Thank heavens for the downturn? Some people think so

In the October 30, 2009 article "Thank heavens for the downturn? Some people think so," Miral Fahmy reports that the recession has helped some people realize what is most important in life:

SINGAPORE (Reuters) – It seems the financial crisis isn't all doom and gloom: one in four people are glad the world's economy slumped like it did, because it helped them realize their priorities in life, according to a global survey.

Market research firm Synovate polled around 11,400 people across the world and found more than half had permanently changed their attitudes toward money over the last 12 months.

Another 47 percent, however, said they were looking forward to being able to spend freely again.

"The psychology of global recession has changed the way many people do things," Jenny Chang, Synovate's managing director in Taiwan, said in a statement.

"They are making life-altering decisions based on the current global recession, be it postponing marriage, having children, moving house, changing jobs or pursuing higher education. Even in a relatively impact-free economy like Taiwan's."

A quarter of all respondents led by Malaysians said they were glad the world had an economic crisis as it has helped them realize what's really important in their lives.

Nearly 60 percent said they would try their best to keep a tight rein on their spending so that it doesn't go back to what it used to be before the downturn, and over two-thirds are more interested in boosting their savings than reducing their debt.

"The credit crunch has been felt, and it has reinforced the family values of Malaysians, helping them to appreciate what they have rather than continually strive for more," said Steve Murphy managing director of Synovate in Malaysia, Steve Murphy.

The majority of respondents -- over 80 percent -- believed their generation had a responsibility to leave their country better off for the younger generation, even if it involves dramatically altering their lifestyles.

The survey showed that one in five people had put off an overseas trip in the last six months, 6 percent had delayed having a baby and another 5 percent had even postponed surgery until things got better.

And with the United States' economy still trying to shake off the credit crunch, Synovate's U.S.-based Claire Peerson Braverman said Americans, compared to other nationalities, were having to make some of the most difficult decisions concerning money.

"With the relatively high unemployment in the U.S., those Americans who have lost one or more incomes in the family are making very difficult decisions each day ... which bills do, and don't, get paid," she said.

Synovate, the market research arm of Aegis Group, surveyed 11,400 people in August across 16 markets: Australia, Brazil, Canada, Denmark, France, Hong Kong, India, Malaysia, New Zealand, Russia, Serbia, South Africa, Spain, Taiwan, Britain and the United States. More details at www.synovate.com.

Fox News: Opinions are Expressed Throughout Its Programming

Media Matters for America says Fox News is a full-time political operation, providing editorial opinions even on shows they claim to be unbiased news.

The watchdog group posted the video "Fox News: A 24/7 Political Operation" on YouTube to show how many of the opinions expressed in the editorial portions of the cable channel's broadcasting are echoed in the programs that are allegedly news.

According to an October 20, 2009 press release:

FOR IMMEDIATE RELEASE
Tuesday, October 20, 2009
CONTACT
Jess Levin (202) 772-8162
jlevin@mediamatters.org

Washington, D.C. - Today, after Fox News responded to White House criticism with the demonstrably false defense that, unlike the network's "editorial" programs, its "news" programs are straight and objective, Media Matters for America released a video demonstrating that Fox News' dayside programming unquestionably echoes the tones, themes, and content of its evening opinion programming. In fact, the parallels are so clear that the network's daytime anchors often seem to be taking direct marching orders from their colleagues like Glenn Beck and Sean Hannity.

WATCH VIDEO HERE: http://www.youtube.com/watch?v=YRx5ethd8JU

BACKGROUND:

Fox News has responded to White House criticisms of its network by claiming that while its "editorial" programs are filled with "vibrant opinion," its news hours are straight and objective. However, Fox News' purportedly straight news programs often echo its "editorial" programs and feature smears, falsehoods, doctored and deceptive editing, and GOP talking points. Examples include:

*Hemmer advances smear that Jennings knew of "statutory rape" and "never reported it." During the October 1 edition of America's Newsroom, co-host Bill Hemmer joined his network's smears against Department of Education official Kevin Jennings by claiming that Jennings knew of a "statutory rape" case involving a student but "never reported it." In fact, as Media Matters has confirmed, the student in question was of legal age of consent at the time he was counseled by Jennings.

*Baier smears Jennings as failing to report "sexual abuse." On October 1, host Bret Baier joined Fox News' witch hunt against Jennings, claiming that "Education Secretary Arne Duncan is standing behind his so-called safe schools czar after revelations that Kevin Jennings did not report a case of sexual abuse he encountered as a schoolteacher."

*Kelly on Sotomayor comment: "sounds to a lot of people like reverse racism." On May 26, Megyn Kelly joined conservative commentators such as Rush Limbaugh by stating that then-Supreme Court nominee Sonia Sotomayor's "wise Latina" remark "sounds to a lot of people like reverse racism, basically. Like she's saying that Latina judges are obviously better than white male judges, and that that's her assumption, and people get worried about putting a person like that on the U.S. Supreme Court." Kelly later added, "I've looked at the entire speech that she was offering to see if that was taken out of context, and I have to tell you ... it wasn't." In fact, Sotomayor was specifically discussing the importance of diversity in adjudicating race and sex discrimination cases; several conservative legal figures have made similar comments.

*America's Newsroom promotes tea party organizing info on-air and online. America's Newsroom encouraged viewers to get involved with April 15 "tea party" protests across the country, which Fox News had described as primarily a response to President Obama's fiscal policies. The program frequently hosted tea party organizers and posted on-screen organizing information such as protest dates and locations. America's Newsroom also repeatedly directed viewers to its website, which featured a list of tea party protests.

*America's Newsroom promotes czar hysteria with ominous music. On September 7, Kelly teased a segment on whether the so-called "mainstream media" was ignoring "questionable backgrounds of some of the other 30-some-odd czars" in the Obama administration while ominous music played in the background.

*"Death book" distortions abound on Fox News Sunday. On the August 23 edition of Fox News Sunday, Chris Wallace hosted former Bush administration aide Jim Towey to discuss his Wall Street Journal op-ed, "The Death Book for Veterans," and in doing so promoted numerous distortions about an end-of-life educational booklet used by the Veterans Health Administration (VHA). In addition to forwarding the smear that the booklet is a "death book," Wallace promoted Towey's distortion that the booklet encourages veterans to "pull the plug" -- it doesn't; Wallace and Towey both suggested that the Bush administration suspended use of the booklet -- it didn't; and Wallace claimed that a VHA document requires doctors to direct veterans to the booklet -- it doesn't.

Media Matters president Eric Burns recently explained on Countdown with Keith Olbermann: "I think that what we have all thought of as a conservative news organization has really morphed itself this year into a 24/7 political operation with a very specific goal. And that is to destroy this presidency, and destroy any sort of progressive policy agenda that the American people voted for in November."

Happy Planet Index

The Happy Planet Index "reveals the ecological efficiency with which human well-being is delivered. The index combines environmental impact with human well-being to measure the environmental efficiency with which, country by country, people live long and happy lives. Learn about the ideas behind the HPI, how it is calculated, why we need it and what it can teach us."

Fox News Viewed as Most Ideological Network

In the October 29, 2009 report "Fox News Viewed as Most Ideological Network," the Pew Research Center for the People and the Press says the Fox News Channel is perceived as having a large conservative bias, but other news services are viewed as mostly liberal.

The Fox News Channel is viewed by Americans in more ideological terms than other television news networks. And while the public is evenly divided in its view of hosts of cable news programs having strong political opinions, more Fox News viewers see this as a good thing than as a bad thing.

Nearly half of Americans (47%) say they think of Fox News as “mostly conservative,” 14% say it is “mostly liberal,” and 24% say it is “neither in particular.” Opinion about the ideological orientation of other TV news outlets is more mixed: while many view CNN and the three broadcast networks as mostly liberal, about the same percentages say they are neither in particular. However, somewhat more say MSNBC is mostly liberal than say it is neither in particular, by 36% to 27%.

The perceptions of those who regularly tune into these news networks are similar to those of the public. Nearly half (48%) of regular Fox viewers say the network is mostly conservative. About four-in-ten (41%) regular viewers of CNN describe the network as mostly liberal and 36% of regular MSNBC viewers say the same about that network.

The latest weekly News Interest Index survey, conducted October 23-26 among 1,001 adults by the Pew Research Center for the People & the Press, also shows that Americans followed news about the spread of the swine flu and the availability of a vaccine more closely than any other major news story last week. And the percentage of Americans saying they followed swine flu news very closely (43%) now matches the highest levels of interest reached during the previous flu outbreak in May.

