The U.S. economy ended 2009 with a bang, growing at a torrid pace of 5.7 percent in the final quarter of the year. That’s an impressive number at any time, but the Obama administration isn’t popping corks because, with at least 10 percent of Americans out of work, the nation’s mood is still in recession.
Many economists attribute the expansion to a one-time surge in business purchases of goods and equipment. Take away this “inventory bounce,” and growth was only around 2.2 percent, the same as the third quarter. And they worry that growth will sag when the government runs out of stimulus money this year.
In normal times, economic growth eventually translates into more jobs. But these are not normal times, and with the midterm election looming on the horizon, President Obama wants to goose the pace of recovery. His new budget for 2010 includes $100 billion to stimulate job creation.
In his State of the Union address, the president outlined a bundle of sensible if modest steps to induce community banks to lend to small business, speed up business investment in new plant and equipment, and encourage U.S. companies to create jobs at home instead of shifting operations overseas. All this could help on the margins, but in reality there is little that this or any president can do to plug the jobs gap.
According to Brookings Institute economist Gary Burtless, we need more than eight million more jobs to bring the unemployment rate down to 4.5 percent, or close to what economists define as “full employment.” Given the scale of the challenge, and the risk of a “double dip recession” as federal spending ebbs, some liberals are clamoring for another big stimulus package.
But the White House also has to keep an eye on America’s unprecedented run-up of debt. That’s why the president has called for freezing domestic spending in 2011 and endorsed a bipartisan commission to tackle entitlement reform.
Unlike his critics, Obama has to balance competing national priorities, not simply pick one at the expense of another. Given the economy’s hopeful trajectory, his decision to tweak job creation rather than massively expand government spending is the right one, and it deserves progressives’ support.
Facing almost as much uncertainty about the economy one year into his mandate as he did at the outset, President Obama gave his State of the Union address the way we’ve come to expect him to – sticking to his guns with cool determination while acknowledging that not everyone agrees with him. His speech highlighted what he has accomplished and promised to the American people, but didn’t propose any sweeping new changes.
With unemployment at 10 percent and Wall Street banks handing out record bonuses (Goldman Sachs’ bonuses are reported to match 2007’s record levels), and pundits reading doom for the administration in the tea leaves of the Massachusetts election, the political temptation to go populist would be strong. But Obama decided instead to reassert his progressive program for addressing the economy. Obama highlighted not grand industrial policy, but accomplishments that have helped the American people face a truly global recession. The stimulus bill helped us avoid falling off the economic precipice, and unemployment protection and COBRA extensions make a meaningful difference to people looking for work in a changing economy.
Obama’s call to Democrats to not “run for the hills” on issues such as health care suggests that the talk of that reform’s demise was premature. The embrace of centrist – and even Republican – proposals on energy, including nuclear power and offshore drilling, might offer some hope on a climate change bill making it’s way through the Senate. But until politicians spell out what sacrifices will come with addressing climate change, it may be a campaign promise that remains unfulfilled.
Disappointingly, the president soft-pedalled trade and immigration priorities. While they were mentioned, it’s notable that the president didn’t call on Congress to pass free trade agreements with South Korea, Panama and Colombia. And the reference to the Doha global trade round and immigration reform were pro forma at best, not promising any results.
Obama was laying the foundation for significant payoff from his education initiatives, however. Student loan subsidies to banks are an easily overlooked handout to Wall Street that the president was smart to put an end to. The investment in K-12 education reform, community colleges, and Pell grants will help prepare the next generation of Americans for the 21st-century economy. Incentives for debt forgiveness for public sector workers will mean that our best and brightest — who go to very expensive colleges and graduate schools — can now afford to look at public service, and can be used to limit some of the demand for a revolving door between the public and private sectors.
The president didn’t break new ground, or lay out a visionary mandate for change. But he reassured us that he was going to govern as he was elected, looking for progressive solutions to the challenges the country faces.
One last point — at last week’s “banking limits” announcement, beltway Kremlinologists were reading volumes into the fact that Treasury Secretary Tim Geithner was off to one side, while presidential economic adviser Paul Volcker was front and center. (Simon Johnson said: “Where you stand at major White House announcements is never an accident.”) Last night was Geithner’s chance to stand front-and-center — shoulder to shoulder with Bob Gates. With Larry Summers way off to the right — and I didn’t see Volcker in the audience — the handshake the president gave Geithner on his way in would seem to be sending the message that the secretary continues to be the president’s man.
President Obama’s first State of the Union address was a surprisingly prosaic affair for a man of his oratorical gifts. It was practical, concrete, and workmanlike, long on common sense and short on inspiration.
Still, the speech probably advanced several of Obama’s key goals, and it gave the country a chance to see how well he stands up to political adversity. By turns humorous, passionate and resolute, Obama gave the impression of a more seasoned leader who has not been knocked off stride by recent reverses, and who is rededicating himself to changing the way Washington works.
On the positive side, Obama conveyed empathy with working Americans who have lost jobs, houses and retirement savings, and reassured them that he will put jobs and economic recovery first in 2010. He identified with their anger over government’s rescue of the financial sector – “we all hated the bank bailout” — and reeled off a list of small-bore initiatives to boost small businesses and help middle-class families pay for childcare, retirement and college.
Although his major reforms — health care, financial regulation, the climate and energy bill – seem stalled, the President vowed to stay the course. In fact, he deftly parried conservative depictions of these as big government or archliberal initiatives, defining them instead as integral to the mission he was elected to accomplish: changing Washington’s dysfunctional political culture.
Crucially, Obama sought to resurrect his image as an outsider and insurgent bent of tackling America’s polarized and broken politics. He spoke of the “deficit of trust” in government and vowed to reduce the power of lobbyists and special interests, though was uncharacteristically vague on how he’d do that.
The president also seems to have recognized that, to win back disaffected independents, he will have to confront the forces of inertia in his own party as well as his political opponents. He issued a pointed challenge to liberals not to resist his efforts to impose fiscal discipline on the federal government, endorsed a deficit-reduction commission and threatened to veto profligate spending measures. And he bluntly called out Republicans for their blind obstructionism, adding that their ability to block legislation carries with it the responsibility to help solve the nation’s problems.
