regretting nothing.

All of this bears directly on how the Fed will operate over the next four years. We are now in another period of extraordinary monetary ease. Mr. Bernanke is assuring the world that, this time, he knows how and when to start removing this stimulus, even as he also promises that the Fed will remain easy for months to come. The guideposts the Fed claims to follow on policy—the jobless rate, "resource utilization"—also remain the same. Price signals, especially the value of the dollar, count for much less in this Fed's decision-making.

Earlier this decade, the Fed had 20 years of sound-money history as a source of credibility. The world's investors were willing to give the Greenspan Fed the benefit of the doubt—too much doubt as it turned out. But now, after the mania and panic, investors are unlikely to show such forbearance. That's already clear in Asia, where the falling dollar is creating monetary distortions, and investors are bidding up assets and currencies on a bet that the dollar is in for further declines. Sooner rather than later, Mr. Bernanke will have to tighten money even if the U.S. jobless rate remains higher than everyone would like.

The Fed chairman has shown he knows how to ease money, and creatively so. But that is the easy part of his job. The hard part, the time when central bankers earn their fame, is when they have to take the money away. We see little in the chairman's policy history or guideposts to suggest he will be willing to endure the criticism that will come with tightening money amid a lackluster recovery, if that is what is required to protect the dollar or prevent an inflation outbreak.

The political irony today is that even as Mr. Bernanke is cruising toward confirmation, the Fed as an institution is under its most sustained political attack in two generations. The political class is especially riled about the Fed's forays into fiscal policy. While that is understandable given the last year, the response to this action should not be to put the Fed under even greater political control from Congress. That is the Argentinian solution.

The better response is to hold policy makers accountable for their actions, including chairmen of the Federal Reserve. At this monetary moment more than any since the late 1970s, the Fed needs a hard-money chairman with the courage and credibility to resist the temptation to escape from the consequences of the last bubble by floating another one.

Jobs Data Optimism Obscures Harsh Reality

This Is Progress? Jobs Data Optimism Obscures Harsh Reality

Posted Dec 04, 2009 02:02pm EST by Chris Nichols in Newsmakers, Recession, Housing
Related: DIA, SPY, QQQQ, ^GSPC, ^DJI, GLD

If you still have a job, maybe Friday's numbers from the Labor Department will give you a chance to exhale.

Since the recession began in December 2007, the employment market, for the most part, has been one negative headline after another. Now, we've learned that the U.S. lost only 11,000 jobs in November, that the unemployment rate surprisingly ticked down from 10.2% the previous month to only 10%, and that for the prior two months the total of jobs lost actually wasn't as bad as initially thought.

The last time the data were so bright, if they can be called that, was in December 2007, when the economy added 120,000 jobs. Yet despite pockets of optimism on Wall Street following the latest reading, the truth is that for many workers in America, these are dark days.

As of now, more than 15 million people around the country remain out of luck. Beyond the 10% headline number in joblessness, the situation is actually worse. Factoring in people who have stopped looking for work and those in part-time positions who want a full-time job, the "underemployment" rate is 17.2%. In fairness, that was down from 17.5% in October, but it remains a daunting swath of the U.S. workforce struggling to make ends meet.

Consider that the jobless rate in the El Centro, Calif., metro area is at 30%, the worst in the nation. Shockingly, it was even uglier just a couple of months ago. Though that area is used to higher-than-average joblessness, the problem has been exacerbated by the steep falloff in the region's real estate markets.

An improvement? Yes, but a mild one that still means close to one-third of eligible workers in the area continues to wait for better days. CNNMoney.com quoted one local business owner, Jim Duggins, as saying "our economy is the worst I have ever seen it and it doesn't seem to be recovering." Duggins, who owns a construction company, has already eliminated more than 80% of his workers and has 22 left. More cuts, he indicated, could be coming.

In a much-better known American town, Detroit, the jobless rate was above 17% in September as the auto industry retrenched sharply. That's nearly double the rate of the year earlier.

How bad are things in the Motor City? Foreclosures have been rampant. You could buy a home for $6,900.

