NDN Blog

It's getting grim out there. The U.S. Department of Labor reported today that the economy shed 240,000 jobs in October, the 10th consecutive monthly decline. The Labor Department also revised its previously reported numbers of job losses for the third quarter – August and September job losses jumped from 73,000 to 127,000 and 159,000 to 284,000, respectively. The unemployment rate is now 6.5%, its highest level since 1994. Employment fell 1.2 million in the first 10 months of 2008; over half of the decrease occurred in the past three months. The New York Times reports that many economists now expect unemployment to reach 8% by the middle of 2009, a level not seen in 25 years. Wages remain stagnant -- workers in non-managerial positions saw their weekly wages rise by just 2.9% from October 2007, well below the rate of inflation.

At the center of the storm are plunging housing prices, tightening credit, sickly consumer spending, and shrinking paychecks. A second stimulus package is a good first step in addressing the failing fundamentals of our economy. For now, hold on to your hats.

Over the past couple of months, and especially this last week, I've spent many hours walking the city of Cincinnati, banging on doors and talking to voters as a volunteer with the Obama campaign. The city's small urban core is economically diverse, a patchwork of single-family homes with stunning Ohio River views, working class African-American and white American communities, and distressing pockets of dilapidated homes and piles of trash. The more unemployment, vacant buildings, and empty houses I observed, the more Obama-Biden signs and stickers stuck in windows and on lawns.

The economy, as we know, was issue number one in this election. In exit polls conducted yesterday (as reported by the New York Times), 6 in 10 voters said the economy was the most important issue facing the country. Most of these voters went for Obama. Four out of five voters said they worried that the economic crisis would harm their family's finances over the next year. Again, these voters went for Obama. About 4 in 10 voters said their family's financial situation was worse today than four years ago. These voters went for Obama three to one.

We'd be fools to think that Obama and his team can work miracles for our economy. But in the final months of his campaign, he addressed our country's economic downturn head-on, without fear. He didn't try to change the subject or pull political stunts. If nothing else, he gave off the impression that he understood the struggles of everyday Americans who work hard to make a living, or who've been denied a chance to compete in a 21st century economy. Even to Joe the Plumber, Obama took the time to explain his tax plan, with patience and concern. His tax plan seeks to take the burden off the middle class and asks the wealthiest of Americans to, well, share the wealth. Income inequality robs economic resources from our middle class, entrepreneurs, small business owners -- the true engines of our economy. Obama offers hope at a time of uncertainty and for now, that's good enough.

The warnings about not counting Democratic chickens before they hatch have been loud and clear. U.S. Barack Obama has NOT won the presidential election, nor have the Democrats expanded their Congressional majorities. And neither may happen. But just in case, Obama’s team is starting to confer with Democratic leaders in Congress about a new governing agenda. The Wall Street Journal’s Jonathan Weisman takes a look at the emerging factions on Capitol Hill vying for Obama’s ear in shaping the legislative agenda:

The first group is the "old bull" liberals, who, Weisman says, “want to move fast on big-ticket issues” such as universal health care; energy independence; regulatory and labor issues. Ways and Means Chairman Charlie Rangel is leading the charge here. According to Weisman, Rangel argues that Democrats need to have faith that a strong showing in the election indicates broad political backing. 

The second group is the Blue Dogs, who favor fiscal discipline. Concerned with a mounting deficit of almost $1 trillion, the Blue Dogs don’t see the money for Obama’s ambitious agenda. The say that Congress should start with approving a bipartisan commission to tackle the deficit and the growth of entitlements, such as Medicare and Medicaid.  Says Blue Dog Congressman Allen Boyd: "We know we have to do the energy plan. We have to deal with health care. We can't do any of that until we lay out a plan to bring the fiscal, financial side in order."

And the third group is the Pragmatists, who, according to Weisman, embrace an activist agenda but is wary about going “too far too fast.”  This group argues that Obama should work with Congress to move on issues that have bipartisan support: an economic stimulus package, expansion of the State Children's Health Insurance Program funded with a tobacco-tax increase, and funding for federal stem-cell research. Then Congress and the president can work to build bipartisan support for bigger-ticket items – health care reform, energy, education, and regulatory changes. This group of pragmatists includes Congress’ top Democratic leaders.

In the final presidential debate last week, moderator Bob Schieffer asked two questions on our nation's fiscal position. The first question, one that's been asked in various forms at the earlier two debates, challenged the candidates to identify which of their proposed programs they'd have to cut in the face of a growing deficit. The second asked the candidates if they thought they could balance the budget in four years.  There followed some warbled discussion -- U.S. Sen. Barack Obama said he supported the "pay-go" approach to spending, then detailed the sorts of investments in science, energy, and education we needed to make. U.S. Sen. John McCain said he would take a hatchet, then a scalpel, to the federal budget, and said, "Sure I do," when asked if he thinks he can balance the budget.