The most disappointing part of Obama’s address was on international affairs, a subject he finally turned to about an hour into his speech. The president duly noted that he is waging the fight against al Qaeda aggressively and sending more troops to Afghanistan. But he had little to say about the nature of the struggle that America is waging, at great sacrifice, against Islamist extremism. He seemed more passionate in affirming his pledge to get all U.S. troops out of Iraq, but said little about what they have achieved there, or whether our country has any interest in what happens there after we leave.
All in all, the president seemed to treat consequential matters of war, terrorism and foreign relations generally as an afterthought. This may suit the public’s present mood, but it didn’t reveal much about how this president connects America’s purposes abroad to what he wants to achieve at home.
And this underscores what was perhaps most striking about the speech. There was very little by way of an overarching vision or governing philosophy to link together the president’s many initiatives and commitments. There was no striking image like Reagan’s “shining city on the hill,” or thematic scaffolding like Bill Clinton’s “opportunity, responsibility and community” to invest Obama’s tenure with a deeper logic than serial problem-solving. Yes, Obama in his peroration repeatedly invoked “American values,” in an almost generic way. What’s still missing after a year in office is the master narrative of the Obama presidency, a story that is less about him and more about the next stage in America’s democratic experiment.
A new study by the D.C.-based Food Research and Action Center (FRAC) underscores the severe food hardship faced by Americans in this brutal economic climate. FRAC’s report compiles for the first time ever food hardship data in every one of the nation’s congressional districts and top 100 metropolitan areas.
In my home city of New York, the numbers are dismal. People in seven of the 13 congressional districts here faced severe food hardship in 2008-09. The 16th Congressional District in the South Bronx, where more than one in three residents could not afford enough food, had the highest rate of food hardship in the nation, and the 10th Congressional District in Central Brooklyn, where 30.8 percent faced food hardship, had sixth highest rate out of all the country’s 436 congressional districts. Considering that the city still has 56 billionaires, this is an appalling turn of events, which provides the latest wake-up call that all levels of government need to take immediate action to reverse the city’s growing hunger poverty, and inequality of wealth.
While key parts of the city face a particularly severe problem, I believe the most notable news from this data is just how widespread food hardship is in all corners of the city and nation. Even in the relatively least hungry congressional district in the city – Rep. Anthony Weiner’s district that has been traditionally thought of as a bedrock middle-class of neighborhoods in Brooklyn and Queens – more than one in 12 residents couldn’t afford enough food, a level likely higher than in the majority of industrialized Western nations of the world. Because America’s wages are now so low and our safety net so gutted, even the parts of New York City suffering the least are still in worse shape than most people in our competitor nations.
In the New York metropolitan region, including suburban Connecticut and New Jersey, 21.6 percent of households with children faced food hardship. The problem is so widespread that, even when you factor in some truly wealthy areas in Manhattan, Westchester, Long Island, and suburban Connecticut and New Jersey, more than one in five people in the metropolitan area couldn’t afford enough food. Statewide in New York, 17.4 percent of all state residents faced food hardship.
The new report only underscores the need for a Good Food, Good Jobs program that I proposed here in December. Low-income areas across America that lack access to nutritious foods at affordable prices — the so-called “food deserts” — tend to be the same communities and neighborhoods that, even in better economic times, are also “job deserts” that lack sufficient living-wage employment. A “Good Food, Good Jobs” initiative would be a good way to tackle our interrelated hunger, malnutrition, obesity, and poverty problems.
Since last week’s shocker in Massachusetts, the White House has amped up the populist rhetoric in hopes of deflecting voter anger onto Wall Street bonus babies and health insurance companies. That might make progressives feel better, but it’s unlikely to mollify ornery independents.
For one thing, Barack Obama is no Huey Long. As president, his job is to point the way out of the nation’s dilemmas, not channel voter rage. What our jittery country needs now is his calm, penetrating intelligence, not hackneyed demagoguery that will unsettle markets and retard the return of economic confidence. A swifter economic recovery is the best elixir for what ails Obama and his party.
Besides, independents, who are now more numerous than either Democrats or Republicans, are as upset with big government as they are with big banking and business. Everything that has happened in the past year – from bailing out feckless bankers, home owners and auto executives, to stimulus spending that has failed (so far) to keep unemployment from getting worse, to the spectacle of lawmakers appeasing powerful interests as they cobble together a huge and complicated health reform bill – has aggravated their misgivings about government’s cost and intrusiveness.
President Obama needs to speak directly to independents’ qualms about big government. The first step is to acknowledge their validity. Then he must take forceful action to show that he is as determined to discipline government as he is to impose new rules on irresponsible capitalists.
On no account should he back down on health care reform. Rather, he should work to strengthen its ability to control health care costs, the issue that matters most to independent and working-class voters.
The right response to anti-government populism is to get serious about restoring fiscal sanity in Washington. That’s why the president’s decision over the weekend to support a bipartisan deficit reduction commission is a promising sign.
In theory, establishing a bipartisan commission to cut federal budget deficits is a terrible idea. It lets Congress off the hook, even while usurping the legislative branch’s Constitutional responsibility for the nation’s fisc.
In the real world, however, a commission may be the only way to force Congress to do its job. Lawmakers’ inability to find common ground on expanding health care coverage – something both parties claim they want – doesn’t inspire much confidence that they will take the tough steps necessary to close the nation’s yawning deficits.
That’s why 14 moderate Democratic senators, led by Budget Committee Chairman Kent Conrad and Sen. Evan Bayh, have threatened to withhold their votes for raising the nation’s debt ceiling – which allows the government to borrow to meet its obligations – unless Congress sets up a commission. As currently proposed, the commission would present its recommendations to Congress as a package for an up or down vote. This is how Congress managed to close unneeded military bases after the Cold War ended. According to the Washington Post, President Obama has endorsed the idea of setting up a commission by legislation, after previously pushing for a bipartisan panel established by executive order.