The New York Times notes that the number of workers around the country dealing with what is termed long-term unemployment, that is, the inability to find work for at least 27 weeks, has been hovering at an all-time high, tallying 5.6 million people in October. One such individual is Kathy Henry, a 39-year-old Chicago resident who lost her administrative assistant position two years ago. In the time since, she has sent applications to no fewer than 500 jobs.

"It’s a constant cycle," she told the Times. "I’ve applied everywhere, from big corporations to minute corporations, and I don't even get an e-mail back. I'm worried people see me as old and out of touch and decrepit."

There's no doubt the pain has been widespread, and it's even been evidenced in one of the most sacred traditions of childhood -- the visit from the Tooth Fairy. In March, granted that was before the stock market started its rally, WebMD said that children could expect to receive an average of $1.88 for each tooth they left under their pillow, down from $2.09 in 2008. When parents are forced to cut the payouts to their kids by two dimes and a penny, that's saying something.

President Obama and other leaders in Washington say they want to brighten the landscape that's been bleak for too long. Unfortunately, this is another problem they have to solve at the same time they're dealing with the wars in Iraq and Afghanistan, the health care debate and the deficits. Perhaps on at least one level government can be part of the solution -- the Census Bureau appears poised to hire in the neighborhood of 1 million temporary workers to conduct its resident surveys in 2010.

The views on the future, naturally, are varied.

"I wouldn't say that we're totally out of the woods yet because the number of unemployed is still high," Labor Secretary Hilda Solis told Reuters Television. "It's very, very high and it's unacceptable, and we need to continue our efforts to focus in on job creation."

John Mauldin of Millennium Wave Investments is optimistic about the longer term, but for now he's planning for a "double-dip" recession. "It's going to be a slow-growth, high-unemployment environment, I think, for quite some time. It's not going to be fun," he said in an interview with Henry Blodget.

Meanwhile, First Trust's Brian Wesbury is in the upbeat camp, arguing that for Main Street, the recovery is "already on its way."

He told Tech Ticker: "It's like the flu. You know, on the third or fourth day of the flu, you are getting better. Even though you don't feel like it."

Bernanke defends record during crisis

In the December 3, 2009 Reuters article "Bernanke defends record during crisis," Mark Felsenthal and Pedro da Costa report:

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke, making a case for a second term on Thursday, offered a forceful defence of the U.S. central bank's crisis-battling efforts, which he said prevented an even greater calamity.

"As serious as the effects of the crisis have been ... the outcome could have been markedly worse without the strong actions" taken by the Fed and other authorities around the globe, Bernanke told the Senate Banking Committee.

President Barack Obama nominated the former Princeton University economics professor to another four-year stint as Fed chairman in August, praising his handling of the worst financial crisis since the 1930s. His current term expires on January 31.

Under Bernanke's tenure, the Fed has slashed interest rates close to zero and pumped more than a trillion dollars into the financial system to beat back the worst financial crisis since the Great Depression.

However, the soft-spoken Fed chairman, who was first named to the post by President George W. Bush, was likely to face aggressive questioning at the hearing.

Lawmakers are upset over taxpayer bailouts of financial firms such as American International Group and Bear Stearns, and what they see as lax Fed regulation of banks and lenders that laid the groundwork for the credit crisis.

Senator Bernie Sanders, an independent from Vermont who is not a member of the panel, said on Wednesday he was placing a "hold" on the nomination, arguing the Fed chief had done little for average Americans, while going too easy on big banks.

That move could force Senate leaders to round up 60 votes just to consider the nomination, which could slow the confirmation process and give critics an opportunity to press their case.

The Wall Street Journal, in an editorial on Thursday, also said Bernanke does not deserve a second term.

The paper praised him for his response to the financial crisis but took him to task for perceived missteps in the past, such as his support when he was a Fed governor for keeping interest rates low for prolonged period earlier in the decade, which many critics contend fuelled the housing bubble.

The newspaper's editors also questioned whether he will be willing to make unpopular decisions. "The hard part, the time when central bankers earn their fame, is when they have to take the money away," they wrote.

Despite voices of discontent, the nomination appears likely to overcome any hurdles.

Committee Chairman Christopher Dodd opened the hearing by making clear he would support the nomination, saying the reappointment would send "right signal" to financial markets.

However, the committee's top Republican, Senator Richard Shelby, criticized the Fed's pre-crisis policies.

