WE Blog » Economy

Pro-con: Is the recession over?

Phillip Brownlee — Sat, 14 Nov 2009 12:03:00 +0000

Officially, the Great Recession is over, at least for the United States. The economy recorded 3.5 percent annual growth for the third quarter of 2009. Fortunately, the administration of then-President Bush recognized the severity of the crisis and provided emergency financing for U.S. banks teetering on the brink of insolvency. Those efforts were followed up by the stimulus measures passed by his successor, President Obama. A $787 billion package is still percolating through the U.S. economy, providing a much-needed boost for spending as demand evaporated. Additional measures found some success, such as the Cash for Clunkers program, which encouraged consumers to trade in old cars for newer, more fuel-efficient models, and a federal tax credit for first-time homebuyers that helped revive a housing market whose implosion had set off the global crisis. Orders for durable goods rose 22.3 percent in the third quarter. That number was eclipsed by the 23.4 percent rise in housing sales, spurred by an $8,000 tax credit. The result was 3.5 percent growth, a return to the average rate recorded over the past 80 years. — Japan Times editorial, iStockAnalyst.com

The recession is over, we are told. The Commerce Department announced that the economy grew in the third quarter of 2009 by 3.5 percent. Great, huh? Maybe not. About half that growth came from the Cash for Clunkers program, which transferred into the third quarter auto sales that would have occurred later. The tax credit of $8,000 for first-time homebuyers stimulated some house sales. Most of the effect of the $787 billion stimulus package has already been felt. “There were few signs in the new data,” wrote the Washington Post’s Neil Irwin, “that the private sector will be able to sustain that growth once the government pulls back.” No one has much confidence that unemployment will decline significantly any time soon — or that the policies of the Obama administration and Democratic congressional leaders will stimulate the creation of new jobs. Higher tax rates on high earners, which will take effect next year, will certainly not create jobs. — Michael Barone, the Washington Examiner

Kansas economy has a geography gap

Rhonda Holman — Wed, 11 Nov 2009 12:01:41 +0000

As drivers cross from Oklahoma into Kansas on I-35, they see a sign touting the Web site HaysHasJobs.com, suggesting that parts of western Kansas want for workers rather than jobs. A new SurveyUSA poll, sponsored by KWCH, Channel 12, further suggests that the recession is being unevenly felt in Kansas. Asked about the economy’s impact on their lives over the past year, 29 percent of respondents in western Kansas said it had been major, compared with 39 percent statewide and 43 percent in northeast Kansas; 24 percent out west said there had been no impact at all (16 percent statewide). Asked whether they or someone they knew had lost a job in the past year, 77 percent of those polled statewide said “yes,” compared with 69 percent in western Kansas. And 44 percent of those polled statewide said they were in debt, compared with 33 percent in western Kansas.

Help small businesses hire again

Phillip Brownlee — Tue, 10 Nov 2009 12:02:54 +0000

“In order to ensure that today’s tentative recovery becomes a lasting expansion, the government must now make it a priority to deal with employment — particularly among small businesses,” economist Mark Zandi wrote in a New York Times commentary. He noted that businesses with fewer than 20 employees generated 40 percent of the job growth in the last economic expansion. Zandi recommends that policymakers empower the Small Business Administration to provide more credit, extend provisions in the current stimulus bill that allow money-losing firms to receive refunds of taxes paid on profits earned in previous years, and promote work-share programs.

How much of an incentive was Cash for Clunkers?

Phillip Brownlee — Sun, 01 Nov 2009 11:04:41 +0000

The Web site Edmunds.com contends that the Cash for Clunkers program was a costly incentive because many people would have bought cars anyway. It claims that only 18 percent of car sales wouldn’t have happened without the program — so the per-car incentive cost of those 125,000 cars was $24,000. But the White House countered that Edmunds’ claims are at odds with a number of other reviews of the program, including by Moody’s, and by third-quarter economic growth.

Pro-con: Should we worry about the deficit?