The survey also finds the public is evenly split in its view of cable news hosts “having strong opinions about politics.” About four-in-ten (42%) see this as a good thing while an identical percentage sees it as a bad thing. By 51% to 36%, regular Fox News viewers view cable hosts with strong political opinions as a good thing; regular viewers of other TV news outlets are more evenly divided over opinionated cable news hosts.

More Fox Viewers See Other Networks as Liberal

The perception of Fox News as mostly conservative is shared equally by regular Fox News viewers and regular viewers of other TV news networks. Half of regular CNN viewers see the Fox News Channel as mostly conservative, as do 48% its own viewers, 48% of regular MSNBC viewers and 45% of the regular viewers of national nightly network news on ABC, NBC and CBS.

By contrast, regular Fox News viewers are more likely than those who tune into other news networks to see those networks as mostly liberal. For instance, 50% of regular Fox News viewers say NBC News is mostly liberal, compared with only about third of regular viewers of CNN (35%), MSNBC (31%) and the nightly network news (34%). There are comparable differences between how Fox News viewers and other news audiences see the ideologies of CBS News and ABC News.

Nearly half of Fox News viewers also say that CNN (49%) and MSNBC (47%) are mostly liberal. However, nearly as many CNN viewers (41%) say that network is mostly liberal; similarly, 43% of regular MSNBC viewers say that network is mostly liberal.

Views of the networks’ ideologies also differ greatly by personal ideology. More than half of liberals (57%) say Fox News is mostly conservative, compared with 46% of moderates and 44% of conservatives.

By contrast, 48% of conservatives say that MSNBC is mostly liberal, compared with 31% of moderates and 29% of liberals. These are similar to views of CNN: 51% of conservatives say the network is mostly liberal, while 33% of moderates and 28% of liberals agree. There are comparable ideological differences in perceptions of the ideologies of NBC News, ABC News and CBS News.

Click the image to enlarge it.

Economy grows in 3Q, signals end of recession

In the October 29, 2009 article "Economy grows in 3Q, signals end of recession," Associated Press economics writer Jeannine Aversa reports the U.S. economy grew at a 3.5% annual rate during the third quarter of 2009, perhaps signaling and end to the recession.

WASHINGTON – The economy grew at a 3.5 percent pace in the third quarter, the best showing in two years, fueled by government-supported spending on cars and homes. It's the strongest signal yet that the economy has entered a new, though fragile, phase of recovery and that the worst recession since the 1930s has ended.

Going forward, many analysts expect the pace of the budding recovery to be plodding due to rising unemployment and continuing difficulties by both consumers and businesses to secure loans.

"This welcome milestone is just another step, and we still have a long road to travel until the economy is fully recovered," said Christina Romer, President Barack Obama's chief economist. "It will take sustained, robust ... growth to bring the unemployment rate down substantially. Such a decline in unemployment is, of course, what we are all working to achieve."

The much-awaited turnaround reported Thursday by the Commerce Department ended the streak of four straight quarters of contracting economic activity, the first time that's happened on records dating to 1947.

It also marked the first increase since the spring of 2008, when the economy experienced a short-lived uptick in growth.

The third-quarter's performance — the strongest since right before the country fell into recession in December 2007 — was slightly better than the 3.3 percent growth rate economists expected.

Armed with cash from government support programs, consumers led the rebound in the third quarter, snapping up cars and homes.

Consumer spending on big-ticket manufactured goods soared at an annualized rate of 22.3 percent in the third quarter, the most since the end of 2001. The jump largely reflected car purchases spurred by the government's Cash for Clunkers program that offered a rebate of up to $4,500 to buy new cars and trade in old gas guzzlers.

The housing market also turned a corner in the summer. Spending on housing projects jumped at an annualized pace of 23.4 percent, the largest jump since 1986. It was the first time since the end of 2005 that spending on housing was positive. Purchases of home furnishings and appliances also added to economic growth.

The government's $8,000 tax credit for first-time home buyers supported the housing rebound. Congress is considering extending the credit, which expires on Nov. 30.

The collapse of the housing market led the country into the recession. Rotten mortgage securities spiraled into a banking crisis. Home foreclosures surged. The sector's return to good health is a crucial ingredient to a sustained economic recovery.

A top concern is whether the recovery can continue after government supports are gone.

Many economists predict economic activity won't grow as much in the months ahead as the bracing impact of Obama's $787 billion package of increased government spending and tax cuts fades.

The National Association for Business Economics thinks growth will slow to a 2.4 percent pace in the current October-December quarter. It expects a 2.5 percent growth rate in the first three months of next year, although other economists believe the pace will be closer to 1 percent.

Romer, in remarks last week said the government's stimulus spending already had its biggest impact and probably won't contribute to significant growth next year.

Brisk spending by the federal government played into the third-quarter turnaround. Federal government spending rose at a rate of 7.9 percent in the third quarter, on top of a 11.4 percent growth rate in the second quarter.

In other encouraging developments, businesses boosted spending on equipment and software at a 1.1 percent pace in the third quarter, the first increase in nearly two years.

Third-quarter activity also was helped by increased sales of U.S.-made goods to customers overseas, as economies in Asia, Europe and elsewhere improved. The cheaper dollar is aiding U.S. exporters, making their goods less expensive to foreign buyers. Exports of U.S. goods soared at an annualized rate of 21.4 percent in the third quarter, the most since the final quarter of 1996.

Businesses, meanwhile, reduced their stockpiles of goods less in the third quarter, after slashing them at a record pace in the second quarter. With inventories at rock-bottom levels, even the smallest increase in demand probably will prompt factories to boost production. This restocking of depleted inventories is expected to help sustain the recovery in the coming months, economists said.

Even with the third-quarter improvement, the economy isn't out of the woods yet.

Federal Reserve Chairman Ben Bernanke and members of Obama's economics team have warned that the nascent recovery won't be robust enough to prevent the unemployment rate — now at a 26-year high of 9.8 percent — from rising into next year.

Economists say the jobless rate probably nudged up to 9.9 percent in October and will go as high as 10.5 percent around the middle of next year before declining gradually. The government is scheduled to release the October jobless rate report next week.

The Labor Department said Thursday that newly laid-off workers seeking unemployment insurance fell by 1,000 to a seasonally-adjusted 530,000. Analysts expected a drop to 521,000.

The number of people continuing to claim benefits, fell by 148,000 to 5.8 million, steeper than analysts expected. Those figures lag initial claims by a week.

With joblessness growing and wages dipping slightly in the third quarter, consumers are expected to turn more restrained in the months ahead. That would put a much heavier burden on America's businesses to keep the recovery going.

"We're beginning to crawl out a very deep hole," said economist Ken Mayland, president of ClearView Economics. "It will take time to get back to normal again and there are questions about how consumers will hold up in the months ahead. But I think the recovery will be sustained."

To foster the recovery, the Fed is expected to keep a key bank lending rate at record low near zero when it meets next week and probably will hold it there into next year.

With the economy on the mend, the Fed has slowed down some key emergency support programs but doesn't want to pull the plug until the recovery is on firm footing.

Even if the economy climbs back into positive territory in the third quarter, it will be up to another group to declare the recession over. The National Bureau of Economic Research, a panel of academics, is in charge of dating the beginning and ends of recessions. It usually makes it determinations well after the fact.

Six Simple Steps to $1 Million

In the October 26, 2009 Investopedia article "6 Simple Steps to $1 Million," Glenn Curtis outlines six habits that will help you save a million dollars. These ideas echo those in the personal investments portion of this Economic Perspectives blog.

Let's face it; we all don't make millions of dollars a year, and the odds are that most of us won't receive a large windfall inheritance either. However, that doesn't mean that we can't build sizeable wealth - it'll just take some time. If you're young, time is on your side and retiring a millionaire is achievable. Read on for some tips on how to increase your savings and work toward this goal.

Stop Senseless Spending

Unfortunately, people have a habit of spending their hard-earned cash on goods and services that they don't need. Even relatively small expenses, such as indulging in a gourmet coffee from a premium coffee shop every morning, can really add up - and decrease the amount of money you can save. Larger expenses on luxury items also prevent many people from putting money into savings each month.

That said, it's important to realize that it's usually not just one item or one habit that must be cut out in order to accumulate sizable wealth (although it may be). Usually, in order to become wealthy one must adopt a disciplined lifestyle and budget. This means that people who are looking to build their nest eggs need to make sacrifices somewhere - this may mean eating out less frequently, using public transportation to get to work and/or cutting back on extra, unnecessary expenses.