Earlier on Thursday, Treasury Secretary Timothy Geithner rose to Bernanke's defence. "He did things that had never been done in the past with enormous creativity and bravery, frankly," he told CNBC.

"The president has full confidence in him and we are confident he will be confirmed," he said.

Dodd's panel needs to approve the nomination to send it before the full Senate. If the Senate does not confirm him by January 31, Bernanke could continue to serve until replaced.

Even if confirmed, as widely expected, Bernanke faces the prospect of running a diminished institution if congressional proposals to curtail the Fed's powers and political independence become law.

Dodd has proposed stripping the Fed of its regulatory powers in favour of unifying fragmented U.S. bank oversight under a single roof. He also would require presidential appointment and Senate confirmation of regional Federal Reserve bank board chairmen, taking away a prerogative currently enjoyed by the 12 regional Fed banks.

More worrying for the Fed, legislation the House of Representatives could vote on next week would submit the central bank's monetary policy decision-making to review by a congressional watchdog agency. Sanders has backed a matching measure in the Senate, but Dodd voiced support for the Fed's independence at the hearing.

Bernanke told the panel that most signs point to stabilizing financial markets and an economy tiptoeing out of recession. He said the Fed would carefully calibrate its withdrawal of ultra-low interest rates and the cash flood it has pumped in the financial system, he said.

"We are ... keenly aware that, to ensure longer-term economic stability, we must be prepared to withdraw the extraordinary policy support in a smooth and timely way as markets and the economy recovery," he said. "Determining the appropriate time and pace for the withdrawal of stimulus will require careful analysis and judgement."

Goldman foretells an unemployment nightmare

In the December 3, 2009 Salon article "Goldman foretells an unemployment nightmare," Andrew Leonard says the "worst-case scenario for Democrats: A jobless rate over 10 percent all the way into 2011."

Just in time for President Obama's jobs summit, Reuters columnist James Pethoukoukis gives us a glimpse at Goldman Sachs' economic outlook, compiled by ace forecaster Jan Hatzius. (Found via Calculated Risk.)

The key line:

...(2) a peaking in unemployment in mid-2011 at about 10 3/4 percent.

The unemployment rate sits at 10.2 percent right now. The prospect that it might remain above 10 percent for another year and a half is, as Pethokoukis rightly points out, a massive political disaster in the making for Democrats.

Other forecasts have predicted that unemployment would peak in the first quarter of 2010 and then start to slowly fall, but an article published today in Bloomberg News ranks Hatzius as the most accurate economic forecaster on Wall Street, so his doom-and-gloom cannot lightly be ignored.

On a happier note, there appears to be real momentum on the weekly jobless claims front, with new filings for benefits falling for the fifth straight week to the lowest point in more than a year, and with the four-week moving average dropping like a rock. But that's a slender thread upon which to hang, when faced with the scenario foretold by Hatzius.

Goldman Sachs 2011 forecast would be an absolute disaster for Dems

In the December 2, 2009 Reuters article "Goldman Sachs 2011 forecast would be an absolute disaster for Dems," James Pethokoukis reports on the pessimistic forecast for U.S. economic conditions.

"This would be New Normal with extreme prejudice. Bad for Democratic incumbents in the 2010 congressional midterms, but it should make the White House political team nervous as well for 2012. If Goldman Sachs is right, of course. Here is the firm’s 2011 forecast:

The key features of our 2011 outlook: (1) a strengthening in growth from 2.1% on average in 2010 to 2.4% in 2011, with real GDP rising at an above-potential 3½% pace in late 2011; (2) a peaking in unemployment in mid-2011 at about 10¾%; (3) extremely low inflation – close to zero on a core basis during 2011; and (4) a continuation of the Fed’s (near) zero interest rate policy (ZIRP) throughout 2011.

That said we see risks that could upset these markets. On the one hand, we might be underestimating the vigor of the economic recovery, and therefore the pressures for Fed tightening. In addition, surging asset prices and worries about a “bubble” could prompt Fed officials to tighten before such a move seems warranted on real-economy grounds. On the other hand, the economy (and the markets) could struggle under the weight of credit restraint for small businesses, weakness in commercial real estate markets, or fiscal tightening, especially by state and local governments.