Phillip Brownlee — Sat, 31 Oct 2009 15:57:15 +0000

The country is facing a 2009 federal deficit of $1.42 trillion, more than three times larger than any annual deficit in history. To get the country in the black for the year, every man, woman and child would each have to write out a check for $4,700. That’s a lot of money. According to the Government Accountability Office, 20 years from now, about 92 percent of every federal dollar will be spent on entitlement programs and interest payments on the federal debt. The federal government has only a few choices: increase revenue (raise taxes), reduce expenses (cut services) or a combination. And Congress is elected by a nation of voters who want to have it both ways: low taxes coupled with generous, federally funded programs. Yet we wonder why the national debt grows. So while the 2009 deficit is a stunning $1.42 trillion, the real question is whether it’s stunning enough to finally prompt Congress to make changes when the economy recovers. — Des Moines Register editorial

Remember Ross Perot? In 1992, he predicted that the federal budget deficit was on track to end the world as we knew it. In fact, the rapid growth of the economy during the following years reduced the deficit to zero. Deficits and debts mean just about nothing anyway — at least out of context. In 1945, the federal debt was 120 percent of the entire U.S. economy. A few years later, the debt as a proportion of GDP had been tamed — and not primarily because of cuts in government spending. Yes, of course — wartime spending ended. But the big change was in the denominator of the equation. Economic growth kicked in big time, and reduced the debt as a proportion of the economy to manageable levels. I’d prefer the government run a larger deficit. With unemployment and underemployment rising, the federal government has to spend more — and the deficit has to be larger — in order to get people back to work. — Robert Reich, RobertReich.blogspot.com

Why not to give $250 to Gramps

Rhonda Holman — Thu, 29 Oct 2009 11:03:10 +0000

It takes a strong spine (or a hard heart) to criticize President Obama’s idea of sending a $250 check to every Social Security recipient — something he wants to do because the cost of living doesn’t entitle seniors to a cost-of-living increase for next year. New York Times economics columnist David Leonhardt noted that because overall prices have dropped 2.1 percent this year but Social Security benefits won’t drop accordingly, “recipients are already set to receive an effective raise.” And seniors may be sympathetic, but they’re better off than some demographics. “The real median income of over-65 households rose 3 percent from 2000 to 2008,” he wrote. “For households headed by somebody age 25 to 44, it fell about 7 percent.”
The whole episode does not bode well for the prospects that Obama and Congress will do something substantive about the unsustainability of Social Security and Medicare. “If the long-term issue is entitlement reform,” said Joel Slemrod, a University of Michigan economist, “the fact that the political system cannot say no to $250 checks to elderly people is a bad sign.”

Banking that matters still struggling

Phillip Brownlee — Sat, 24 Oct 2009 11:00:53 +0000

“While the wheeler-dealer side of the financial industry, aka trading operations, is highly profitable again, the part of banking that really matters — lending, which fuels investment and job creation — is not. Key banks remain financially weak, and their weakness is hurting the economy as a whole,” columnist Paul Krugman wrote. He noted that many banks “remain reluctant to lend, and tight credit, especially for small businesses, stands in the way of the strong recovery we need.”

Wall Street pay cuts aren’t enough

Phillip Brownlee — Fri, 23 Oct 2009 17:22:49 +0000

“Slashing executive salaries, bonuses and perks at the seven bailed-out companies that gorged most gluttonously at the public trough is emotionally satisfying, but it shouldn’t be,” wrote columnist Eugene Robinson. “It’s like arresting jaywalkers while ignoring the bank robbery that’s happening in broad daylight down the block.” Though he supports the pay caps, Robinson argued that the Obama administration isn’t doing enough to “curb the irresponsible Wall Street practices that led to the financial meltdown — and, if unaddressed, will lead inexorably to the next crisis.”

Wichita a model for what not to do?

Rhonda Holman — Sun, 18 Oct 2009 11:02:56 +0000

“In stark contrast to the news about Wall Street, the situation looks grim in Wichita,” editorialized the Topeka Capital-Journal on Friday, citing articles in The Eagle. “For Topeka and other communities, the stories highlight the need to attract and retain a diverse group of employers and not rely too heavily on one segment of industry. . . . Five of the community’s 11 largest employers are aircraft-related businesses, as listed by the Wichita Metro Chamber of Commerce. Of the other six, five are public entities and one is a hospital.” The editorial concluded: “Diversify. It’s a word that economic development officials in every Kansas community should keep front of mind, even as the Dow creeps back up.”