These debate questions and ensuing discussion were most likely a nod to Americans' growing economic anxieties. To many Americans, “balancing the budget” seems like a responsible, prudent goal in the aftermath of excessive war spending, a “drunk” Wall St., and expensive bailout package. But history suggests otherwise – recall the New Deal and FDR’s agenda of massive government spending. Or think about what constitutes GDP: consumption + government spending + investment + net exports. And so it was on Friday, the day after the debate, that Nobel economist Paul Krugman advocated increased government spending in his New York Times op-ed:

It’s politically fashionable to rant against government spending and demand fiscal responsibility. But right now, increased government spending is just what the doctor ordered, and concerns about the budget deficit should be put on hold. 

What we need right now is more government spending — but when Mr. McCain was asked in one of the debates how he would deal with the economic crisis, he answered: “Well, the first thing we have to do is get spending under control.

Today, the New York Times sounded the same refrain in a front page article on the growing consensus to let the deficit grow:

... extra spending, a sore point in normal times, has been widely accepted on both sides of the political aisle as necessary to salvage the banking system and avert another Great Depression.

“Right now would not be the time to balance the budget,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a bipartisan Washington group that normally pushes the opposite message.

Confronted with a hugely expensive economic crisis, Democratic and Republican lawmakers alike have elected to pay the bill mainly by borrowing money rather than cutting spending or raising taxes.

This piece is a good read in that it goes into the short- and long-term inplications of letting the deficit grow. For instance, foreign lenders are currently accepting interest rates of 4 percent of less to buy U.S. debt in the form of Treasury securities. This means that the United States will owe $40 billion for every $1 trillion it borrows.  Relative to the size of our economy - $14 trillion – this is a modest sum. So financing our deficit right now is relatively inexpensive. As the economy recovers, however, interest rates will likely go up, increasing the cost of our debt. But our accumulated debt will shrink in relation to the national income available to pay off our debt.  This leaves one to believe that deficits are sustainable over the long-term. That said, our financial system is a mess and the depth of the recession is still unknown – the basic assumptions that our economy can withstand deep deficits are being tested, and calls for balancing the budget are likely to return as the deficit grows.

In the final weeks before Nov. 4, the New York Times continues its helpful coverage of the candidates' policy positions and proposals. Today's topic: the innovation agenda. Though the article consumes an entire page of real estate, the take away is simple here, my friends: U.S. Sen. McCain's innovation agenda is very sorely lacking. U.S. Sen. Obama's is looking far better. A quick run down:

-In 1995, when McCain was chair of the Senate Commerce Committee, the U.S. trade balance of advanced technolgy products went into deficit for the first time. Advanced technology products are those that fall in the following categories: biotechnology, life science, opto-electronics, information and communications, electronics, flexible manufacturing, advanced materials, aerospace, weapons, and nuclear techology.

NDN would argue that ATPs represent America's comparative advantage in trade -- they are an outcome of our American ingenuity and innovation, and a relatively high-skilled workforce. Yet Sen. McCain held NO hearings on the ATP deficit.
 
-In 2003, When McCain was still Commerce chair, the National Academies of Science issued its influential report, "Rising Above the Gathering Storm." The report basically said that other industrialized countries were outdoing America in research and development, patents, and math and science and education. The report sounded the alarm for America's leaders to take action. The New York Times gives no clue as to what Sen. McCain did about this, if anything. Meanwhile, right before he joined the Senate, Obama was meeting with Google folks and talking about an "innovation economy." In 2007, Sen. Obama joined other senators to introduce the America Competes bill, which built upon the recommendations of "The Gathering Storm." The Senate passed the bill 88 to 8. McCain abstained.

-As a presidential candidate, McCain has waffled on stem cell research. And he has no science advisor. His economic advisor services as his "point man" on science. By contrast, Obama has a science advisory committee headed by a Nobel laureate. 
 
-In response to a a survey by Science Debate 2008, a private group that tried to arrange a debate on science issues, McCain said this:

“I am uniquely qualified to lead our nation during this technological revolution,” he said in the survey response, pointing to his Navy experience with advanced technologies as well as his leadership on the Senate commerce committee. “Under my guiding hand,” he added, Congress developed a wireless spectrum policy that prompted the rapid rise of mobile phones and Wi-Fi technology.
 