This doesn't mean that you shouldn't go out and have fun, but you should try to do things in moderation - and set a budget if you hope to save money. Fortunately, particularly if you start saving young, saving up a sizeable nest egg only requires a few minor (and relatively painless) adjustments to your spending habits.

Fund Retirement Plans ASAP

When individuals earn money, their first responsibility is to pay current expenses such as the rent or mortgage expenses, food and other necessities. Once these expenses have been covered, the next step should be to fund a retirement plan or some other tax-advantaged vehicle.

Unfortunately, retirement planning is an afterthought for many young people. Here's why it shouldn't be: funding a IRA early on in life means you can contribute less money overall and actually end up with significantly more in the end than someone who put in much more money but started later.

How much difference will funding a vehicle such as a Roth IRA early on in life make?

If you're 23 years old and deposit $3,000 per year (that's only $250 each month!) in a Roth IRA earning and 8% average annual return, you will have saved $985,749 by the time you are 65 years old due to the power of compounding. If you make a few extra contributions, it's clear that a $1 million goal is well within reach. Also keep in mind that this is mostly interest - your $3,000 contributions only add up to $126,000.

Now, suppose that you wait an additional 10 years to start contributing. You have a better job and you know you've lost some time, so you contribute $5,000 per year. You get the same 8% return and you aim to retire at 65. When you reach age 65, you will have saved $724,753. That's still a sizeable fund, but you had to contribute $160,000 just to get there - and it's no where near the $985,749 you could've had for paying much less.

Improve Tax Awareness

Sometimes, individuals think that doing their own taxes will save them money. In some cases, they might be right. However, in other cases it may actually end up costing them money because they fail to take advantage of the many deductions available to them.

Try to become more educated as far as what types of items are deductible. You should also understand when it makes sense to move away from the standard deduction and start itemizing your return.

However, if you're not willing or able to become very well educated filing your own income tax, it may actually pay to hire some help, particularly if you are self employed, own a business or have other circumstances that complicate your tax return.

Own Your Home

At some point in our lives, many of us rent a home or an apartment because we cannot afford to purchase a home, or because we aren't sure where we want to live for the longer term. And that's fine. However, renting is often not a good long-term investment because buying a home is a good way to build equity.

Unless you intend to move in a short period of time, it generally makes sense to consider putting a down payment on a home. (At least you would likely build up some equity over time and the foundation for a nest egg.)

Avoid Luxury Wheels

There's nothing wrong with purchasing a luxury vehicle. However, individuals who spend an inordinate amount of their incomes on a vehicle are doing themselves a disservice - especially since this asset depreciates in value so rapidly.

How rapidly does a car depreciate?

Obviously, this depends on the make, model, year and demand for the vehicle, but a general rule is that a new car loses 15-20% of its value per year. So, a two-year old car will be worth 80-85% of its purchase price; a three-year old car will be worth 80-85% of its two-year-old value.

In short, especially when you are young, consider buying something practical and dependable that has low monthly payments - or that you can pay for in cash. In the long run, this will mean you'll have more money to put toward your savings - an asset that will appreciate, rather than depreciate like your car.

Don't Sell Yourself Short

Some individuals are extremely loyal to their employers and will stay with them for years without seeing their incomes take a jump. This can be a mistake, as increasing your income is an excellent way to boost your rate of saving.

Always keep your eye out for other opportunities and try not to sell yourself short. Work hard and find an employer who will compensate you for your work ethic, skills and experience.

Bottom Line

You don't have to win the lottery to see seven figures in your bank account. For most people, the only way to achieve this is to save it. You don't have to live like a pauper to build an adequate nest egg and retire comfortably. If you start early, spend wisely and save diligently, your million-dollar dreams are well within reach.

Can You Spare a Trillion Dollars?

James Bowers, dressed as Uncle Sam, asks people if they can "spare a trillion", as they walk past him in the rain outside the front of Federal Hall, near the New York Stock Exchange, October 28, 2009. Photo: REUTERS/Chip East

Why it doesn't feel like prices are falling

In the October 26, 2009 CNNMoney article "Consumers have trouble finding falling prices," Chris Isidore asks "the government says we're paying less for our everyday needs — so where are the savings?"

The government says consumers are paying less for their everyday needs compared to a year ago. But if it feels like your dollar is not going as far as it used to, you're not alone.

The Consumer Price Index is down 1.3% from a year ago, meaning that the typical market basket of goods and services should be costing you that much less.

But there are a number of factors, some having to do with how CPI is calculated by the Labor Department's Bureau of Labor Statistics (BLS) and some having to do with economic behavior, which can make those savings seem like a mirage.

Here are some of the reasons why your wallet isn't feeling any fatter.

Fuel

Nothing has driven down overall prices more in the past year than the drop in energy prices. Gasoline prices are down nearly 30% in the past 12 months, but if you strip out falling energy prices, the overall CPI is up 1.2%.

But even though gas may be cheaper than a year ago, it still probably feels like prices are going up. That's because gas prices are up 29% in the last six months.

That obviously can cause a squeeze on household budgets, especially as a weak labor market has resulted in tiny rises in the average weekly paycheck.

Health care

Health care is a significant part of consumers' expenditures, topping money spent on gasoline and trailing only housing and food. But calculating the cost of health care is perhaps the trickiest part of CPI, partly because insurance distorts how consumers pay for medical expenses.

According to the Labor Department, overall health care costs were up 4.2% in 2008. For those calculations, the BLS surveyed consumers, medical providers and insurers and tries to come up with a specific cost of medical care.

One reason that healthcare prices appear to have only increased slightly is because if something is judged to be an improved service, such as a new drug, the BLS does not actually consider the higher costs to be a price increase.

That's because the BLS assumes consumers are getting more for their money. But new drugs and treatments are common in the medical industry -- and insurers often charge consumers more for them.

But other calculations show health care expenses, including insurance and other out-of-pocket costs, are rising faster. For example, consumers spent 7% more on health insurance in 2008 than they did a year earlier, according to a separate government reading conducted by the Census Bureau.

And surveys from the Kaiser Family foundation found rises in deductibles, co-payments and other out-of-pocket medical expenses not being captured in either the Census figure or the CPI calculations.

Blame it on Washington

Some government payments, such as Social Security benefits, are pegged to CPI. The current year-over-year decline in CPI means that those benefits won't go up next year. That will be the first time since the cost-of-living adjustment was put in place in 1975 that retirees won't get an increase in Social Security.

Tax brackets and deductions also are pegged to CPI, meaning higher tax bills for many people in 2010 than they would have had to pay if prices were higher.

In the 1990's, then Federal Reserve Chairman Alan Greenspan argued that CPI was higher than justified by economic reality and costing the government money it couldn't afford. As a result, changes in the calculation of CPI were made.

One of the most significant changes was that the government started to assume that if the price of a good rose more than the price of an alternative product, consumers would shift more of their purchases to the lower priced option, limiting the price increase. But even if consumers behave that way, they would still be aware of the higher prices of the goods they can no longer afford.

Because the federal government benefits from lower inflation readings, critics accuse policymakers of intentionally calculating CPI much lower than it should be. Even the BLS admits CPI would be between 0.2 and 0.3 percentage points higher today if the old methods had been used.

Perception

Finally, it's very likely that consumers pay more attention to prices that are going up than prices that are going down.

Behavioral economists say people are very sensitive to any financial losses, meaning they will make far more effort to avoid losing or spending money than they will to make the same amount of money.

Robert Frank, a leading behavioral economist at Cornell University, said this well-documented theory is the reason that higher prices make so much more of an impression than the lower prices that might balance it out.

"Price declines don't register with the same intensity as price increases," he said. "Even if they notice it, it's just not going to arouse them in the same way a price increase will. People like to complain."

The fact that overall price decreases aren't keeping up with the record drop in household wealth over the past few years also makes consumers that much more concerned about prices that are rising.

Frank added that with wages flat and credit still tight, products that might have been considered affordable in the past may now be out of reach for consumers -- even if prices are only up slightly.

"Any struggle to make their budgets fit just exacerbates any injuries you feel from the prices that do increase," he said.

The Stimulus Spending Bill: Is It Working at All?

In the November 2, 2009 TIME magazine artilce "The Stimulus Spending Bill: Is It Working at All?," Justin Fox explains that much of the criticism of stimulus spending is misguided.

The $787 billion American Recovery and Reinvestment Act that Congress approved last February was the first major legislative accomplishment of the Obama White House. Lately, it has also become one of Washington's most frequently tossed political footballs.