The moderates are right that a “statutory” commission would have real teeth. For that reason, however, it has drawn fierce opposition from both ends of the ideological spectrum. A coalition of 50 left-leaning pressure groups came out swinging on Wednesday, blasting a commission as “undemocratic” and “truly dangerous” to Social Security. Having invested time and money in acquiring influence in the legislative arena, the last thing they want is a change of venue.
For such groups, “protecting” Social Security benefits from cuts is more important than dealing with the nation’s fiscal crisis – just as many conservatives would sooner see America plunge deeper into the red than raise a penny in taxes. “A budget deficit commission is nothing more than a time-tested ploy to get Republicans to raise taxes,” the Wall Street Journal harrumphed last month.
So there we are: the left won’t cut spending, the right won’t raise taxes, and the two remain locked in a tacit conspiracy to bankrupt America. Maybe all those angry independents have a point.
It remains to be seen whether Obama’s decision back a statutory commission will sway congressional leaders, who have been skeptical. In any case, if the Senate moderates hold firm, Congress won’t be able to raise the debt ceiling to $14.2 trillion, which it must do by mid-February or the federal government will run out of money.
This sets the stage for some interesting brinkmanship, and for a determined push by President Obama to change the way Washington works. Stay tuned.
Last week, I spent some time looking at the living standards of the middle class, showing that they have improved notably over time and giving evidence that they are better than or comparable to middle-class lifestyles in other industrialized nations. I will be returning to this issue in a later post in order to address the “two-income trap” argument of Elizabeth Warren, which was raised by Reihan Salam and by Rortybomb.
For now though, I want to talk about the living standards of the poor. It’s important to make the distinction between trends (which I’ll discuss today) and absolute levels of material well-being (which I’ll discuss in a later post) because things can have improved a lot at the same time that they are still not all that great.
Let’s return to the comparison I used in my post on the middle class of “the gold standard” of 1973, when median household income was at its pre-stagflation peak, to 2008. To represent “the poor,” I’ll look at the 20th percentile — the household that is doing better than 20 percent of other households but worse than 80 percent of them. You’ll have to trust me that my research indicates the story would be similar if I were talking about the tenth percentile.
It’s easy to look at only a fairly limited income measure going back to 1973 for the 20th percentile. Doing so indicates that income at the 20th percentile grew from $19,046 to $20,712 (in 2008 dollars, adjusted by the Bureau’s preferred CPI-U-RS). That’s obviously not impressive growth, though it should be noted that the poor are a bit better off today than they were in 1973 (and they look a little better comparing 1973 to 2007, which is a fairer comparison). Using the PCE deflator, which the federal Bureau of Economic Analysis uses (and which I prefer because of the evidence that the CPI-U-RS overstates inflation, particularly among the poor), income increased by about $3,000 after accounting for the cost of living, or 16 percent. That’s about the same as for the middle class using the same measures and methods.
As I noted in the middle-class post, the official income definition is pretty limited. The Census Bureau’s “Definition 14” takes into account taxes, public benefits, and the value of health insurance, and it’s easy to look at going back to 1979 (which was at least as good/bad a year for the poor as 1973 was). By this measure, income at the 20th percentile rose from $17,999 to $24,642 from 1979 to 2008 (using the CPI-U-RS). That’s an increase of over one-third—after adjusting for the cost of living. When the PCE is used to adjust for the cost of living, the increase is almost $8,000—45 percent!
A number of commenters to my post on the middle class didn’t like that the value of health benefits were included in my “comprehensive” income measure. I prefer including them in “income” because employer health care costs have caused earnings growth to be quite a bit lower than it otherwise would have been, and employer- and publicly-provided health insurance contribute to living standards. It is possible that the way the Census Bureau estimates the value of health insurance exaggerates improvements in well-being, but it is not simply the case that rapid health care inflation negates those estimates. Many health economists believe that rising health care costs do reflect corresponding improvements in the quality of care received. At any rate, whether or not you believe I have a dog in this fight, hopefully you believe that the Census Bureau doesn’t.
Nevertheless, we can look at the trend omitting the value of health insurance in 2008. Doing so offers a somewhat conservative estimate of the increase because I can’t omit the value of insurance from 1979. The increase, however, is 21 percent using the CPI-U-RS, and 29 percent using the PCE.
So it seems pretty likely that the living standards of the poor in the U.S. have improved fairly robustly in recent decades. Before leaving behind the question of trends, I should note that there is pretty overwhelming evidence that male workers who don’t get further education beyond high school have seen real wage stagnation (though the story for the median male worker, as I showed in the middle-class posts, is much better). The fact that household incomes at the bottom have grown reflects a decline in taxes paid, an increase in the value of means-tested benefits, and greater work among women (including single women). Computations I have done indicate that confining things to non-elderly households doesn’t affect the story importantly; nor does adjusting incomes for household size.
This issue of greater work among women is one of the last remaining arguments to my case that I feel I need to address more, because it is obviously key to the question of whether higher incomes really reflect improved living standards broadly construed. After all, we could all work more hours and sleep less, which would improve our incomes but not necessarily our quality of life. I’ll take this up in my next couple of posts, but suffice it to say, you can assume my read of the evidence doesn’t overturn the case I’ve been trying to make thus far.
The White House yesterday announced new restrictions on banking activity, designed to address the issues that caused the crisis 15 months ago. Wall Street reacted by letting stocks fall 200 points, which initially would make you think the announcement must be right. The White House’s plan has two main parts: a limit on the scope of banking activity and a limit on the size of banks. One part makes sense, but as presented, the other should be re-thought.
Limit on Size – The good part is the limitation on the size of banks. This will include a tighter cap on the control of deposits. Currently no bank can control more than 10 percent of the nations deposits — but Bank of America got the Bush administration to waive that in 2007 to buy LaSalle. The administration’s proposal would have this cap include non-insured assets and other deposits. While this is a good first step, its effectiveness will be spelled out in the details. Bank of America is the only bank that exceeds the current cap, and almost 25 institutions could be considered “Too Big To Fail.”