Need to restore economic morality

Phillip Brownlee — Thu, 08 Oct 2009 11:01:45 +0000

“Our current cultural politics are organized by the obsolete culture war, which has put secular liberals on one side and religious conservatives on the other,” argued columnist David Brooks. But he contends that the more pressing cultural battle should be restoring economic morality. The goals should be to make the U.S. again a producer economy, not a consumer economy, and to return to financial self-restraint, large and small. “A crusade for economic self-restraint would have to rearrange the current alliances and embrace policies like energy taxes and spending cuts that are now deemed politically impossible,” Brooks wrote. “But this sort of moral revival is what the country actually needs.”

No stimulus sequel for now

Rhonda Holman — Mon, 05 Oct 2009 17:52:44 +0000

President Obama said last week that “America is stronger” because of the February stimulus bill. But it remains a divisive issue and a work in progress, with only 40 percent of its $787 billion spent so far. There seems to be some bipartisan agreement that another stimulus bill would be premature at best. Former Federal Reserve Chairman Alan Greenspan suggested Sunday that the next step should be an extension of unemployment insurance benefits. In light of Friday’s bad unemployment numbers, senators of both parties also stated their support for that approach as well as for extending the first-time homebuyer tax credit and extending benefits to help laid-off workers afford COBRA insurance. If there is debate about a stimulus sequel, expect to hear more along the lines of the call by Sen. John Kyl, R-Ariz., on CNN for targeted tax relief and a lot more talk about the deficits.

More people competing for jobs

Phillip Brownlee — Wed, 30 Sep 2009 11:03:56 +0000

If it seems harder to get a job, that’s because it is. Job seekers now outnumber job openings 6-to-1. That is the worst ratio since the government began tracking open positions in 2000, the New York Times reported. Only 2.4 million full-time permanent jobs were open in July, with 14.5 million people officially unemployed, according to the U.S. Labor Department.

Business as usual for investment bankers

Phillip Brownlee — Mon, 28 Sep 2009 11:03:08 +0000

“Now that we’ve stepped back a few paces from the brink — thanks, let’s not forget, to immense, taxpayer-financed rescue packages — the financial sector is rapidly returning to business as usual,” columnist Paul Krugman warned. “Even as the rest of the nation continues to suffer from rising unemployment and severe hardship, Wall Street paychecks are heading back to pre-crisis levels. And the industry is deploying its political clout to block even the most minimal reforms.” Krugman argues that one of the biggest problems is that investment bankers are still “lavishly rewarded if they deliver big short-term profits — but aren’t correspondingly punished if they later suffer even bigger losses,” which encourages excessive risk-taking.

Jobs continue to evaporate

Rhonda Holman — Fri, 04 Sep 2009 17:00:14 +0000

You know the nation’s economy still really stinks when it’s good news that 216,000 jobs were lost last month (down from July’s 276,000 and the fewest monthly losses in a year). At 9.7 percent, the highest since 1983, the national unemployment rate is still better than Wichita’s 9.9 percent in July. People such as the 118 Hawker Beechcraft workers who got 60-day layoff notices this week won’t see much to celebrate. The recession so far has cost the nation a net total of 6.9 million jobs since December 2007.

Wichita among best cities to find a job?

Phillip Brownlee — Thu, 27 Aug 2009 11:01:06 +0000

Given that its unemployment rate of nearly 10 percent is higher than the national average, it was a bit surprising that Wichita was ranked among “America’s best places to find a job” by U.S. News & World Report. Wichita’s top 10 ranking appears to have been helped by its stable housing market, growing health care sector and proximity to a military base. The ranking did note that “the aviation industry has been affected by the downturn” (talk about an understatement) but said that “the industry’s recovery portends a strong opportunity for the city to grow in the future.”