Here's the play-by-play from a few days in mid-October. House Republicans wrote (and released to the public) a letter to the President in which they claimed that with the unemployment rate at 9.8%, "it is now evident that the massive 'stimulus' spending bill enacted months ago has been unsuccessful." Obama economic adviser Larry Summers stepped up to play defense. "Thanks largely to the Recovery Act ...," he wrote, "we have walked a substantial distance back from the economic abyss and are on the path toward economic recovery."

The next counter came in a memo to House Republicans from economist and former John McCain adviser Douglas Holtz-Eakin, who wrote, "Jobs keep disappearing ... and the Obama Administration's only apparent plan is to double down on a failed strategy for economic stimulus." The next day, the White House went on offense, hailing a preliminary report on stimulus job creation (30,000 jobs directly created or saved by the first $16 billion in spending). House minority leader John Boehner retorted that such exulting was "beyond the pale" because "3 million private-sector jobs have been lost since it became law."

Who's right here? Well, first, the Republican argument that the stimulus is a bust because jobs have been lost fails a basic logic test. After last fall's global financial shock, the job market was going to be thrown for a loss no matter what. The issue is whether the number of job losses is greater or lesser than it would have been in the absence of the stimulus. "You can't answer these questions without a compared-to-what," says Jared Bernstein, economic adviser to Vice President Joe Biden, who is overseeing the stimulus. "We can have good arguments about the baseline, but a critique that doesn't evoke the baseline is useless."

I got my rough baseline from a conversation at the height of last fall's financial panic with Barry Eichengreen, an economist at the University of California, Berkeley, who is an expert on the Great Depression. "I doubt that we'll be able to avoid double-digit unemployment," he told me. "But I'm still confident we can avoid 24% unemployment like in 1933."

By that standard, we're doing O.K. But Bernstein and Christina Romer, the chairwoman of the President's Council of Economic Advisers, made the mistake of providing a more optimistic baseline last January — a forecast in which unemployment peaked at 9% without the stimulus bill and stayed below 8% with it.

Unemployment has of course passed both those mileposts and is probably still rising. ("I have noticed," Bernstein says dryly.) This overshoot says more about the inadequacy of economic-forecasting models than about the efficacy of the stimulus. But the White House cites these same kinds of models in claiming that the stimulus added between 2 and 3 percentage points to economic growth in the second quarter and 3 points in the third quarter. This may be correct as far as general direction — my unscientific assessment (a.k.a. guess) is that it is — but the exact numbers are probably bunk.

The political back-and-forth on the stimulus bill is the ultimate in bunk, though, because it ignores most of the fiscal stimulus provided by Washington so far. Anytime the Federal Government spends more than it takes in, it creates fiscal stimulus. That stimulus (deficit) was $1.4 trillion for the just-ended fiscal year, up about $1 trillion from the year before. The stimulus bill accounted for just $200 billion of that increase, according to the Congressional Budget Office. Bailing out banks and other financial firms cost $245 billion. A $419 billion drop in tax receipts (due mainly to recession, not legislation) without an offsetting spending cut was the biggest factor in the deficit's rise. Then there are the trillions of dollars the Federal Reserve put into asset purchases and other programs — surely the biggest stimulus of all.

Why don't we hear constant political debate about these other stimulus efforts? Presumably because they were the result of bipartisan legislation or were the doing of the nonpartisan Fed. That is to say, the Obama Administration can't take full credit for the bulk of the stimulus, and the Republicans can't disown it. So neither side talks much about it. Over the coming year these other forms of stimulus will — one hopes — be ratcheted back, while stimulus-bill spending will peak. At that point the great stimulus debate might actually start to matter. Until then, there's better football to be watched elsewhere.

Be Careful What You Wish For (... or what precedents you establish in Congress)

It is widely believed that Congress may use the process of reconciliation to limit opposition to proposals for health insurance reform. Wikipedia explains reconciliation as "a legislative process of the United States Senate intended to allow a contentious budget bill to be considered without being subject to filibuster. Because reconciliation limits debate and amendment, the process empowers the majority party." It goes on to explain that "until 1996, reconciliation was limited to deficit reduction, but in 1996 the Senate's Republican majority adopted a precedent to apply reconciliation to any legislation affecting the budget, even legislation that would increase the deficit. ... Under the administration of President George W. Bush Congress used reconciliation to enact three major tax cuts."

The irony of this is that Republicans were warned about reconciliation's potential use against their causes in a 1996 article published in the Congressional newspaper Roll Call and the Congressional Record:

[From Roll Call, May 30, 1996]
THE DAY THE SENATE DIED: BUDGET MEASURE WEAKENS MINORITY
(By Bill Dauster)

The Senate died last week. At the very least, it suffered a blow that leaves it clinging to life.

You may be forgiven if you missed it. It happened while the Senate considered the budget resolution, a budget whose fiscal priorities pretty much repeat last year’s endless budget failure.

But while most observers of Congress yawned, the Republican majority used the budget process to fundamentally alter the way the Senate works. From now on, the Senate will conduct much of its business at its hallmark deliberative pace only if the majority wants it that way.

It is the Senate’s deliberative pace that has distinguished it from the House of Representatives and other parliaments. Yes, the Senate does apportion its membership by state instead of by population, but its true uniqueness flows from the way its rules preserve the rights of determined minorities.

Once the presiding officer has recognized a Senator, the Senate’s rules allow the Senator to speak as long as humanly possible, unless 60 Senators vote to end the filibuster. The mere threat of filibuster—called a ‘‘hold’’ can detain legislation.

As well, when the Senate is considering one subject, Senators have the perfect right to offer amendments on entirely different subjects. These powers to debate and amend make every single-United States Senator a force to be reckoned with. They give dedicated groups of Senators substantial power. And they give 41 Senators the absolute right to kill a bill.

All that changed last week. Sen. Pete Domenici (R–NM), the Budget Committee chairman, brought to the Senate floor a budget resolution that markedly expanded the use of a procedure called ‘‘reconciliation.’’ The reconciliation process creates bills that the Senate considers with only limited debate and limited opportunities to amend.

Because reconciliation bills limit debate, Senators cannot filibuster them. A simple majority can pass them. Because Senators may offer only germane amendments to reconciliation bills, Senators must stick to only the subjects chosen by the majority in the committee process. Because of the reconciliation process’s power, the Senate has limited it solely to deficit reduction through the ‘‘Byrd Rule,’’ named after the Senate’s parliamentary conscience, Sen. Robert Byrd (D- WVa).

This year’s budget will generate an unprecedented three reconciliation bills—on welfare, Medicare, and tax cuts—designed to maximize partisan confrontation with the President. And in a marked departure from past practice, the Republican budget resolution devotes one of the three reconciliation bills—the one to cut taxes—solely to worsening the deficit.

On May 21, Senate Minority Leader Tom Daschle (D-SD), backed by Sens. Jim Exon (D-Neb), Emest Hollings (D-SC), and Byron Dorgan (D-ND), formally challenged the procedure. The Republican-appointed Parliamentarian gave it his blessing.

In a series of exchanges with the presiding officer, Daschle demonstrated that the new procedure has few limits. Daschle appealed the ruling, but the Senate sustained the procedure on a straight party-line vote.

From now on, the majority party can create as many reconciliation bills as it wants. And the majority can use them to increase spending or cut taxes, worsening the deficit. From now on, the majority can use the reconciliation process to move its entire legislative agenda through the Senate with simple majority votes and few distractions.

The old Senate is dead. Some may say, ‘‘Good riddance.’’ After all, as a Democratic Member of Congress once said, ‘‘In the Senate, you can’t go to the bathroom without 60 votes.’’

If a simple majority can now pass important legislation in the Senate, perhaps a lot more will get done. Democrats will recall their frustration with Republican filibusters. Indeed, then-Budget Committee Chairman Jim Sasser (D-Tenn) once tried to convince Byrd to allow the Senate to consider the Clinton health care reform bill using the reconciliation process. Byrd did not want that done.

Also, the Parliamentarian at that time advised that it would not be in order for a budget resolution to instruct the creation of a reconciliation bill that solely worsened the deficit.

One can think about efficiency and Congress in two ways. The current conventional wisdom thinks in terms of legislative efficiency: How many bills become laws?

But as Nobel Prize-winning economist James Buchanan has argued, societal efficiency may be better served by a Congress that has hard time enacting laws. Under those circumstances, laws would change less often, less frequently disrupting peoples’ lives, less often intruding into them. If you agree with Thoreau that the best government is that which governs least, then the most societally efficient government is the one with the most checks and balances.

The Republican majority may thus have served legislative efficiency at the expense of societal efficiency. Good or bad, the Senate has changed.