The implications? I hardly know where to begin: a) with unemployment rising all next year, a GOP blowout in 2010; b) certainly more job creation packages; c) no capandtrade; d) increased anti-Wall Street/Fed sentiment; e) third party prez candidate in 2012; an Obama challenger in 2012 (Dean?). But who really knows. This would be like a technological singularity where seeing beyond the event is pretty much impossible. Such a Long Recession (essentially) would be so contrary to American expecatations — such a slow-mo, psychological shock — that it would be a full-out system perturbation equivalent to 9-11 or the Iraq War."

Fed Up with Federalism: U.S. Commitment to States' Rights is Undermining the Economic Recovery

In the December 2, 2009 American Prospect article "Fed Up With Federalism," Harold Meyerson explains "how America's commitment to states' rights is undermining our economic recovery."

By accident of its birth -- a collection of separate colonies that slowly came together to form an independent union and revolted against the remote power of the British government -- the United States has an enduring bias toward localism, an aversion to centralized government that is part of its DNA. For some on the left, this has been seen as a positive. "It is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country," Justice Louis Brandeis once wrote.

Even though progressives such as Brandeis have celebrated our federalism, it's important to remember that Brandeis lived and worked at a time when the federal government was icebound in conservative orthodoxy and the cause of social justice could be advanced only in a small number of states and cities. Segregationists like George Wallace and Richard Russell have celebrated our federalism, too, arguing for states' rights at a time when the national government was moving to abolish the Jim Crow laws throughout the South.

Conversely, liberals have argued for the right of the nation to move beyond its federalist constraints during those periods when they controlled the national government (the 1930s and, especially, the 1960s). And during the late, lamentable Bush presidency, conservative justices on the Supreme Court frequently forbade the states from enacting stricter regulations on business than those that Bush's administration had put in place.

The love of federalism is a sometime thing; its critics and champions switch places depending on who is in power at which level of government. But the problem with our allegedly ingenious federal system is not simply that half the time, if not more, it is an effective way to protect all that is biased and unfair in the American nation. The problem is also that federalism inherently subverts a coherent national response to many fundamental challenges the United States faces, at a time when other major nations -- our competitors in an increasingly global economy -- face no such structural impediment.

Given the sheer size of America and the distinct cultural identity of its many regions, federalism has always made a certain amount of sense. The abolition of the slave trade and the legalization of gay marriage had to begin somewhere. As the rise of national government, transportation, and media have eroded regional identities, traditions, and isolation, however, more conservatives than liberals have found a refuge in federalism.

But even though federalism is more often the refuge of reactionaries than of visionaries, it has an even deeper flaw: setting the nation at cross-purposes with itself, and never more so than during a recession.

***
There is a classic algebra problem in which water pours into a bathtub from the tap at a specified rate but also exits the tub at a different rate because someone has neglected to stop the drain. If you know the rates, you should be able to figure when the water will rise to a certain level. During a recession, the United States becomes a version of that bathtub. The federal government is the tap. The state and local governments are the drain.

That's no way to fight a recession. When investment, production, and consumption are all in decline, the only way to keep the economy from shrinking is for the federal government to deficit spend and create a stimulus. But while the federal government pours money in, the state and local governments, which cannot deficit spend, see their tax revenue shrinking, so they cut spending, raise taxes, or both -- taking money out of the economy. America's distinct brand of federalism inherently impedes an economic recovery.

Consider the state with the biggest tap and the biggest drain: California. The sum total of the federal tax cuts for Californians included in last year's Bush administration stimulus legislation and this year's Obama administration stimulus came to $15.5 billion for the years 2008 to 2010 -- money desperately needed to boost consumer spending in the midst of the worst downturn since the Depression, says Jean Ross, executive director of the California Budget Project. But the sum total of state tax increases enacted by the California Legislature and signed into law by Gov. Arnold Schwarzenegger in 2008 and 2009, Ross says, came to $12.5 billion for the years 2008 to 2010 -- money desperately needed to keep public services in California from grinding to a halt in the midst of the worst downturn since the Depression. "The state negated 80 percent of the feds' tax cut," Ross says. "And the cuts and the increases pretty much targeted the same lower-income groups."

