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President Obama picked the very day that new job creation collapsed to propose a deflationary budget deal featuring cuts in Social Security and Medicare. This is perverse economics and worse politics, on several grounds.

The economy created just 88,000 jobs in March, down from close to 200,000 in other recent months, for one main reason: The January 2 budget deal and the March 1 sequester that hiked taxes on working people and cut public spending.

In the January deal, payroll taxes on working people were raised by some $120 billion. The more highly publicized tax hike on the top one percent raised less than $65 billion. The sequester added another $85 billion of budget cuts. The combined economic contraction will be about $270 billion this year, and according to the Congressional Budget Office the result will be to cut economic growth roughly in half.

But the deal that Obama is trying to coax the Republicans into accepting would cut the budget at this rate for an entire decade. The economics are just insane. There is no evidence that banks are waiting to lower interest rates (which are already rock bottom) or businesses waiting to invest, pending progress on a grand budget bargain. Businesses are hesitating to invest because customers don’t have money in their pockets — and a deflationary budget deal will only make the economy worse.

The politics are worse than the economics. President Obama, violating every rule of smart negotiating, has put his final proposal on the table — cuts in Social Security and Medicare in exchange for the Republicans’ (still imaginary) agreement to raise taxes — before the Republicans have made a single concession.

The Republican habit is well-established — take Obama’s “final” offer as the new starting point and demand further concessions. With this strategy, our president has let them take him to the cleaners for more than four years now, and is still hoping that sweet reasonableness will produce compromise. It never has and never will. (more…)

If you want to appreciate just how conservative the fiscal conventional wisdom is, consider that hotbed of Bolshevism, the Federal Reserve. Yes, the central bank that progressives love to hate is today the most expansionist outfit in town.

Although they are arguing about the details, both President Obama and the Republican Congress have committed to another $1.5 trillion of deficit reduction over the next decade, just about guaranteeing a prolonged period of high unemployment, an under-performing economy, and flat or declining wages for most working people.

Consider this thoughtful speech by the Fed’s vice chairman, Janet Yellen, delivered last week at an event jointly sponsored by the AFL-CIO (!) and the German Social Democratic (!) Friedrich Ebert Foundation, titled “A Trans-Atlantic Agenda for Shared Prosperity.” It was light years more progressive than the sort of fiscal summits that the White House has blessed.

In the speech, Yellen began by reminding the audience that the Fed’s mandate is a society of high employment, not just low inflation, and she made several important points that seem to have eluded President Obama — all of which are implicit rebukes to the Administration’s fiscally deflationary approach to the recovery. Compared to all other postwar downturns, she said, “The Great Recession stands out both for the magnitude of the job losses that attended the downturn and for the weak recovery in employment that occurred after the recession ended.”

How come? First, Yellen reports, bad fiscal policy. In every other postwar recession, government helped the recovery along by increasing spending or cutting taxes, or both. But in this recession, the government has been more concerned to rein in deficits.

… [D]iscretionary fiscal policy this time has actually acted to restrain the recovery. State and local governments were cutting spending and, in some cases, raising taxes for much of this period to deal with revenue shortfalls. At the federal level, policymakers have reduced purchases of goods and services, allowed stimulus-related spending to decline, and have put in place further policy actions to reduce deficits.

So people, let’s not make things worse by even more belt-tightening while the recovery is still weak.

And in other recoveries, housing led the way. Not in this one.

Tight mortgage credit conditions are continuing to make it difficult for many families to buy homes, despite record-low mortgage interest rates that have helped make housing very affordable… For some households, the collapse in house prices has left them underwater on their mortgages, and thus less able to refinance or sell their homes. (more…)

We are in the most anemic recovery in modern history, yet our political leaders in Washington aren’t doing squat about it.

In fact, apart from the Fed — which continues to hold interest rates down in the quixotic hope that banks will begin lending again to average people — the government is heading in exactly the wrong direction: raising taxes on the middle class and cutting spending.

American employers added only 157,000 jobs in January. That’s fewer than they added in December (196,000 jobs, as revised by the Bureau of Labor Statistics). The overall unemployment rate remains stuck at 7.9 percent, just about where it’s been since September.

The share of people of working age either who are working or looking for jobs also remains dismal — close to a 30-year low. (Yes, older boomers are retiring, but the major cause for this near-record low is simply the lack of jobs.)