As Daschle warned on May 21, ‘‘What goes around comes around.’’ Democrats will remember the lessons the Republicans have taught them of how to use the power of the majority.

So say ‘‘bye, bye’’ to this slice of American pie. This’ll be the day that it dies. This’ll be the way that it dies.

Congressional Record -Senate - pages S6135-S6136 - June 12, 1996.

Recession or not? US economy likely to be in limbo

In the October 25, 2009 article "Recession or not? US economy likely to be in limbo," Rob Lever reports:

WASHINGTON (AFP) – The US economy is poised to show growth in the third quarter, rebounding from its worst slump in decades, but whether the recession is over is a more complex question.

The first official estimate due Thursday on gross domestic product (GDP), or output of goods and services, is expected to show expansion of between 3.0 and 4.0 percent in the July-September period after four negative quarters in a row.

Yet the economy may linger for months in a "no-man's land" in which GDP is expanding but no one is sure if the recession is "officially" ended, because of the way business cycles are defined in the United States.

For decades, the US government and economic community have recognized a panel of academicians with the private National Bureau of Economic Research as the official arbiter of business cycles.

The NBER panel does not use the definition employed in many countries of recession as two consecutive quarters of declining GDP.

NBER says a recession is "a significant decline in 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."

Moreover, the NBER generally waits months before its pronouncement, leaving the question of recession or not in limbo.

Complicating the issue is the sharp rise in unemployment, which has hit a 26-year high of 9.8 percent, making it still feel like recession for many.

"The average American doesn't think you have recovery until the unemployment rate comes down, and it won't come down until you have a sustained rate of 3.0 percent," says Cary Leahey, senior economist at Decision Economics, a research firm.

"This is not really a meaningful recovery."

Leahey expects the economy to show growth of roughly 3.9 percent in the third quarter, but sees a slowdown to around 2.0 percent in the fourth quarter as the expansion stalls.

Moreover, analysts point out that much of the growth will be the result of businesses rebuilding inventories following sharp production cuts, and from government stimulus efforts that may not be sustained.

Nariman Behravesh, chief economist at the research and consulting firm IHS Global Insight, said he believes the recession ended in June or July and that NBER should provide at least a preliminary pronouncement of the fact.

"I'm sure the recession is over, the only question is the strength of the recovery," he said.

"NBER could provide a preliminary reading, they could say, 'This is our best estimate,' instead of leaving everybody guessing."

Behravesh said it may be as long as a year before NBER decides and that the state of uncertainty "is not helpful for businesses."

Federal Reserve chairman Ben Bernanke said last month the recession is likely over "from a technical perspective" but that the economy will struggle due to difficult credit conditions and high unemployment.

"It's still going to feel like a very weak economy for some time as many people will still find that their job security and their employment status is not what they wish it was," the Fed chief said.

The NBER declared the current recession on December 1, 2008, a full year after the downturn began. That was made despite data showing modest growth in the fourth quarter of 2007 and second quarter of 2008.

NBER declared an end to the 2001 recession only in July 2003, even though revised data showed there were not two consecutive negative quarters for GDP.

Roger Farmer, chairman of the economics department at the University of California at Los Angeles, said he believes NBER will eventually declare the recession ended in May 2009.

But Farmer said many Americans still will be feeling economic pain and that the NBER should consider other factors such as long-term unemployment.

"I think the economy is fragile, and the recovery could easily fizzle out," he said.

Even if the recession were declared over, "until the unemployment rate comes down, the US economy is going to be in trouble," he said.

"Only when we start spending again, and confidence returns to the private economy will the recession be over."

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Bernanke's trillion-dollar decision

In the October 24, 2009 Politico article "Bernanke's trillion-dollar decision," Eamon Javors provides an example of why the chairman of the U.S. Federal Reserve System is one of the most powerful people in the world:

The biggest decision of the economic recovery will be made in the next six months, and Barack Obama will have almost nothing to do with it.

Forget the debate over TARP, and never mind the questions about a second stimulus. This decision is about when to pull out $1 trillion that’s propping up the U.S. banking system. And it will be Federal Reserve Chairman Ben Bernanke and his Fed colleagues who make the call.

That’s hard enough for a White House that knows its political fortunes rise and fall with the economy.

What’s worse is that Bernanke and Obama – like many presidents and Fed chairmen past – won’t necessarily have the same goals for this trillion-dollar decision.

Fed chiefs worry about inflation. Bernanke wants to take the money out quickly enough to prevent the economy from overheating and causing a jump in prices that strangles growth. But move too fast, and the economic recovery runs out of fuel.

Presidents worry about jobs. Obama probably wouldn’t mind a little overheating, say, next summer – when voters are starting to make up their minds about the 2010 congressional elections, and he hopes the economy can shake the 10-percent unemployment rate doldrums.

“Any chairman of the Fed will do what’s right for the country, not what’s right for the administration,” said Ernest Patrikis, a partner at the law firm White & Case who spent 30 years at the New York Fed. “That’s his job – that’s why he’s apolitical.”

“The exit will be so difficult,” said economist Joseph Brusuelas of Moody’s Economy.com. “Bernanke wants to engineer a recovery that does not include inflation. Obama wants a more robust recovery and like many political actors may be willing to forgo a little inflation for a little more employment.”

The White House is already worried that jobs won’t be coming back fast enough next year, Fed or no Fed.

Obama economic adviser Christina Romer warned a congressional panel Thursday that the jobs picture will remain “painfully weak” through 2010, with a seriously elevated unemployment rate for another year.

So all the White House can do is watch and wait, and hope it doesn’t pay a political price for any missteps by Fed officials they can’t control.

“It’s a dicey thing to do, and they know it,” said Sen. Richard Shelby (R-Ala.), the ranking member on the Senate Banking Committee. “They have to be careful.”

The Fed’s moves are shrouded in secrecy, their prerogative to move the levers of the economy closely guarded – so much so that there’s been a recent a rise in populist anger about this all-powerful agency that exists largely outside the democratic process.

But because the Fed is an independent agency, it’s even considered bad form for a president to talk much about it – and indeed, the White House refused to comment for this story.

Last fall, the Fed injected $ 1 trillion-plus into the nation’s banking system – at times, by providing financial institutions with cash to cover their losses as the global meltdown spread. Now Fed officials are already talking about the need to withdraw the funds injected into the economy during the darkest days of the crisis, moves that are credited with largely saving the United States from plummeting into an economic depression.

“Given the highly unusual economic and financial circumstances, judging when the time is appropriate to remove policy accommodation, and then calibrating that removal, will be challenging,” said Federal Reserve Vice Chairman Donald Kohn in a speech to the Cato Institute on Sept. 30. “Still, we need to be ready to take the necessary actions when the time comes, and we will be.”

Translation: “policy accommodation” is the cash, and “the necessary actions” are the decision to ease it out of the economy.”

And is the Fed prepared to the pull the trigger? “We will be” seems to cover it.

Already, the Fed is already showing some signs of restlessness. On Monday, the New York Fed tested its “reverse-repo” process -- one tool the Fed could use to use to pull the money out when the time comes. The test run was widely interpreted as a sign the Fed is getting ready to act – but when, nobody knows.

The Fed can also tap on the brakes at the first sign of inflation by raising interest rates, now near zero. The Fed has said it will keep the rock-bottom rates for an extended period, but it won’t be more specific when they could go up – a decision that is bound to be controversial when it comes.

Patrikis thinks the Fed will make a decision on withdrawing liquidity either during the second quarter of 2010, or after the November elections that year – but that it won’t make any dramatic moves in the run-up to Election Day.

Still, he said, it is too early to predict what the Fed might do. And Patrikis points out that Obama will have indirect input into the decision, because there are two vacancies on the Fed’s board now that Obama will fill in the coming months. The president will surely select board members whose economic judgment he trusts.

Between the two vacancies, a member who Obama appointed earlier this year and Bernanke himself, the president will likely have named four of the seven members of the Fed’s Board of Governors by the time they make the call.

But the Fed knows actions like that can have political consequences. “There are few politicians who like higher interest rates,” said one former Fed official. “And President Obama is a politician.” That said, the official continued, “I suspect they will be broadly on the same page.”

That’s because Obama, too, has a longer-term time frame in mind: 2012, when he will be running for reelection. It’s in Obama’s interest for the Fed to take inflation prevention measures now so that he doesn’t have to run a tricky reelection campaign in a high-inflation environment.

Tensions between Presidents and Fed chairmen are nothing new.