Nor were the negations limited to tax cuts. Ross calculates the federal government's direct aid to education, its block-grant programs and other education-related expenditures for California total $9.5 billion from 2008 to 2010. The state government's cuts to K-12 schools, community colleges, the California State University, and the University of California add up to $17.4 billion for the same years.

California leads the fiscal--disaster pack, but it is anything but alone. A September paper from the Center on Budget and Policy Priorities reports that since the recession began, at least 41 states and the District of Columbia have slashed their budgets for a wide range of services -- 27 for health care, 25 for aid to the elderly and disabled, 26 for K-12 education, 34 for higher education, and some states for all of these. Forty-two states have reduced wages to state workers through layoffs, furloughs, and salary cuts. At least 30 states have raised taxes during the same period. "All of these steps remove demand from the economy," the center concludes. They "reduce the purchasing power of workers' families, which in turn affects local businesses."

Without the Obama stimulus, which appropriated roughly $140 billion to the states to reduce their budgetary shortfalls during 2009 and 2010, these numbers would be even worse -- though keep in mind that $140 billion in federal funds isn't engendering growth; it's merely offsetting state cutbacks. The center estimates that the federal bailout enabled states to reduce their budget gaps by 40 percent. But with state financial shortfalls in those two years coming to a whopping $350 billion, that leaves $210 billion in unrecompensed state budget shortfalls, which the states have to make up by cutbacks or tax hikes or financial gimmicks. Dean Baker and Rivka Deutsch of the Center for Economic and Policy Research estimate that the cutbacks and tax hikes of cities, counties, and school districts in 2009 and 2010 will come to an additional $15 billion.

So how much does the government's stimulus come to when we subtract the amount the states and localities are taking out of the economy from the amount the feds are putting in? The two-year Obama stimulus amounted to $787 billion, of which $70 billion was really just the usual taxpayers' annual exemption from the alternative minimum tax, and $146 billion was actually appropriated for the years 2011 to 2019. That leaves $571 billion that the federal government is pumping into the economy during 2009 and 2010. Subtract the amount that state and local governments are withdrawing from the economy (they have a combined shortfall of around $365 billion, but let's say they do enough fiscal finagling so that the total of their cutbacks and tax hikes is just $325 billion), and we're left with $246 billion.

At $787 billion, the stimulus came to 2.6 percent of the nation's gross domestic product for 2009 and 2010 -- not big enough, but a respectable figure. At $246 billion -- the net of the federal stimulus minus the state and local anti-stimulus -- it comes to just 0.8 percent of GDP, a level lower than those of many of the nations that the U.S. chastised for failing to stimulate their economies sufficiently.

But other major nations don't have federal systems that turn them into unstopped bathtubs in times of recession. They have states and municipalities, to be sure, but either the responsibility for funding most functions of government resides with the national government, or, as in Japan, state and local governments are not required to run annual balanced budgets. In China, which probably has had the most robust recovery of any major nation, taxes and spending for everything are set in Beijing (including the lower tax rates for provinces in which manufacturing for export is the main economic activity). In France, taxing and spending has been controlled by the national government at least as far back as Louis XIV. In Britain, funding for local government also comes from the national government; "local taxation," says Thomas Barry, first secretary for economic affairs in the British Embassy in Washington, D.C., "is a very small fraction of the total tax burden in the U.K."

Such is obviously not the case in the U.S. The national government alone funds defense and the two great social programs, Social Security and Medicare, created at moments (1935 and 1965) when liberals controlled both Congress and the White House. But state and local governments, which can't run deficits, remain the primary funders of education, transportation, local infrastructure, and public safety and split the cost of health care for the poor with the feds. What this means is that the governmental impediments the United States encounters during a recession are far greater than those encountered by the other major nations with which we compete in the ever more global economy. What this means is that our federal system is, in this very significant particular, massively dysfunctional.