Limit on Scope – At first blush, this seems to be a ban on banks taking FDIC-insured deposits – or having received TARP money – from engaging in proprietary trading. Prop trading is a major part of Wall Street activity, in which investment banks trade with “their own money.” That is, they engage in trading on their own behalf, not on the behalf of customers. The administration is right that a lot of this trading on prop desks is speculation. However, prop trading is also how investment banks and market makers engage in risk management and hedge positions. Banning prop trading by banks would severely curtail their market-making ability, and dry up liquidity on Wall Street faster than a sponge in the sun. Better than limiting the type of activity trading desks engage in would be to limit the amount of leverage they can use in that speculation.
The administration has said it is going to work with Congressional leaders in the coming weeks to spell this out in details. We’ll see if Congress is able to improve on these suggestions.
I will be posting soon on the living standards of the poor, but I first wanted to take some time to respond to Mike Konczal of Rortybomb. Mike argues that incomes have stagnated since 1999, which coincides with a dramatic rise in consumer borrowing. Kevin Drum picks up his post and runs with it. Let me start out by saying that I wasn’t so much objecting to Mike’s (or more specifically, Raghuram Rajan’s) hypothesis as I was objecting to general claims that wages have stagnated.
But Mike’s analysis has some problems. First, while he wants to argue that 1999 represented the start of a period of stagnation, a quick look at his chart will reveal that the significance of that year is that it is a cyclical peak year. The trend line hits local peaks at the height of the business cycle going all the way back through the late 1960s. The decline in real income from 1999 through the early 2000s isn’t any steeper than in previous downturns (it’s the recovery from the mid-2000s forward that’s weak). So it’s unclear to me why consumers became overleveraged this time but not in previous recessions.
Beyond that, Mike’s chart on household credit market debt is misleading. He’s comparing income levels in his first chart to debt changes in the second one. Conveniently, they sort of support his hypothesis. But he should be comparing levels to levels. Here’s the chart showing levels of household credit market debt:
Put the two charts together and you get this one:
If you can find a relationship there, you are more creative than I am. One more thing: “credit market debt” includes mortgages, car loans, and credit card debt. But the first two of those are secured by assets, so charting the change in debt without accounting for changes in assets is also misleading.
OK, Mike’s next objection is that the increase in income that I documented is due to households working more hours—in particular, wives. But here’s the thing—part of the reason that male compensation has “stagnated” (in quotes because I don’t believe that’s true) is due to the increase in work among women (increased supply of labor leads to lower wages). We don’t know what the counterfactual would have been had women not increased their hours.
As for “middle class woes,” foreclosures have risen dramatically, but they are a tiny percentage of mortgages (and a sizable chunk of homeowners don’t have mortgages because they’ve paid them off). The Calculated Risk post that Mike links to shows that other than Florida and Nevada (where many foreclosures are properties owned by speculators), between one and six percent of mortgages were in foreclosure as of mid-2009.
Oh, and about that “stagnation” since 1999—if you compare 1999 to 2007 (both peak income years), median household income using a comprehensive measure (that nevertheless does NOT include the value of health insurance) rose from $44,205 to $46,201 (in 2007 dollars, using the CPI-U-RS). [See Alternative Measures of Income and Poverty, Definition 14a.] Using my preferred PCE deflator, the increase is from $42,786 to $46,201—an 8 percent increase.
It’s the start of a brand new decade, but declinism hangs heavy in the air. And that, says writer Jim Fallows, is a good thing.
Having returned from three years in China, Fallows finds America in a funk. Bled by war and terrorism, beset by a lingering financial crisis and stubbornly high unemployment, facing stagnant wages and growing inequality, saddled with obsolete infrastructure and massive public debt, the United States today seems far removed from the confident “hyperpower” of a decade ago. Among the global commentariat, the “post-American world” is the cliché du jour.
But Fallows comes to challenge, not embrace, this glum narrative. In a lengthy Atlantic essay, he notes that premonitions of American decline have recurred frequently in U.S. history – and have just as often been proved wrong. He admits to having contributed himself to the “Rising Sun” hype in the 1980s, when many observers worried that Japan would soon overtake the U.S. thanks to its superior production techniques and state-guided economic strategies.
Instead, Japan sank into a long period of stagnation. But if the “jeremiad tradition” is a poor predictor of the future, says Fallows, it has the salutary effect of spurring Americans to rise to new challenges and prove the doomsayers wrong.
He attributes American resilience and adaptiveness to our inventive, entrepreneurial culture, a welcoming immigration policy and first-rate system of higher education. What’s holding us back, however, is a hopelessly dysfunctional political system that has lost the capacity to deal effectively with big national problems.
“This is the American tragedy of the early 21st century: a vital and self-renewing culture that attracts the world’s talent, and a governing system that increasingly looks like a joke,” he says. So far, so persuasive. But Fallows’ congenital optimism seems to fail him when the discussion turns to solutions. He’s no doubt realistic in dismissing great structural transformations, like a Constitutional convention to reorder our governing system, a parliamentary system or new rules that favor third parties. But concluding that “our only sane choice is to muddle through” under present arrangements ignores political reforms that are both powerful and attainable.
We could, for example, launch a frontal attack on Washington’s transactional culture and diminish the power of special interests by changing the way we finance Congressional elections. And rather than accept the inevitability of “rotten boroughs,” we could counter the worst abuses of gerrymandering by insisting that political districts be drawn by nonpartisan commissions charged with increasing rather than decreasing the number of competitive seats. We could also think seriously about addressing the abuse of the filibuster in the Senate, something that has sparked a greatdeal of commentary from progressives of late.
Such reforms would make it easier to overcome obstacles to the substantive changes that progressives favor, from affordable health coverage for all, to big investments in modern infrastructure and a new, low-carbon energy system. And where policy changes often expose philosophical cleavages and well as clashing interests within the Democratic coalition, fixing our broken political system is a cause that has the potential to unite all progressives.
Fallows has highlighted the right problem. But progressives should give high priority to fixing our broken politics as the prerequisite for renewing America.
My last post tackled inequality trends in the U.S. and how progressives ought to think about them. Now I want to look at middle-class living standards. In the course of basically agreeing with Dalton Conley that progressives should be more concerned with poverty than inequality, Kevin Drum argues that what got lost from the Conley analysis is the stagnation of the middle class (“sluggish middle class wages in a country that’s been growing energetically for decades”). And yesterday he endorsed the views of economist Raghuram Rajan, who blames the financial crisis on “the purchasing power of many middle-class households lagging behind the cost of living.”