In the 1980s, Fed Chairman Paul Volcker declared war on inflation. His strategy: raising interest rates. Volcker jacked the Fed funds rate to 20 percent, which contributed to the deep early 1980s recession that caused howls of protest from the White House and incumbent Republicans on Capitol Hill. The Fed, grumbled then-Senate Majority Leader Howard Baker (R-Tenn.), should “get its boot off the neck of the economy.”

Nonetheless, Volcker’s strategy worked, and the Fed broke the back of the inflation cycle. Ironically, Volcker is a top economic adviser to Obama today.

In the 1990s, President George H.W. Bush blamed Fed Chairman Alan Greenspan for his election loss to Bill Clinton. Bush didn’t believe Greenspan was lowering interest rates fast enough to pull the nation out of a recession – which gave Clinton, with his famous “it’s the economy, stupid” campaign, an opening to trounce the elder Bush.

Mark Gertler, a professor of economics at New York University, says the lesson of history is that politicians should not interfere with the central bank. “If the Fed doesn’t act independently, the economy is endangered,” said Gertler. “It would be dangerous if the administration appeared to be interfering with the Fed.”

Financial Services Committee Chairman Barney Frank (D-Mass.) doubts they’ll be any daylight between Obama and Bernanke – who Obama just reappointed over the summer at a time when Wall Street needed a signal that there would be continuity at the Fed.

He argues that Bernanke and Obama will have the same agenda in 2010: fixing the economy.

“I think they are very much in sync,” said Frank. Asked about potential divergence between the Fed and the White House, he said, “That reflects a journalist’s hope that there will be friction. Obama and Bernanke have both argued that at some point they’re going to unwind this.”

Percent of U.S. People 25 Years and Over Who Have Completed High School (Includes Equivalency): 2007

Source: U.S. Census Bureau - American FactFinder

Scientist Monkeys Around With The Economy

The October 23, 2009 National Public Radio (NPR) story "Scientist Monkeys Around With The Economy," says:

"A primate ethologist asked what would happen when a low-ranking monkey is trained to do things high-ranking monkeys can't do? The answer in human economic terms: The new skills translated into a much bigger income."

According to the transcript of the radio report:

STEVE INSKEEP, host:And now we turn from baseball to monkey business. Most groundbreaking experiments in economics are performed by economists, as you would expect. But a scientist called a primate ethologist has added to the sum total of economic knowledge, at least as it applies to monkeys - and maybe to us. Alex Blumberg of our Planet Money team has the story.

ALEX BLUMBERG: You're on the low end of the social order. You toil and toil, yet make hardly any money for your efforts. Is there a way for you to improve your lot, bump up your earning potential, if you're monkey?

Dr. RONALD NOE (Primate Ethologist, University of Strasbourg): We were trying to answer questions about whether monkeys are able to behave in an economic way.

BLUMBERG: This is Dr. Ronald Noe, a primate ethologist at the University of Strasbourg. His question specifically was, what would happen if you trained a low-ranking vervet monkey to do things that other vervet monkeys, even high-ranking monkeys, couldn't do?>

Now, a vervet monkey society is pretty hierarchical: high-ranking monkeys get groomed a lot, but hardly ever have to groom other monkeys. Low-ranking monkeys groom others, but never get groomed themselves. Dr. Noe's team trained a low-ranker to open a container with bits of apples in it, a skill that no other monkey had. Would it be worth anything, he wondered, in monkey money -otherwise known as grooming.

Dr. NOE: It has some aspects of money. The higher-rankers can give other services that low-rankers can't give, such as support in a fight or a tolerance around a food site or something like that. And they get rewarded for that by grooming of them.

BLUMBERG: I see, OK. Tolerance around the food site, in other words, they let - they can…

Dr. NOE: They can decide whether or not the low-ranker is allowed to feed next to them or not. If they don't like it, they hit them over the head. If they like it, they…

BLUMBERG: So it's a protection racket, in a certain way.

Dr. NOE: We see it in a slightly more positive way. They are nice to each other and groom each other. But of course, they also hit each other over the head once in a while, that's for sure.

BLUMBERG: Sure enough, when they trained a low-ranking monkey to open the container, just as any technical college advertisement will tell you, the new skills translated into a higher income. Roughly an hour after she'd open the container for everyone, she was getting groomed a lot more, as much as a high-ranking monkey, and she no longer had to do hardly any grooming herself. But that was not the most spectacular finding.

Dr. NOE: So what then did, is we got a second low-ranking female, trained her to open a second container with apples in it, and then we saw that the value of the first provider dropped, more or less, to the half of what she had before. So now we had a competition between two animals. Both of them could provide this good, these apples, and so the value of the first one dropped down again. And of the second one who was very low at the beginning of the experiment, she went up. And they ended up both in the middle, so to speak.

BLUMBERG: So when there was a monkey monopoly on the skill, the monkeys paid one price. But when it became a duopoly, the price fell to an equilibrium point, about half of what it had been. And this all happened despite the fact that we're talking about monkeys here. Monkeys can't do math.

Dr. NOE: Animals that cannot form binding contracts, animals that cannot talk about what they want to do or cannot offer verbally or anything - they nevertheless are quite accurate in adapting their behavior to what the market gives them.

BLUMBERG: Dr. Noe says that monkeys arrive at these economic outcomes not through sitting down and negotiation, but through feeling and emotion. Monkeys develop positive associations toward a container-opening member of the society, and they just want to groom her. But once another monkey can open the container, the skill isn't as unique, the positive feelings diminish, and grooming goes down. It's the law of supply and demand played out along the neurohormonal pathways that deal with emotion in the monkey brain.

Dr. Noe wonders how much of human economics operates along similar lines. As he puts it, even on the stock market, people might play more with their bellies than with their brains.

For NPR News, I'm Alex Blumberg.

(Soundbite of music)

INSKEEP: It's NPR News.

Percent of U.S. People 25 Years and Over Who Have Completed a Bachelor's Degree: 2007

Source: U.S. Census Bureau - American FactFinder

Watchdog: Bailout helped, but at high cost

The October 21, 2009 Associated Press article "Bailout watchdog expects much to remain unrefunded says "the man who watches over $700 billion in TARP money offers a blunt take on the program's effects."

WASHINGTON – The man who watches over the $700 billion in government money given to banks and other institutions to avert a financial collapse said Wednesday he thinks it's too early to say how much will be repaid to the taxpayers.

Just as the Obama administration prepares to announce a new TARP-like program for small community banks, Inspector General Neil Barofsky said he believes that "it's unrealistic to think we're going to get all of that money back."

The Treasury Department has spent more than $454 billion through TARP programs. Forty-seven recipients have paid back nearly $73 billion. That means more than $317 billion remains outstanding with the program set to expire Dec. 31.

Later Wednesday, President Barack Obama is expected to announce the community bank assistance effort. The American Bankers' Association has asked for $5 billion in rescue-fund money to help small banks extend more loans.

Asked on a nationally broadcast interview how he would grade the program, Barofsky said, "I think right now it would have to be an incomplete." Barofsky did say the program was successful in "pulling us back" from a financial collapse, however. At the same time, he told CBS's "The Early Show" that the resumption of huge executive bonus payments by some of the same institutions that benefited from the government bailout has sown distrust and cynicism among many taxpayers.

The mixed and blunt assessment came as the Obama administration takes steps to wind down and refocus the Wall Street rescue effort. Barofsky's conclusions were in a quarterly report scheduled for release later Wednesday.

An administration official said Tuesday that the bailout effort's signature initiative — a capital purchase program that aimed to inject $218 billion into banks — would effectively wrap up at the end of the year.

But even as the administration aimed to refocus the massive Troubled Asset Relief Program on small businesses and homeowners, Barofsky said in his report that the effort to save the nation's financial sector came at great cost to taxpayers, to the integrity of the financial system and to the public's perception of the federal government.

"Despite the aspects of TARP that could reasonably be viewed as a substantial success," he wrote, "Treasury's actions in this regard have contributed to damage the credibility of the program and of the government itself, and the anger, cynicism and distrust created must be chalked up as one of the substantial, albeit unnecessary, costs of TARP."

Barofsky said public suspicion was fed by Treasury's decision not to require banks to report how they used their rescue money and its "less-than-accurate" statements describing the financial condition of nine large banks that benefited from large infusions of aid. The TARP program began under the administration of President George W. Bush and has expanded under Obama.

The administration official, speaking on the condition of anonymity because the details had not yet been made public, said the Treasury Department plans to cap two TARP programs at levels below initial projections. A program designed to rid big banks of their bad assets will spend $30 billion instead of $75 billion. Another that supports a Federal Reserve effort to ease bank credit will top off at $30 billion instead of $80 billion. A new initiative aimed at banks — the Capital Assistance Program — had no applicants and will also end, the official said.