***
This September, the Los Angeles County Metropolitan Transportation Authority, the agency that runs LA's growing subway system and its far-flung bus lines, struck a novel deal with an Italian rail manufacturer. In return for its purchase of 100 light-rail cars from the company, the MTA got the company to agree to locate a unionized factory in Los Angeles. Problems with the manufacturer caused the deal to collapse, though, and the MTA is now searching for another company that will build the trains in Los Angeles. The agency's attempt to bolster local industry with a Buy-LA policy has encountered opposition, however, from the Los Angeles Times, which noted in an editorial that federal funds available for buying clean, green rail transport are denied to states and cities that insist on making the product locally. To be sure, the Obama administration has allotted billions of dollars to incubate an electric-car industry. But it is not insisting on domestic content, nor has it cut a deal with a foreign manufacturer to locate a factory here, as Los Angeles is trying to do with rails and as Southern states have done for years with foreign automakers.

The federal government doesn't do that. Well, our federal government doesn't do that. Foreign federal governments do that all the time. China has spared no expense to attract foreign manufacturers, routinely abating their taxes, holding wages in check, offering help to construct new facilities. In the U.S., states and cities woo foreign and domestic investors with an array of tax and zoning incentives; right-to-work states promise to hold down wages, too. But the kinds of sweeping guarantees that national governments can offer are beyond the capacity of states and localities to promise, much less deliver.

China, for instance, is halfway through a stunningly ambitious project to build 100 university science parks roughly modeled on North Carolina's fabled Research Triangle. On average, the parks, according to the testimony of attorney Alan Wolff to the U.S.?China Commission, are 150 percent the size of North Carolina's triangle. "China has taken our model and expanded dramatically on it," Rick Weddle, CEO of the Research Triangle Foundation, testified to the commission. "We toured a research park in Suzhou that is a joint venture between the Chinese government and Singapore. We wouldn't even think about that."

The industrial policies of American states are dwarfed by those of foreign nations, while the one entity with the resources to compete with foreign nations -- the federal government -- stays out of the game. States seek new factories while the federal government shuns domestic content requirements. As with stimulus policy during recessions, state and federal industrial policies seem totally at cross-purposes.

Federalism also enables federal and state governments to punt the responsibility for funding politically contentious programs to each other -- a pretty good way of ensuring that the programs will end up underfunded. A quick way to grasp the contrasting levels of political power wielded by the elderly (considerable) and the poor (negligible), for instance, is to look at how the government funds their health care. Medicare, for seniors, is entirely federally funded. Medicaid, for the poor, has the responsibility for its funding split between the federal government and the states. Despite the fact that Medicaid is nominally a national program, the levels of financial support that states allot it vary considerably. During the current recession, many states have opted to slash Medicaid benefits, even as federal Medicare benefits have largely stayed intact.

The perverse consequences of this hybrid funding have seldom been clearer than during the health-care reform battle, in which the Senate Finance Committee's bill to open Medicaid rolls to more Americans without pledging full federal funding for the program has presented recession-wracked states with a problem they could do without. After Gov. Schwarzenegger stated that the increased cost to his state could amount to $8 billion annually, Sen. Dianne Feinstein of California, who backs the health-reform efforts, announced that she couldn't support a bill that increased the state's costs. (In the House bill, the federal government picks up almost all of the states' increased Medicaid costs.) Federal mandates on states that must balance their budgets during recessions are problematic policy, and they illustrate the buck-passing that is inherent in the federal system. Historically, the price for this feature of federalism has been paid neither by the federal nor state governments but by the poor.

In regulatory matters, the gap between federal and state standards can work as Brandeis thought it should, but it can also enable businesses to comparison shop for the lowest level of regulations. While federalism is an effective way to create multiple governmental power centers in a nation, it creates a system that powerful private players can game. The diffusion of power inherent in federalism works best when power in the private economy and civil society is also diffused, so that, for instance, business will get push-back from labor when it attempts to arbitrage the gaps between state and federal law.

The boundary between federal and state functions in the United States has always been a flexible one, and one that has moved slowly and haltingly toward the federal level throughout most of the nation's history. By the standards of nearly every other major nation, however, and increasingly by the standard of common sense, the United States retains a system of government that frequently subverts its own policies and enables federal and state governments to negate each other's endeavors. Federalism has its points, but in a growing number of ways, and especially during a recession, it makes no damn sense at all.

New $100 billion safety net for jobless in works

In the December 1, 2009 article "New $100 billion safety net for jobless in works," Associated Press writer Andrew Taylor reports that most economists recommend extending unemployment benefits, but the staggering cost is a consideration.