My friends, I would agree that McCain is indeed "uniquely qualified to lead our nation during this technological revolution." Why? Because HE IS RUNNING FOR PRESIDENT AND IS A COMPUTER "ILLITERATE" !! That makes him supremely, scarily, uniquely qualifed to lead our nation on the bridge to nowhere.  McCain is simply not capable of envisioning America's economic future, one that isn't just about cutting earmarks, taking hatchets to budgets, and sidetracking the country in a discussion on the economic welfare of Joe the Plumber! What about our scientists who are doing cutting edge research, but who must spend hours upon hours begging for money from the NIH, the private sector, and angel investors. Sorry Joe, but these are the folks that can drive America to the next level of economic evolution, and I want to hear what our next president is going to do for them.  

These days, it seems like all of us are checking our bank accounts, fretting over our investments, wondering about the resell value of our house, and thinking that this may be the year to finally curtail our holiday spending. Even for those who have "recession-proof" jobs, whatever those may be, a serious sense of anxiety is permeating homes across the country.

The economic downturn follows several years of declining or stagnating wages and incomes. The scenario is simple -- for the first time on record, incomes have fallen during an economic expansion. Last year's median income of $50,200 is actually less than the $50,600 that the same household earned in 2000. So while GDP and productivity have gone up since W took office, incomes and wages have not kept pace. Although U.S. Sen. John McCain may say the "fundamentals of the economy are strong," they aren't really, my friends, at least in the sense measured by everyday Americans like you and me.

So this recession hits us when we're already hurting. It's not as if we were living the highlife and boom! recession comes and so we cancel the Caribbean cruise this year. No -- prior to this year, so many Americans were already slipping down the precipice. The recession accelerates this slide. And this is what makes this recession different from the others, so says David Leonhardt in today's New York Times:

What will make this recession different, not matter how deep or shallow it is, is that it's following an expansion in which most families received little or no raise.

In a recession, businesses reduce their workers' hours, give raises below the rate of inflation, and withhold bonuses. As a result, wages and income will be the biggest losers in the recession. Leonhardt says that the effects of this pay slump are going to be significant. Households will contine to pare back spending and loans will go unpaid. Leonhardt thinks that the decline in consumer spending will hit our economy the hardest, suppressing GDP growth:

For two decades, consumer spending has been an enormous driver of economic grwoth, thanks in good measure to a long bull market, a housing bubble and a boom in consumer debt. The bull market, the housing bubble and the debt boom have all ended - and now paychecks are shrinking, too.

Also in the New York Times today is a substantive article by Jackie Calmes on the the candidates' economic plans. This sort of coverage is appreciated. In this past Sunday's Times, public editor Clark Hoyt commented on the Times' coverage of style over substance when it comes to the campaigns. Hoyt's piece suggested that readers are looking for more hard information on the candidates' governing plans, especially in these final weeks. This just might explain why McCain's negative attacks against U.S. Sen. Barack Obama aren't working and why his poll ratings are dropping.

Congrats to Princeton Professor Paul Krugman for winning the Nobel Prize in Economics. I first "met" Krugman in graduate school, through the pages of his text book, International Economics, which still sits on my bookshelf. Krugman taught trade policy in a clear, cogent manner, veering off the dry discourse of tariffs and quotas to highlight real-life examples of the costs and benefits of trade. At my school, "free trade" was king, but Krugman saw a role of government in shaping trade policy -- a notion that, I think, helped my classmates understand more thoroughly the broader political and societal implications of trade.  For those of us with more liberal leanings, this felt like a comfortable place -- we could support the economic gains from trade, while also arguing that the government played a role in softening losses from trade. Without further ado, cheers to Krugman.

A couple of articles caught my eye this week that make the case for increased government spending. Such a proposal may seem out of synch with our melting personal investment accounts and the expensive government bailout of Wall Street. If you’re U.S. John McCain, you’re even ready to put the kibosh on any government spending, except for defense, veterans and entitlement programs. So what's with the argument for deficit spending right now?

The New Republic’s Jonathan Cohn makes the case from the perspective U.S. Sen. Barack Obama – note the title of his article – “President Obama, ignore this bailout.” Cohn provides several examples as to how government spending right now can help either reduce longer-term, economy-wide costs or help the economy grow faster. For example, Obama administration-led health care reform can help reduce treatment costs and allow the government to exert more pricing power, thus decreasing the costs of Medicare and Medicaid. Cohn also advocates for greater investment in education and infrastructure – two areas that affect our rate of economic growth and resulting tax revenues. On energy, Cohn says that government subsidies that help businesses, offices, stores, and factories be more environmentally friendly can help to lower economy-wide energy costs, create new jobs, and wean the United States off foreign oil. Cohn is optimistic that Obama won’t bail on some of his spending proposals: 

Obama himself also seems to get it, notwithstanding his statement about delaying some projects. Speaking in Wisconsin on October 1, he said, "There are certain investments in our future that we cannot delay precisely because our economy is in turmoil." (The emphasis was his.) To prove it, he went on to promise spending on health care, education, infrastructure, and energy independence.