Buffett’s job for Congress

Rhonda Holman — Thu, 20 Aug 2009 11:03:24 +0000

Characterizing the U.S. economy as “out of the emergency room,” Warren Buffett shared his latest worries in a New York Times commentary, suggesting that with the annual deficit expected to rise to about 13 percent of gross domestic product this fiscal year, “we are in uncharted territory.” The Berkshire Hathaway CEO went on: “With government expenditures now running 185 percent of receipts, truly major changes in both taxes and outlays will be required.” And he called on Congress to “end the rise in the debt-to-GDP ratio and keep our growth in obligations in line with our growth in resources.”
Buffett concluded: “The dollar’s destiny lies with Congress.”

Tax cuts reduced unemployment fund

Phillip Brownlee — Sun, 16 Aug 2009 11:01:48 +0000

Forecasters at the Kansas Department of Labor badly underestimated the demand for unemployment benefits, as did many other economists. But one reason Kansas’ Unemployment Insurance Trust Fund is running out of money is that businesses haven’t consistently paid into the fund in recent years. Because it believed the trust fund had an adequate balance, the Legislature halted unemployment taxes from 1995 through 1999, saving employers an estimated $556 million in taxes. Reduced tax rates have also been in effect the past three years, which saved employers an estimated $286 million. Such reductions seemed like good policy at the time, as no one expected the economy to contract so severely and so quickly. And lower taxes might have helped some businesses employ more workers. It’s also worth recalling that many GOP legislators were initially opposed this past session to a minor law change that enabled the trust fund to draw down nearly $70 million in federal stimulus dollars.

Don’t squeeze life out of private sector

Phillip Brownlee — Fri, 14 Aug 2009 11:01:45 +0000

Kansas City Star columnist E. Thomas McClanahan thinks President Obama’s era already looks a lot like Jimmy Carter’s. He wrote: “As in the Carter years, both political branches — White House and Congress — are now dominated by Democrats from the left wing of the party. As Michael Barone wrote in ‘Our Country,’ liberals from this tradition are inclined to seek ‘economic redistribution by always asking more’ — without worrying too much about whether they might be approaching the point at which ‘the public sector would start to squeeze the life out of the private sector.’
“More voters are saying, in effect: That point is fast approaching. That, in a nutshell, is what the ‘national conversation’ is currently about. That’s what the tea parties are about. That’s why angry people are crowding town hall meetings, shouting ‘read the bill!’ at their elected representatives.
“Many legitimately fear that if not stopped, Obama and the Democratic Congress will take this country well beyond the point where the public sector starts to ‘squeeze the life’ out of the economy.”

Scary story behind the job-loss numbers

Phillip Brownlee — Tue, 11 Aug 2009 17:27:05 +0000

“Some 247,000 jobs were lost in July, a number that under ordinary circumstances would send a shudder through the country,” columnist Bob Herbert wrote. “It was the smallest monthly loss of jobs since last summer. And for that reason, it was seen as a hopeful sign. The official monthly unemployment rate ticked down from 9.5 percent to 9.4 percent.
“But behind the official numbers is a scary story that illustrates the single biggest challenge facing the United States today. The American economy does not seem able to provide enough jobs — and nowhere near enough good jobs — to maintain the standard of living that most Americans have come to expect.
“The country has lost a crippling 6.7 million jobs since the Great Recession began in December 2007. No one is predicting a recovery in the foreseeable future powerful enough to replace the millions of jobs that have vanished in this historic downturn.”

Nation of whiners after all?

Rhonda Holman — Sat, 01 Aug 2009 11:02:05 +0000

Denver Post columnist David Harsanyi notes that in a new Rasmussen Reports poll, nearly 1 in 2 U.S. voters say the nation’s best days are behind it. “How is it possible that so many people believe the next generation will be in worse shape when nearly every positive indicator of the human experience is on a positive trajectory — from our standard of living to our life expectancy to our technology to the health of the environment?” he asks.
Another poll finds that “1 in 3 children ages 6 to 11 fears that the Earth will be destroyed by the time they grow up,” he says — not surprising after a “steady diet of model-projection Armageddon their whole lives.”
He concludes: “This next generation almost certainly will live through a few glorious bubbles, followed by a few scary recessions. Yet just as certainly, they will live ‘better’ lives than we do.”