And the long-term unemployed, about 40 percent of all jobless workers, remain trapped. Most have few if any job prospects, and their unemployment benefits have run out, or will run out shortly.

Close to 20 million Americans remain unemployed or underemployed.

It would be one thing if we didn’t know what to do about all this. But we do know. It’s not rocket science.

The only reason for employers to hire more workers is if they have more customers. But American employers have not had enough customers to justify much new hiring.

There are essentially two sources of customers: individual consumers, and the government. (Forget exports for now; Europe is contracting, Japan is a basket case, China is slowing, and the rest of the world is in economic limbo.)

American consumers — whose purchases constitute about 70 percent of all economic activity — still can’t buy much. The median wage continues to drop, adjusted for inflation. They can’t borrow because most don’t have a credit record sufficient to allow them to borrow much.

And now their Social Security taxes have increased, leaving the typical worker with about $1,000 less this year than last.

The Conference Board reported last Tuesday consumer confidence in January fell its lowest level in more than a year. The last time consumers were this glum was October 2011, when there was widespread talk of a double-dip recession. (more…)

Payrolls were up by 157,000 and the unemployment rate ticked up to 7.9 percent in January, according to today’s release from the Bureau of Labor Statistics.

Revisions to the payroll survey added 127,000 jobs to the counts for November (up 247K) and December (196K) such that over the past three months, payrolls were up an average of 200,000 per month, compared with about 150,000 over the three prior months. Revisions for the year 2012 show that the job market added about 335,000 more jobs than in the pre-revised data. Whether this acceleration sticks in coming months bears close watching.

The better jobs performance in the last quarter of 2012 goes against the sharp slowdown in GDP growth as reported earlier this week (down 0.1 percent). I expect that GDP figure will be revised up in forthcoming reports.

Unemployment remains around 8 percent, and, in fact, has been in a range from 7.8 percent to 8.2 percent since March of last year. Average hourly earnings were up 2.1 percent over past year, a bit ahead of inflation, so real wages are up a bit. The share of the unemployed who are “long-termers” — jobless for at least half-a-year — has also come down a bit to about 38 percent in January; it was 43 percent a year ago.

On the other hand, the weekly earnings of middle- and lower-wage workers (blue collar in manufacturing; non-managers in services) are up only 1.2 percent over the past year, before accounting for inflation. The difference in wage trends between the average and this less well-off group suggests that higher wage workers may be getting ahead more quickly than middle- and lower-wage workers. (more…)

Why are we having a jobless recovery? One reason is that the manufacturing sector in the United States — at least as relates to employment — has been denuded to such an extent that even if consumer spending starts to move up, more manufacturing jobs are not created. The things that are being made and sold to our more optimistic consumers are not being made here.

What is the problem? A big part of it is that the trade policy we pursue in this country is left over from the 20th century. We are utilizing the same policy and fighting the same battles we did in 1985. But it’s not 1985 anymore and the world has changed dramatically. We need a trade policy for the 21st century.

In the aftermath of WWII, as the U.S. became a dominant world power and the greatest generation came home from the war, a number of basic tenets informed our trade policy. One, we needed a centralized system, based in Geneva and then called the GATT (General Agreement on Tariffs and Trade), which would promulgate the benefits of an open trade economic system. One of the main reasons for this plan was to fight back communism and to make sure development occurred on a capitalist basis. The second tenet was that the United States would be an exemplar of this system, and would encourage capitalist development by opening our market to all foreign producers.

The United States succeeded wonderfully in achieving these objectives. At our urging, we grew the GATT into a sort of world government — now called the World Trade Organization, (WTO) — that has the power to change our internal economic regulations as a result of the mandatory dispute settlement system that is a part of it. We also have a wonderfully open market — and the endemic large trade deficit that goes with it. But perhaps it was worth it. For a short time, around the year 2000, we were truly on top of the world. We won.

But we are no longer in a post-WWII world, we are no longer fighting Communism (at least of the traditional kind), and capitalist economic development in the developing world is no longer a main foreign policy goal. The world has changed, but our trade policy has not. (more…)

Mitt Romney received a double blast from the conservative circular firing squad, as the Wall Street Journal editorial board and The Weekly Standard’s BIll Kristol both publicly complained that the candidate is failing to campaign on a vision to boost the economy.