Kevin has always been one of my favorite bloggers, but I have to disagree with him here—both in terms of the level of income the typical American has and in terms of recent trends, a careful look at the data implies that the middle class is doing pretty well. The common belief among progressives that this isn’t the case causes us to misdiagnose what the nation’s most pressing economic problems are and to put forth an agenda that doesn’t resonate as strongly as we think it does.
My friend Steve Rose really deserves the most credit for trying to draw attention to the reality of middle-class living standards being better than the left believes. In a much-circulated report for PPI and in his analyses for Third Way, Steve showed that, for instance, when measured correctly, the typical working-age American’s income is much higher than official statistics imply.
Many progressives thought that Steve was somehow pulling a fast one, a view with which I strongly disagree, but let me make similar points in a more transparent way here. First, consider what many progressives consider “the good old days”—the height of the pre-1970s economic boom. In 1973, the median inflation-adjusted income was higher than it had ever been and higher than it would be again until 1978—$45,533 (in 2008 dollars). Call this the gold standard before, in the conventional progressive telling, things started going south.
How much did things go south? Well, in 2008 the median was $50,303. That’s right—about $5,000 higher (after adjusting for changes in the cost of living). This improvement understates things because households also became smaller over time, and because the inflation-adjustment here probably overstates inflation. For instance, if one uses the Bureau of Economic Analysis’s Personal Consumption Expenditures deflator, the increase from 1973 to 2008 was about $7,700, or 18 percent. Not only does that still not adjust for declining household size, it also doesn’t include changes in taxes, non-cash benefits, the value of health insurance, and capital gains. Incorporating these adjustments shows an increase in living standards that is more like 40 percent.
Rather than household income, others on the left point to stagnation in men’s wages (women’s wages have increased dramatically by any measure). For example, the Economic Policy Institute estimates that the median male worker’s hourly wage was $16.88 in 1973 and $16.85 in 2007. However, EPI’s figures show that when fringe benefits are taken into account, the median male worker’s hourly compensation increased by somewhere between 5 and 10 percent over this period. And these estimates don’t use the PCE deflator. Nor do they account for changes in taxation and public benefits—the very means we use to mitigate low income.
To review, “stagnation” of household income or male wages means that after adjusting them for the rising cost of living, they are as high as they were in the glory days of the 1960s and early 1970s–they have actually increased. When analysts on the left concede these increases, they then move the goal posts and argue that wages have not grown as much as they should have. Typically, they contrast modest wage growth with more rapid productivity growth. But too often these analyses are done on an apples-to-oranges basis. Critics left, right, and center have all pointed out flaws with the kind of comparisons that EPI and others make. Careful analyses reduce the gap between productivity growth and wage and income growth, though they don’t necessarily eliminate it. At any rate, economic theory says that compensation will increase with productivity all else being equal, and all else has not remained static.
It is certainly true that wage growth has been slower since 1973 than in the two previous decades. But that isn’t a realistic bar to use. The U.S. was the only major economy left standing after World War II, and there was little foreign competition putting downward pressure on manufacturing wages and jobs. The period between WWII and 1973 was anomalous—it could not have been expected to have lasted.
The other way to judge middle-class living standards in the U.S. is to compare them to those in other countries. The Luxembourg Income Study shows that at most points in the income distribution (the 25th percentile, the median, the 75th percentile), income in the U.S. exceeds that in nearly all European countries, including Sweden, the model for many on the left. (The most accessible evidence on this is in a 2002 article in the journal Daedalus by Christopher Jencks.) Determining how to incorporate publicly provided benefits such as education and health care is very complicated, but the evidence we have indicates that American middle-class living standards are at worst comparable to those in European nations.
Trying to persuade the middle class that it is worse off than it is potentially has harmful side effects. For one, as economist Benjamin Friedman and sociologist William Julius Wilson have argued, people are more generous when they feel they are doing well. When they feel economically threatened, they are more inclined to protect what they have than to help others. What’s more, widespread economic malaise can be a self-fulfilling prophecy, preventing people from making the individual choices that ensure, for instance, a strong recovery from recession. In terms of policy, the belief that the middle class is doing poorly can lead to scarce public resources being diverted to those doing relatively well rather than being used to help those truly in need. And politically, it can lead to a tone-deaf and unpersuasive populism that does little to help Democrats win in swing districts and close elections.
Again, the point here is that progressives should care about the facts. Up next…the poor.
The views expressed in this piece do not necessarily reflect those of the Progressive Policy Institute.
Most progressives were happy to say goodbye to the “aughts,” as dismal a decade as America has endured since the snake-bitten 1970s. But they may be surprised to learn that the U.S. economy’s poor performance on George W. Bush’s watch was actually Bill Clinton’s fault.
So says Michael Lind, who rang in a new year with a retrospective blast on Salon this week against the “New Democrat” policies of the 1990s.
If you lived through the Clinton years, you might recall them as flush times. Some basic facts: The economy grew briskly, creating 18 million new jobs; rapid innovation, especially in information technology and online commerce, bred new businesses and helped to raise productivity in old ones; unemployment stayed low despite a steady influx of immigrants and women coming off welfare rolls; markets rose as the percentage of Americans owning stock jumped 50 percent; homeownership reached a record high (nearly 70 percent); the poverty rate shrank significantly; and the United States ran budget surpluses for the first time in three decades.
Not bad, right? Well, as reimagined by Lind, the 1990s were another “lost decade,” just like the Bush years, with their successive dot.com and housing bubbles, regressive tax breaks, zooming federal deficits and of course, the grand finale – the near-meltdown of U.S. financial markets in the fall of 2008 along with the worst recession since 1982. If the comparison seems, well, strained, no matter. Lind’s real target is what he calls the myth of the “New Economy,” an illusion conjured by Clintonites (PPI comes in for honorable mention here) to justify “neoliberal” policies.