The overall TARP program has come under criticism in Congress from across the political spectrum. Liberals maintain the program needs to shift its focus from big financial firms to small businesses and homeowners. Conservatives insist the program has been an unnecessary intrusion into the financial sector and should end swiftly.

In his report, Barofsky credited the Federal Reserve and the Treasury Department for adopting some of his accountability recommendations over the past several months. But he said several of his agency's proposals for greater transparency have gone unheeded.

The report describes a patchwork of initiatives carried out under the TARP umbrella — some designed to assist the biggest of Wall Street institutions, others to bail out the struggling auto industry and yet others to help homeowners struggling to stave off foreclosure.

Even within those programs, Barofsky found inconsistent attempts to hold recipients of the bailout accountable to taxpayers.

Recession's surprising winners & losers

In the October 21, 2009 Wall Street Journal article "Women's Wages Outpaced Men's During Recession," Sara Murray says "Men are more likely to be unemployed than women — but that's not their only problem."

The wages of the typical woman who had a job during the worst recession in decades rose faster than those of the typical man, new data from the Bureau of Labor Statistics show.

Over the past two years, the wages of the median woman -- at the statistical middle -- rose 3.2% when adjusted for inflation. Wages of the median man rose 2%. Minority men were particularly hard hit, while minority women and highly educated women of all races did better.

The typical full-time female worker earned $657 a week in the third quarter, the BLS said. The typical man earned $812 a week. Men are more likely to be unemployed, though: The male jobless rate is 11%; for women, it's 8.4%

Economists cautioned that the wage numbers and the increases don't reflect the large numbers of workers who aren't working at all.

There were about 8.2 million fewer full-time wage and salary workers in the third quarter than two years ago; the data don't include part-time or self-employed workers. Low-wage workers are hit disproportionally during recessions, and their absence from the tally could cause median wages to rise even if the typical worker isn't getting a raise.

"This is a situation where everyone's losing but men are losing more, and that's not really a victory for women," said Heidi Shierholz of the Economic Policy Institute, a left-leaning Washington, D.C., think tank.

Asian men fared worse than other men, but the median weekly wage for Asian men and women was $877 in the third quarter -- higher than any other ethnic group. Whites were next at $753, then blacks at $607 and Hispanics at $527. The median pay of Asian men declined 4.1% between the third quarter of 2007, just before the recession began, and the third quarter of 2009. The typical black man saw his wages fall 2.8%.

The recession began in December 2007 and most economists believe it ended this past summer. Women's wages have long lagged behind men's, but minority women did much better than their male counterparts during the recession.

Over the past two years, the wages of the typical black male full-time worker fell, but wages rose 7.3% for black women. Among Hispanics, the median male wage rose 0.4% over the past two years, but the median female wage rose 5.5%.

Wages of white and Asian women didn't rise as much as those of other women; the median increased 2.4% and 1.8%, respectively, over the past two years. White males were slightly better off: Their wages rose 2.8%. It was the only ethnic group in which men's wages rose more during the recession than women's; white women's wages rose 2.4%.

"It's risky to make too much of these fluctuations," said David Autor, an economics professor at the Massachusetts Institute of Technology. "That said, male employment has been in relative decline for some time, and I would not be at all surprised that the industries and occupations in which males are most concentrated have been hit relatively hard by the recession."

The pattern of larger gains among some women and minorities isn't likely to hold when the U.S. economy recovers. As jobs return, there will be more low-wage jobs, and that will pull down the median wage. But higher-paying jobs in male-dominated sectors, such as manufacturing, construction and finance, will return as well, and that will boost the median male wage.

Young workers, particularly vulnerable during recessions, were the only age group to see their wages decline over the past two years. Wages for 16- to 19-year-olds fell 0.3% based on numbers that the BLS didn't adjust for inflation. Seniors fared the best: The wage of a typical worker over age 65 rose 15.4% over the two-year period.

Education also was a factor: Those without a high school diploma earned a median of $448 a week in the third quarter, compared to $1,145 for those with at least a bachelor's degree. Pay of women with advanced degrees grew faster than pay of men with advanced degrees. But men still earned more: The highest-paid 10% of male workers with advanced degrees earned $3,260 or more weekly, compared to $2,252 or more for women of the same education level.

Wages of full-time workers in the top 10% grew much faster during the two-year recession (9.5% before adjusting for inflation) than those of workers in the bottom 10% (5.2% before adjusting for inflation).

Write to Sara Murray at sara.murray@wsj.com

23 states report higher unemployment in September

In the October 21, 2009 article "23 states report higher unemployment in September," Associated Press economics writer Christopher S. Rugaber reports:

WASHINGTON – Unemployment rose in 23 states last month as the economy struggled to create jobs in the early stages of the recovery.

While layoffs have slowed, companies remain reluctant to hire. Forty-three states reported job losses in September, while only seven gained jobs, the Labor Department said Wednesday.

Wednesday's report underscores the uneven nature of the recovery. The unemployment rate dropped in some Midwestern states as the manufacturing sector improved. But Florida and Nevada, two of the states hit hardest by the housing slump, reported record-high jobless rates.

Some of the states that lost jobs still saw their unemployment rates improve, as discouraged workers gave up looking for work. People who are out of work but no longer looking for jobs aren't counted as officially unemployed.

That trend was evident nationwide in September, as nearly 600,000 people dropped out of the work force, the department reported earlier this month.

The U.S. jobless rate rose to 9.8 percent in September, a 26-year high, from 9.7 percent. Some economists estimate it would have topped 10 percent if there had been no change in the labor force.

There were some bright spots in Wednesday's report. The Midwest region, hit hard during the recession by job losses in manufacturing, saw its unemployment rate drop for the second straight month, to 9.8 percent from 10 percent in August. It was the only region where the unemployment rate declined.

The Midwest benefited from sharp drops in unemployment in Indiana and Ohio. Indiana's jobless rate fell to 9.6 percent, from 9.9 percent in August and 10.7 percent in June.

Indiana added 4,400 jobs, the most of any state, due to gains in manufacturing, services and government.

The state's jobless rate has dropped for two straight months, said Robert Guell, an economics professor at Indiana State University in Terre Haute, easing his skepticism that the improvement might have been a fluke.

"It does look green shoot-like," he said.

The state has benefited from a rebound in the auto sector and a healthy medical device industry, he said. Indiana is home to many auto parts and assembly plants, which are ramping up production as General Motors and Chrysler seek to replenish inventories depleted by the popular Cash for Clunkers program.

Honda Motor Co. also manufactures the Civic at a plant in the state, Guell said. The Civic was a major beneficiary of the clunkers program, which provided rebates to consumers who traded in old cars for newer, more fuel-efficient models.

Ohio, meanwhile, saw its jobless rate drop to 10.1 percent, from 10.8 percent in August and 11.2 percent in July.

Lucia Dunn, an economics professor at Ohio State University in Columbus, said the state has benefited in recent years from growth in financial services and technology companies. Recruiters from a JPMorgan Chase & Co. regional office frequently contact her seeking candidates for economist and statistician jobs.

"Most people here feel that the worst is over," Dunn said.

Still, Ohio lost about 6,000 jobs in September, and much of the improvement in its unemployment rate came from discouraged workers leaving the work force.

Nevada, Rhode Island and Florida last month posted their highest jobless rates on records dating to 1976, the department said. Fifteen states and Washington, D.C., reported unemployment rates of 10 percent or more.

Michigan reported the nation's highest unemployment rate at 15.3 percent. It was followed by Nevada at 13.3 percent, Rhode Island at 13 percent, California at 12.2 percent and South Carolina at 11.6 percent.

Real estate continues to bedevil states that enjoyed a housing boom. Florida's jobless rate rose to 11 percent from 10.8 percent in August, as the state lost nearly 13,000 construction jobs. California lost 39,300 jobs, including more than 14,000 in construction. Nevada lost 3,500 construction jobs, though it boosted employment in services.

In Florida, the housing boom at one point reduced the state's jobless rate to 3.3 percent, said Sean Snaith, an economics professor at the University of Central Florida in Orlando.

But now, "the trough is as deep as the peak was high," he said.

Florida also lost population for the first time in 60 years in 2008, he said, leaving even more empty homes and condominiums.

The state's unemployment rate won't drop below 10 percent until 2012, Snaith predicts.

Fed says economy perked up from depressed levels

In the October 21, 2009 Reuters article "Fed says economy perked up from depressed levels," Emily Kaiser says the economy is improving in most parts of the United States.