The WSJ writes:

…candidates who live by biography typically lose by it. See President John Kerry. The biography that voters care about is their own, and they want to know how a candidate is going to improve their future. That means offering a larger economic narrative and vision than Mr. Romney has so far provided.

And Kristol weighs in:

…voters want to hear what Romney is going to do about the economy. He can “speak about” how bad the economy is all he wants—though Americans are already well aware of the economy’s problems—but doesn’t the content of what Romney has to say matter? What is his economic growth agenda? His deficit reform agenda? His health care reform agenda? His tax reform agenda? His replacement for Dodd-Frank? No need for any of that, I suppose the Romney campaign believes. Just need to keep on “speaking about the economy.”

But here’s the funny thing about both pieces: neither one offers Romney any ideas to improve the economy. (more…)

President Obama is exceptionally lucky when it comes to the weaknesses of the Republican field and its stunning penchant for mutually assured destruction. Who would have expected, for instance, that Newt Gingrich’s billionaire-backed super-PAC, aiming to destroy front-runner Mitt Romney, would produce a documentary advertisement on private equity slightly to the left of what we might have expected of Michael Moore? Or that Gingrich, reprimanded by leading free-market ideologues, would then request that the ad be pulled? In this hilariously bungled caper, Marx meets the Marx Brothers.

But it remains to be seen whether Obama will be as lucky when it comes to the shape of the economy as the election year unfolds. Some of what will occur this year is partly within the president’s control; much is not.

Consider the several vulnerabilities of the still fragile recovery:

The Jobs Mirage. Democrats were cheered and Republicans caught off guard when the Labor Department’s December jobs numbers showed a net increase of 200,000 jobs — a nice improvement over previous months. However, a closer look showed that some 42,000 of these were seasonal courier jobs — all the people hired to deliver holiday gifts purchased via Amazon and other online vendors.

Jared Bernstein, the former senior Administration economic advisor now at the Center on Budget and Policy Priorities, calculates that the 200,000 jobs number should be deflated by about 30,000. This brings it closer in line with other recent months, and suggests that the economy is still a ways from a strong recovery.

The biggest problem retarding a strong recovery is that wages are lagging far behind the economy’s productivity growth. Recent Federal Reserve statistics show that consumers increased their borrowing to finance their holiday spending, but that can’t last unless wages begin following. (more…)

Former Treasury Secretary Larry Summers says rushing to cut spending could cripple the recovery.

The AFL-CIO today is announcing a major “commitment to action” to bring public and private partners together to encourage both workers’ capital and skilled labor to promote large-scale investments in America’s infrastructure.

This pioneering commitment, which will be announced at the Clinton Global Initiative meeting in Chicago, will seek to create good jobs and address our public infrastructure deficit and the threats posed to the environment and our economy by the way in which we use energy.

As part of the commitment, the AFL-CIO will work with business and government to promote infrastructure investment with a goal of at least $10 billion in new funding over the next five years. (more…)

Zach Carter

Zach Carter
Economics Editor, AlterNet; Fellow, Campaign for America’s Future

The Washington Post has published a very silly op-ed by Chrystia Freeland accusing President Barack Obama of unfairly “demonizing” Wall Street. Freeland wants to see Obama tone down his rhetoric and play nice with executives in pursuit of a harmonious economic recovery. The trouble is, Obama hasn’t actually deployed harsh words against Wall Street. What’s more, in order to avoid being characterized as “anti-business,” the Obama administration has refused to mete out serious punishment for outright financial fraud. Complaining about nouns and adjectives is a little ridiculous when handcuffs and prison sentences are in order.

Freeland is a long-time business editor at Reuters and the Financial Times, and the story she spins about the financial crisis comes across as very reasonable. It’s also completely inaccurate. Here’s the key line:

“Stricter regulation of financial services is necessary not because American bankers were bad, but because the rules governing them were.”

Bank regulations were lousy, of course. But Wall Street spent decades lobbying hard for those rules, and screamed bloody murder when Obama had the audacity to tweak them. More importantly, the financial crisis was not only the result of bad rules. It was the result of bad rules and rampant, straightforward fraud, something a seasoned business editor like Freeland ought to know. Seeking economic harmony with criminals seems like a pretty poor foundation for an economic recovery. (more…)