Breaking Down the New Economy
Specifically, Lind takes issue with New Democrats’ claims that the IT revolution helped to spur more robust productivity growth. This is not a terribly controversial point among economists. For example, a 2003 review of over 50 scholarly studies (PDF) by Jason Dedrick, Vijay Guraxani and Kenneth L. Kraemer (cited in Rob Atkinson’s 2007 report “Digital Prosperity“) reached this conclusion: “At both the firm and the country level, greater investment in IT is associated with greater productivity growth.”
It’s true that economist Michael Mandel, a PPI friend and prominent advocate of innovation-centered growth, has argued that U.S. productivity gains after 1998 were overstated. But the fact remains that labor productivity, which grew at an average of only 1.46 percent per year between 1973 and 1995, grew to nearly three percent annually afterwards. That spurt helped to produce the prosperity of the second half of the 1990s, a period which saw incomes grow in a “picket fence” pattern, meaning that all segments of the population saw roughly equal advances. For those years, at least, relative wage inequality narrowed.
Yet rather than give Clinton credit for economic results in the years when his policies actually were in force, Lind invokes the poor performance of the 2000s to condemn the policies of the 1990s. George W. Bush, arguably the worst economic manager since Herbert Hoover, is oddly absent from this revisionist fable.
And what about all the money gushing into the United States during the ‘90s from foreign investors? In Lind’s telling, New Democrats naively assumed that money was chasing higher returns, when in reality foreign lenders were trying to drive up the dollar’s value to make their country’s goods more competitive. Currency manipulation, especially by China, is obviously a problem today. But in the 1990s, the U.S. was not only innovating furiously, it was also growing faster than Europe and Japan, making it a natural magnet for foreign investment.
Finally, Lind challenges the notion that skills gaps are related to wage inequality. There are reams of economic studies showing strong positive returns to educational attainment. (For an excellent discussion, see chapter eight in Creating an Opportunity Society, by Ron Haskins and Isabel Sawhill.) He is probably right that skills disparities alone don’t account for the growth in income inequality over the last several decades, but it seems perverse to argue that Clinton and his allies, as well as President Obama, are mistaken in wanting to see more Americans attend college.
Blaming the New Dems for GOP Sins
As a quick perusal of our website will confirm, PPI in the latter part of the 1990s published a raft of reports that a) documented the rise in relative inequality and b) proposed an array of innovative policies aimed at “expanding the winners’ circle” to include more working Americans. And perhaps Lind has forgotten that Clinton, in his first budget, raised taxes on the wealthy to restore progressivity and thus reduce after-tax inequality. He also got Congress to pass a massive expansion of the “work bonus” (earned income tax credit) for low-wage workers.
The causes of inequality are a subject of lively dispute among economists, but Lind is not hobbled by doubts. The reasons, he asserts, are to be found in the decline of unions, an eroding minimum wage, and unskilled immigrants. Yet by his own account, inequality really took off in the 1970s, when unions were relatively strong. (Plus, it’s strange to blame Democratic policies for growing inequality since 1980, since Democrats controlled the White House for only eight of those 28 years). Moreover, it should be obvious that falling union membership is the consequence, not the cause, of a massive shift in the U.S. employment base from manufacturing to services.
Because it affects only a small proportion of workers (including lots of kids working at part-time jobs), the minimum wage is a slender reed on which to hang the revival of good, middle-class wages in America. And there’s scant evidence to support Lind’s claim that immigration, legal or otherwise, has exerted significant downward pressure on native workers’ wages. The tide of unskilled immigration does have an impact on workers who don’t graduate from high school, but not a very large one.
The problem with Lind’s attempted deconstruction of the “New Economy” narrative is that it ignores a whole herd of elephants in the room, namely big structural changes in what U.S. firms do and how work is organized. Consider this description by Rob Shapiro, a key architect of the Clinton economic policies:
For the first time ever, U.S. businesses have been investing more in the development and use of ideas and other intangible assets than in physical assets of property, plant and equipment. Moreover, most of the value the economy now produces comes from those intangible assets. In 1984, the book value of the 150 largest U.S. companies—what their physical assets would bring on the open market—accounted for 75 percent of their stock market value; by 2005, it was equal to just 36 percent of the their market capitalization. The idea-based economy has gone from metaphor to reality.
We are left at last with the question of motive. Why is Lind so intent on rewriting the history of the most successful Democratic president in our lifetime, and raising doubts about the economic competence of the first majority-vote winning Democrat – Barack Obama — in the White House since LBJ?
Some progressives find it hard to forgive Bill Clinton for forcing them to acknowledge past mistakes. But failing to recognize your own successes may be even worse.
As we head into the new year, one of the biggest questions facing the economy is: “Whither the interest rate?” This number is set by the Federal Open Market Committee and its targeting of the fed funds rate – or the rate at which banks lend funds to each other – is currently effectively zero (technically in a range from zero to 0.25 percent). It’s been there for just over a year, and is likely going to stay there for the better part of 2010 (if I could tell you when, I wouldn’t be here – I’d be lighting cigars with hundred-dollar bills some place much warmer).
Despite its provenance as a dry economic term, the interest rate is interesting. It’s a fundamental piece of how our economy works. It determines everything, from how likely you are to get a loan or a mortgage (ceteris paribus – as the economists like to say – the lower the rate, the more lending that is done), to how likely we’re going to have inflation (high interest rates head off inflation, ceteris paribus), to how much a dollar is worth (a higher interest rate relative to overseas rates means it’ll be worth more, cete- you get the idea), to how fast the economy will grow (higher interest rates mean slower growth). It is usually the most powerful tool in any central banker’s toolbox, and certainly the one that’s most often used.
In addition to its central role in the economy, the interest rate is interesting for two other reasons these days.
First, there is the discussion of where the interest rate should be for recovery. There’s a good rule of thumb to determine what the ideal interest rate is: the Taylor rule. Very briefly put, the Taylor rule takes the inflation rate and the unemployment rate and uses them to compute what the ideal interest rate should be (check out the San Francisco Fed for more info). According to some Fed research last spring, the Taylor rule says that interest rates should be at -5 percent (that’s negative five percent – as unemployment is 1.5 percent higher now, the Taylor rule would say the rate now should be even lower).