WASHINGTON – As unemployment spikes, the cost of compassion is going up too.

By as much as $100 billion.

That's the potential price of a push by Democrats in Congress to continue providing extra help to the jobless beyond the core 26-week unemployment insurance package provided under permanent law.

The jaw-dropping numbers combine the approximately $85 billion cost of continuing emergency benefits through 2010 for the long-term unemployed — jobless more than six months — plus an estimated $15 billion to continue subsidies to help pay health insurance premiums.

Even before the last new round of extended benefits in November, the cost of unemployment compensation was estimated by the White House to exceed $140 billion for fiscal 2010, which began in October. Just two years ago — when the unemployment rate was 4.8 percent in contrast to the current 10.2 percent — the cost of unemployment benefits was only $43 billion.

Extending unemployment benefits again is an obvious solution to Democrats preaching compassion for the long-term jobless, as well as to economists who say cutting off the flow of money could harm the economy.

"This is the most effective way to get money into the economy. It's given to people who are simply out of money," said Rep. Jim McDermott, D-Wash., a key supporter. "They're spending it. They're not socking it away in a mattress somewhere."

Several temporary benefit extensions dating from mid-2008 are set to expire Dec. 31. In January alone, an estimated 1 million people will lose benefits as their extended coverage runs out. By March, 3 million people will have lost benefits averaging about $315 a week.

Also expiring is a program subsidizing 65 percent of insurance premiums for unemployed people who sign up for a continuation of health benefits formerly provided by their employer under the so-called COBRA program. The nine months of COBRA subsidies and the additional weeks of unemployment benefits were both core pieces of February's economic stimulus plan.

The COBRA health insurance subsidies expire Dec. 1 for those who signed onto the program when it first started last winter, though people who get fired before Jan. 1 are eligible for the full nine-month subsidy. People on unemployment would be able to finish out their present "tier" of benefits but would be ineligible for any of the recently passed additional coverage.

The benefits extension is under discussion among top Democratic leaders. While there's no agreement on a specific plan, there's a lot of sentiment behind a full-year extension, congressional aides say. The staggering cost, however, could preclude passing it.

With the budget deficit spiraling out of control, deficit hawks are certain to balk at the measure's price tag. And the White House, which is signaling that it is going to focus next year on trying to rein in the deficit, is not endorsing a full-year extension of benefits. Budget office spokesman Tom Gavin would only say the administration supports some extension beyond Dec. 31.

"We're past the point where anything can be deficit financed without some plan to pay for it," said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. "It has to come with offsets."

Many economists say increasing or extending unemployment payments is among the most efficient ways to jump-start the economy. It's easy to do and the people getting the benefits typically spend the money quickly. With the economy in a fragile recovery, cutting off benefits could be harmful.

"It would significantly raise the risk of falling back into recession next year," said Mark Zandi, chief economist at Moody's Economy.com.

Not all economists agree, however, especially if the benefits are financed by adding to the nation's $12 trillion debt. There's also evidence that unemployment insurance actually raises the jobless rate slightly because some people don't look for work as diligently as they do when they're on it.

"The longer you extend unemployment benefits, the longer you extend average job searches," said Ken Mayland, president of ClearView Economics. "It makes it more comfortable for people to be unemployed."

While most Republicans supported a recent bill adding 14 to 20 weeks of extra benefits for those who had exhausted payments lasting as long as a year and a half, many are likely to resist the upcoming measure.

"Calling more government spending and more debt a 'jobs package' is laughable, and the Democrats' frantic push for more of the same is yet another acknowledgment that their trillion-dollar stimulus isn't working," said Minority Leader John Boehner, R-Ohio.

The startling price tag of extending the benefits is due to two factors: the sharp spike in the jobless numbers and several layers of additional weeks of benefits that have been approved by Congress since June 2008.

The core benefit is 26 weeks, with up to 20 additional weeks in states with high unemployment. States collectively are already projected to run a $57 billion deficit in the core program in 2010. The federal government is already obligated to lend them the money to cover that gap.

Additional tiers of benefits were added in 2008. February's stimulus measure not only renewed those benefits but added $25 a week to every unemployment check.