Pro-con on minimum wage

Rhonda Holman — Sat, 01 Aug 2009 11:00:44 +0000

It would take $9.92 today to match the buying power of the minimum wage at its peak in 1968. In today’s dollars, the 1968 hourly minimum wage adds up to $20,634 a year working full time. The new federal minimum wage of $7.25 comes to just $15,080. That’s $ 5,554 in lost wages. The long-term fall in worker buying power is one reason we are in the worst economic crisis since the Great Depression. When the minimum wage became law in 1938, President Franklin Roosevelt called it “an essential part of economic recovery.” And so it is today. Consumer spending makes up about 70 percent of our economy. We can’t build a strong economy on poverty wages. A growing share of workers make too little to buy necessities. If the minimum wage had stayed above the nearly $10 value it had in 1968, it would have put upward pressure on the average worker wage. The Let Justice Roll Living Wage Campaign, which I advise, is calling for a minimum wage of $10 in 2010. It’s time to break the cycle of too-little, too-late raises. — Holly Sklar, McClatchy-Tribune News Service

On July 24, the federal minimum wage increased for the third time in three years to $7.25 per hour. A small business with 20 entry-level employees will see more than $30,000 in new labor costs due to the increase. That doesn’t include the higher taxes the employer has to pay. Research has shown that minimum-wage hikes take a sledgehammer to the entry-level job market. In a 2007 survey, 73 percent of labor economists said increases in the minimum wage lead to employment losses. Teens get hit especially hard. Adult entry-level workers find themselves displaced. Businesses respond by laying off workers and cutting back on hours. The companies that are still hiring seek out more skilled applicants who are worth the higher wage, or switch to automated labor. The latest minimum-wage hike will only prolong the nation’s affliction with high unemployment — hurting job prospects for our most vulnerable workers and denying teens the opportunity to gain valuable on-the-job training this summer. — Kristen Lopez Eastlick, Employment Policies Institute

Times tough on Kansas millionaires, too

Phillip Brownlee — Thu, 16 Jul 2009 11:01:48 +0000

The number of millionaires in Kansas declined for the second straight year, the Topeka Capital-Journal reported. Kansas had 43,205 millionaires in 2008, or 3.98 percent of its overall population, according to a national study. That’s a 16 percent drop from 2007 — though laid-off workers in Wichita and elsewhere are unlikely to feel much sympathy. Kansas ranks 30th in the nation in its percentage of millionaires.

Deficit reflects difficult challenge

Phillip Brownlee — Wed, 15 Jul 2009 11:01:09 +0000

The Treasury Department’s announcement Monday that the government deficit this year topped $1 trillion was not a surprise; the Obama administration estimated in May that the annual deficit would reach about $1.84 trillion by the end of the fiscal year. Still, breaking the trillion-dollar barrier is a serious concern and reflects the difficult challenge of trying to prime the economy without crippling it in the longer term. One big worry about a large deficit is that it could increase interest rates, but so far that hasn’t been a problem. Also, demand for buying Treasury debt has remained strong, which is fortunate. But the high deficit could pose political problems for President Obama, as lawmakers may be more leery of health care reform or other costly legislation.

Pope supports new economic order

Phillip Brownlee — Tue, 07 Jul 2009 18:47:01 +0000

If President Obama is an ungodly socialist, as some people think, what is Pope Benedict? The pope this week decried the “scandal of glaring inequalities” in the world economy and supported the redistribution of wealth. He also argued that “lowering the level of protection accorded to the rights of workers, or abandoning mechanisms of wealth redistribution in order to increase the country’s international competitiveness, hinder the achievement of lasting development.” The pope disagreed with those who believe that the economy should be free of government regulation, and he supported “a political, juridical and economic order” that can help “manage the global economy.”

Fund transfers reflect condition of state budget

Phillip Brownlee — Mon, 06 Jul 2009 11:01:51 +0000

The state’s approval this week of $700 million in budget transfers will enable it to make payments to school districts and pay tax refunds. That’s good. But the transfers also reflect the rocky condition of state finances, which has already required $160 million in allotment cuts this month and still has no margin for error. Authorizing certificates of indebtedness in July isn’t unusual. But this year’s transfers are about double the normal amount.