The problem with negative interest rates is that while they’re technically feasible, they really discourage lending (would you give me a dollar today if I promised you ninety cents next Tuesday?). More realistically, negative real interest rates are possible if you encourage inflation. But inflation eats away at economic growth – ask Zimbabwe – and the “inflation tax” of high inflation falls disproportionately on the poor.
But inflation hawks have been arguing for the Fed to raise rates for a couple of months – to two percent. These hawks tend to be strongly laisse faire conservatives, One of the voices saying we should ignore the Taylor rule is – as Brad DeLong points out – the man who invented it himself, Stanford University’s (and Bush Treasury appointee) John Taylor.
Secondly, as the old saying goes: when the only tool you have is a hammer, every problem begins to look like a nail. Interest rates, while powerful, cannot solve every economic problem. The Taylor rule tells us we shouldn’t raise the interest rate, we can’t lower the interest rate, and no one is happy where the economy is now. At a time when the interest rate is at zero, and should be negative, alternatives need to be explored. As Clive Crook says in his latest column:
Interest rates that take into account asset prices as well as general inflation are part of this, of course. But when it comes to financial regulation, the key thing is rules that recognise the credit cycle, and change as it proceeds. Most important, as argued by Charles Goodhart in these pages, capital and liquidity requirements should be time-varying and strongly anti-cyclical. In good times, when lending is expanding quickly and financial institutions’ concerns about capital and liquidity are at their least, the requirements should tighten. Under current rules, they do the opposite.
Crook is right that unusually low capital ratios (and their counterparts – high leverage ratios) were a catalyst of last year’s crisis. Now that we need to get the economy going again, banks need to lend. One way to do so would be to lower capital ratios (if it wouldn’t bring the solvency of some large banks into question). As part of a regulatory reform package, policymakers should pursue a counter-cyclical capital requirements policy.
They should also expand who has to follow capital requirements. As currently defined, only depository institutions and not investment banks – such as Lehman Brothers and Merrill Lynch were, and Goldman Sachs and Morgan Stanley used to be – are required to follow the Fed’s Board of Governor’s capital requirements. Getting other financial institutions to respond to capital requirements will make that a much more powerful tool.
If you’ve been following the Copenhagen process this week, you may have noticed that the “debate” over climate change and what to do about it has regressed. Whereas, just a few years ago, George W. Bush acknowledged the human role in global warming and John McCain was a leading proponent of climate-change legislation, know-nothingism is now resurgent. The GOP pins its electoral hopes on slogans like “drill, baby drill” and “cap-and-tax”; McCain has soured on cap-and-trade; and on the nation’s airwaves and op-ed pages, climate-change deniers (and their more circumspect brethren, the “skeptics”) crow triumphantly at every snowstorm and every controversy, real or imagined, that puts climate scientists on the defensive.
Worse yet, many years of painstaking efforts to explain climate change to the American people and get them concerned about it seem to be gradually unraveling. As Chris Mooney notes in a piece on the ‘disastrous’ turn in the narrative, an October 2009 Pew report shows that, since April 2008, the number of Americans who believe there is “solid evidence the earth is warming” has dropped from 71 percent to 57 percent. During that same period, the proportion who accept the existence of climate change and attribute it to human activity has dropped from 47 percent to 36 percent–not exactly a robust constituency for immediate action. (There is a brand new poll from the World Bank that suggests more robust support among Americans for carbon emissions limits; I hope–but don’t believe, in the absence of more details–that it’s accurate.)
What is causing this apparent unraveling? There are three competing theories as to its source:
(1) The first and most obvious is that support for allegedly expensive or growth-threatening environmental action always declines during economic downturns. Gallupperiodically asks Americans which they value more: environmental protection or economic growth. Interestingly, from 1984–2008, a plurality (and usually a strong majority) of Americans always prioritized the environment over growth (even when their voting behavior indicated otherwise). But this tendency to prioritize environmental action does flag during recessions, as was evidenced by a steep slide in the “top priority environment” / “top priority growth” ratio from 70 percent / 23 percent in 2000 to 47 percent / 42 percent in 2003. After an uptick in support for the environment as a priority over the economy from 2004–2007, the ratio nose-dived during the most recent economic crisis, to the point where an actual majoritysaid the economy is more important in March 2009 (51 percent / 42 percent), the first time that has happened in Gallup’s polling.
(2) A second possibility is that the change in public opinion is largely a byproduct of the radicalization of the Republican Party. There’s certainly some support for that proposition in the Pew surveys. As recently as 2007, 62 percent of self-identified Republicans told Pew they believed there was solid evidence for global warming. That percentage dropped to 49 percent in 2008 and then to 35 percent this year. (There’s also been a similarly large drop in belief about global warming among self-identified independents—a group that includes a lot of people who are objectively Republicans. The drop among Democrats has been less than half as large.) It’s probably no accident that this change of opinion occurred during the 2008 campaign, when Republicans suddenly made offshore drilling their top energy-policy priority, and this year, when virtually anything embraced by the Obama administration has drawn the collective wrath of the GOP.
(3) Then, there’s the third factor that might explain the changes in public opinion: a determined effort by the hard-core anti-environmental right to dominate the discussion and change its terms. This is the main subject of Mooney’s essay, which focuses on the “statistical liars” like columnist George Will who have distorted climate data to raise doubts about the scientific consensus, and on the continuing brouhaha in the conservative media about “Climategate.” Matt Yglesias has gone further, arguing that climate-change deniers have scored a coup by convincing the mainstream media (most notably the Washington Post, which regularly publishes Will’s columns, and recently published a predictably shrill op-ed by Sarah Palin on the subject) to treat the existence of climate change as scientifically debatable.
I have no compelling evidence to demonstrate which of these factors has contributed most to the gradual ungreening of America, but there are ways to mitigate the negative impacts from all three. Fears that environmental protection is “unaffordable” in a poor economy are obviously cyclical, so unless we are in a recession that will endure for many years, this problem should at some point recede. What’s more, there’s some evidence that suggests efforts to sell action on climate change as “pro-growth” via investments in green technologies can help cushion the public’s skepticism.