WASHINGTON (Reuters) – U.S. economic conditions stabilized or improved modestly in most parts of the country, according to a Federal Reserve report on Wednesday that suggested the economy was slowly clawing out of a recession.

In its "Beige Book" of anecdotal reports on the economy, the Fed noted improvement in two of the hardest hit areas -- residential real estate and manufacturing.

"Reports from the 12 Federal Reserve districts indicated either stabilization or modest improvements in many sectors since the last report, albeit often from depressed levels," the Fed said in its report, which was prepared at the Federal Reserve Bank of Richmond based on information collected before October 13.

"Reports of gains in economic activity generally outnumber declines, but virtually every reference to improvement was qualified as either small or scattered."

U.S. stocks stayed at higher levels after the report was released, while prices for government debt remained lower, as did the U.S. dollar.

Jennifer Lee, an economist with BMO Capital Markets, said the tone of the Fed's report was "tentatively" more positive than the prior one, which was released on September 9.

"Not super-duper-jumping-up-and-down-with-great-excitement positive, but slightly more optimistic than seen in recent reports," she said.

The central bank gave a grim assessment of commercial real estate, which is widely seen as one of the big remaining trouble spots for the still-struggling financial sector.

"The weakest sector was commercial real estate, with conditions described as either weak or deteriorating across all districts," the Fed said.

A number of the regional Fed banks said businesses in their area did not expect commercial real estate to improve much, if at all in, in 2010.

"Tenants are demanding significant concessions -- including space improvements and one- to two-year leasing commitments -- along with low rental rates," the Boston Fed reported.

THOSE WALL STREET BONUSES

Labor markets were typically characterized as weak or mixed, although there were "occasional pockets of improvement." That assessment supported the view that the worst of the job losses are over, but it may be a while before growth resumes.

The Atlanta Fed said many employers "indicated that they were holding on to the most skilled workers, but have reduced overall hours. They feel that a sustained increase in orders and sales is a prerequisite to adding to payrolls."

Despite all the recent talk about huge bonuses at Wall Street firms, the New York Fed heard from one of its contacts that times were getting tougher for top-tier bankers.

"Compensation -- especially cash compensation -- has reportedly fallen sharply, and is expected to fall further during the remainder of the year and into 2010, most notably for the top earners in the industry," the New York Fed said.

The report said the "cash for clunkers" auto sales incentive program left depleted inventories and slower sales in its wake. Overall spending remained weak in most districts, although "some improvements" were noted.

In residential real estate, which was at the heart of the credit crisis that sparked the recession, the government's $8,000 first-time homebuyers' tax credit helped to lift sales of low- to middle-priced houses, the Fed said. However, residential construction activity remained weak in most districts.

Measures of discretionary and business spending were a mixed bag. In New York City, retail sales showed improvement, particularly for one unnamed higher-end department store.

Broadway theaters report that attendance picked up somewhat in September and early October but remained slightly lower than a year earlier.

In North Carolina, a contact on the Outer Banks, a popular vacation spot, indicated that bookings for the Columbus Day holiday weekend were somewhat stronger than a year ago, which she attributed to "visitors being a little more positive."

And in the Boston Fed's region, business travel was especially soft, and one contact worried that decreased corporate travel and spending will become "the new norm."

How to Pay Down Your Credit Card Debt

Accoding to the October 16, 2009 Consumer Reports article "How to Pay Down Your Debt

We evaluate different approaches to retiring your credit-card balances.

Americans currently owe $917 billion on revolving credit lines, according to the latest Federal Reserve statistics. Almost all of it is a result of charging purchases to credit cards. About $69 billion of it is currently past due.

We can keep piling on the bad news for debtors and creditors, much of which you've undoubtedly heard or read before. Credit-card issuers are drastically reducing lines of credit -- one analyst thinks that a year from now credit lines will be half their current levels. And despite low interest rates nearly everywhere else, rates on credit cards are increasing as lenders put hikes in place before next year, when new legislation that curbs some abusive lending practices comes into full effect. The depth and length of the current recession is giving lenders another excuse (as if they needed one) to recoup their losses by any means possible.

Motivations for a Swift Payoff

It seems like a no-win situation for consumers carrying a balance, especially if it's too high or a recent job loss has dried up the means to pay it off in a timely manner. If your debt-to-income ratio (this includes all debt, such as your mortgage and car payments) exceeds 35 percent, most lenders will be wary, even in better economic times, about your ability to pay it all off. If it's greater than 50 percent, lenders worry that the debt may never be fully paid. So it's no surprise that credit-card issuers are stepping up their efforts to get customers to pay up.

But assuming that you have the income sufficient to pay down your credit cards, how should you approach it? It's not as cut-and-dry as the math would suggest, unless you have the means to dispense with your balances in a matter of months. Apart from simply calculating the interest you'll pay, you might also consider psychological motivations that will help you stay the course toward retiring your debt. And there are other approaches that might help you improve your credit score. Here's a look at several strategies.

1. Paying More Than the Minimum

As you've probably surmised, paying only the minimum due on a card is a surefire way not to succeed. Many issuers require you to pay only 2 percent of your current balance. Assuming the annual percentage rate on your card is 18 percent, paying down a $2,000 balance with minimum payments would erase that debt sometime in 2033.

So why do so many consumers make only minimum payments? In behavioral economics, part of the reason is due to "anchoring" -- which means that when it comes to numbers, we can be easily persuaded by the power of suggestion. In a recent experiment, two groups of people were presented with a fictitious credit-card bill. One group's bill listed only the balance, while the other bill showed the balance and minimum payment. Some paid the entire balance and some paid only the minimum. But of those remaining, the payment amount was higher among the group whose bill didn't show an "anchoring" minimum payment.

The good news is that it doesn't take much of a bump in monthly payments to retire the balance a lot faster. Using the earlier example of the $2,000 balance with an 18 percent APR, increasing your payments from 2 percent to 5 percent would pay off your balance in "only" six and a half years. Not fast enough? Making payments of 10 percent will eliminate a $2,000 balance in 41 months. Our table below shows how long it would take to pay off a $5,000 balance at certain annual percentage rates and monthly payments.

2. Paying Off the Card With the Highest Interest Rate First

Mathematically, this option will result in the lowest amount of interest paid. Chances are, if you carry a monthly balance on one of your accounts, you probably do on a number of credit cards. Your cards might have a range of interest rates. By focusing most of your monthly total credit-card payment on the card that carries the highest APR, you'll quickly lower the amount of interest you're paying overall. Of course, if the most expensive card in your wallet has a large balance, this approach has even greater merit because you'll be slicing away at debt that could be having an adverse effect on your credit score.

3. Paying Off the Card With the Lowest Balance First

This is what has been referred to as the "snowball approach" to paying off debt. You budget a total monthly amount to allocate among all your credit cards. Pay the minimum balance on the cards with the larger balances, and put the bulk of your payback budget toward the card with the smallest balance. When the smallest balance is paid in full, then drive all of those payments into the card with the next lowest balance.

Although you'll pay a little more in interest (unless the smallest balance is also the one with the highest APR), the number of monthly bills will decrease eventually, giving you the psychological lift that you're making progress toward retiring your debt. But there are tangible benefits to this approach as well. According to Credit.com, having open accounts with a zero balance might improve your credit score, which may in turn give you more leverage with your remaining creditors. And the additional interest paid by using this approach is modest relative to the total payments you'll ultimately make.

4. Paying the Highest Balances First

As we mentioned, issuers are taking the axe to credit lines. Borrowers with large balances -- especially balances that comprise more than 50 percent of the total line of credit -- are especially vulnerable to having their credit limits reduced. And once that happens, your credit bureau reports will show a higher ratio of debt to available credit, which could ding your credit score and spur issuers of your other credit cards to also take adverse action against you.

For that reason, you should strive to keep your balances below 30 percent of your credit line. That can be tough when the card issuer is slashing your borrowing limit in tandem with the paydowns you've made. But a methodical approach to ratcheting down your credit-card debt -- and the discipline to keep it down by curbing your spending -- should eventually bring your total debt under control.

Which Approach Is Best for You?

As long as you stick to it, any of the approaches we've highlighted here have merit. You can even change tactics midstream -- for instance, pay down a high-balance credit card first, then, when that balance is below 30 percent, switch to paying the card with the highest APR.

The greatest challenge will be resisting the temptation to backslide toward making only minimum payments. To that end, consider depositing the entire amount you'll need for credit card payments each month into a separate account dedicated only for the purpose of paying down cards. If direct deposit is available to you, arrange to have your take-home pay automatically put into two separate accounts.