In the New York Times, Robert B. Reich, Secretary of Labor under President Bill Clinton, also opines on this issue. In “Saved by the Deficit?,” Reich suggests  that under our current economic conditions – deepening recession; relatively high unemployment rate; reduced consumer spending – “deficit spending is not unwelcome.” He argues that “not all deficits are equal”: 

As every family knows, going into debt in order to send a child to college is fundamentally different from going into debt to take an ocean cruise. Deficits that finance investments in the nation’s future are not the same as deficits that maintain the current standard of living.

Like Cohn, Reich calls for greater public investment in education, infrastructure, energy reform, and health care reform.  Both also point out that the bailout itself shouldn’t thwart future government spending. From Cohn:

…. The perception that Obama must radically pare back his ambitious spending proposals--a perception widely shared in Washington--makes several fundamental errors. For one thing, it misunderstands the nature of a Wall Street "bailout"--which, properly constructed, shouldn't seriously deplete federal funds. More important, the conventional analysis ignores the fact that we face deep economic problems besides the financial crisis--problems that only government can fix. The case for Obama's spending agenda hasn't suddenly become weaker. If anything, it's actually grown a bit stronger.

And from Reich:

Yet all is not what it seems. First, the $700 billion bailout is less like an additional government expense than a temporary loan or investment. The Treasury will take on Wall Street’s bad debts — mostly mortgage-backed securities for which there’s no market right now — and will raise the $700 billion by issuing additional government debt, much of it to global lenders and foreign governments. As America’s housing stock regains value, as we all hope it will, bad debts become better debts, and the Treasury will be able to resell the securities for at least as much as it paid, if not for a profit. And if there is a shortfall, the bailout bill allows the president to impose a fee on Wall Street to fill it.

….It should not be surprising … that the Wall Street bailout has generated so much anger among middle-class Americans. Let’s not compound the problem by needlessly letting it prevent the government from spending what it must to lift the prospects of Main Street.

In the coming weeks, keep your eyes out for a second fiscal stimulus proposal from the House. Although neither Cohn or Reich sees stimulus packages as the most effective tools for improving our economy’s fundamentals over the long-term, we appreciate Congress taking measures to help Americans in the short-term. 

A tough day on the job front. The U.S. Department of Labor reported today that the U.S. economy shed 159,000 jobs in September, the biggest monthly decline since 2003. Earlier estimates had job losses closer to 100,000. These numbers don’t reflect fallout from the most recent financial crisis, since the survey was conducted the week of September 8. Is it any solace that the unemployment held steady at about 6 percent? David Leonhardt of the New York Times has a good analysis of the report.

On the campaign trail today in Pennsylvania, U.S. Sen. Barack Obama spoke of the job losses, while getting in some digs at VP candidate, Gov. Sarah Palin:

You know, there were a lot of noteworthy moments in that debate, but there’s one that sticks out this morning. It’s when Governor Palin said to Joe Biden that our plan to get our economy out of the ditch was somehow a job killing plan.

I wonder if she turned on the news this morning.

Because it was just reported that America has experienced its ninth straight month of job loss. Just since January, we’ve lost more than 750,000 jobs across America, 7,000 in Pennsylvania alone. This is the economy that John McCain said – just two weeks ago – was fundamentally strong. This is the economy that my opponent said made great progress under the policies of George W. Bush.  And those are the economic policies that he proposes to continue for another four years.

So when Senator McCain and his running mate talk about job killing, that’s something they know a thing or two about. Because the policies they’re supporting are killing jobs every single day.

As the economy worsens, Obama’s prospects brighten, as politics go. Yesterday’s new Pew survey indicates that in just the past couple of weeks, the number of voters who view Obama more favorably than McCain on the economy and financial crisis has grown. The bad news on the economy has helped to expose McCain’s empty plans to create jobs and restore prosperity, and allowed Obama to flesh out his economic plans and demonstrate his dexterity on the issues. His ads in which he talks directly to the camera about his economic program, feel authentic and reveal an organized, focused mind in the midst of chaos on Wall Street and Capitol Hill.   

Earlier this morning, Simon highlighted the findings of a new CBS poll that show U.S. Sen. Barack Obama gaining significant ground on U.S. John McCain. Also in the poll were new findings that economic anxiety is as high as it has ever been in the history of the poll. Now, we don't need polls to tell us that things are grim out there, but the data here was startling nevertheless. Nine in ten Americans say the economy is in very bad or fairly bad shape, the highest measure since The Times and CBS News began asking the question in 1986. Less than one percent of those polled said the economy was in very good shape. Americans aren't seeing an end to the gloom -- 76 percent say the economy is getting worse, the most pessimistic Americans have been since the question was first asked in 1974. Ugh. Sounds like a good time for a changing of the guard at the White House.