Meanwhile, the second and third causes—GOP radicalization and the revival of a powerful denialist media presence—are clearly interrelated. Self-identified Republicans who spend a lot of time watching Fox News are obviously influenced by the torrent of “information” about the “hoax” of global climate change; while both conservative opinion leaders and GOP politicians are invested in promoting polarization on a historic scale. But this toxic environment would be largely self-contained if misinformation weren’t bleeding over into the broader discourse that includes Americans who don’t think Obama is a committed socialist or that environmentalists want to take the country back to the Stone Age.
And that’s why Yglesias is right: This is one area of public policy where “respect for contrary views” and “editorial balance” are misplaced. Sure, there are many aspects of the climate-change challenge that ought to be debated, and not just between those at the ideological and partisan extremes. But we shouldn’t be “debating” whether or not the scientific consensus on climate change actually represents a vast conspiracy to destroy capitalism and enslave the human race, any more than we should be debating whether “death panels” are a key element of health care reform.
This item is cross-posted at The Democratic Strategist.
As states craft their Race to the Top applications, they will likely focus on how to improve teacher and principal quality, as 28 percent of the points that they can earn fall under the “Great Teachers and Leaders” category. The criterion covers, among other things, the development of evaluation systems for teachers and principals, and the use of those evaluations to inform key decisions.
The press release announcing Race to the Top stressed a key point about the teacher-evaluation component:
…states should use multiple measures to evaluate teachers and principals, including a strong emphasis on the growth in achievement of their students. But it also reinforces that successful applicants will need to have rigorous teacher and principal evaluation programs and use the results of teacher evaluations to inform what happens in the schools.
That emphasis on “multiple measures” informs D.C. Public Schools’ new teacher evaluation system: IMPACT. The evaluation program offers a combination of approaches. Teachers of grades 4-8 mathematics and reading, for whom value-added data can be collected, will have 50 percent of their evaluation based on DC-CAS student achievement data. But another 40 percent will come from something called the Teaching and Learning Framework. For teachers in non-tested grades and subjects, the Teaching and Learning Framework comprises an even greater proportion – 80 percent – of their evaluation.
The Teaching and Learning Framework calls for five observations of teachers by administrators and master teachers in a given school year. Evaluation is broken down into three major categories: planning, teaching, and increasing effectiveness. Planning has to do with preparation of the content as well as the creation of a safe and productive learning environment; teaching gets into engagement, instructional techniques, and interaction with the students (among other factors); and increasing effectiveness deals with student assessment and the use of data to inform decision-making.
The use of more frequent observation of teachers and a clear rubric fills an important gap in teacher accountability. Since value-added student achievement data is currently available for only a small cohort of the teaching force, reliable tools for evaluating the rest of the teachers are crucial. We need rigorous ways to identify great and struggling teachers, but also to help the ones in the middle range improve. It’s easy to identify poor teachers; the tougher part is knowing how to help them improve or when to cut the cord. The Teaching and Learning Framework helps to define and show teachers paths to improvement through post-observation conferences.
George Parker, president of the Washington Teachers’ Union, has been critical of IMPACT, saying, “It’s very punitive. It takes the art of teaching and turns it into bean counting.” A union-administered focus group and survey found that the primary concerns revolve around inadequate training under the system prior to implementation and fears of its use for punitive measures rather than as a tool for improving teacher quality. Earlyreports on completed observations indicate some bumps in execution. Whether feeling satisfied, overrated, or underrated, teachers have expressed disappointment in the quality of suggestions offered by administrators and master teachers during post-observation conferences. Given the culture of mistrust and fear that permeates many schools, teachers are understandably skeptical and justified in noting that they cannot possibly hit all points of the rubric during a 30-minute observation. However, teachers must also recognize that their openness to the evaluation process is integral to its success and to building a better culture in schools.
The IMPACT program sets a process for clear expectations, clear feedback, and clear growth plans. While value-added testing is a useful measure for student achievement, IMPACT is a worthwhile experiment in pursuing a more expansive evaluation of teacher quality. Offering not just a goal but a pathway for improvement, it’s an innovation worth keeping an eye on.
In discussions about the dismal state of the economy, the existence of “too big to fail” institutions has emerged as a recurring cause for concern. In particular, Bank of America and Citigroup (the first and third largest banks in the country, respectively) are firms whose size makes them an “existential threat” to the well-being of the economy.
(Bank #2 in size is JPMorgan, whose chief, Jamie Dimon, has been going around saying that we can end “too big to fail” without capping the size of financial institutions by providing regulators with resolution authority over banks — the ability to wind them down in an orderly fashion. While resolution authority can help in cases — like Lehman’s — where banks become insolvent, these after-the-fact measures would not prevent the liquidity crisis that selling against a too-big-to-fail institution would cause.)
While Citigroup has made efforts to break itself up, including selling off its half of the Smith Barney joint venture with Morgan Stanley, Bank of America under Ken Lewis has been resistant to downsizing, adamant that clients benefit from its size. But with the embattled Lewis having announced he will step down at the end of the year, the bank is looking for a new chief.
And that search has run up against a problem — not only are these firms seen as “too big to fail,” they’re also too big to run:
At least two candidates for the top job at Bank of America Corp. told directors that the giant bank should consider breaking itself up… [One candidate, former Bank of Hawaii CEO Michael O’Neill] recently told the Bank of America search committee that the bank’s risk-adjusted capital wasn’t being used productively. He added that the company should become simpler and less prone to volatility
How big is Bank of America? With over $2.25 trillion in assets, it has a pervasive presence in our economy. The numbers from the Wall Street Journal are staggering:
Bank of America is the largest U.S. bank by assets and has 6,000 branches, 18,000 automated-teller machines and relationships with 53 million households, or roughly one out of every two households in the U.S.
Whereas the mantra “bigger is better” was applied to the financial industry over the past 20 years, there is now a reassessment of that idea. But instead of providing clear guidance on how to get financial institutions to a more reasonable size (and, indeed, what that size is), the government is sending unclear signals, with conflicting announcements on which companies it is willing to bail out and tepid additional reporting requirements that won’t rein in outsized firms.
Rather than add to the uncertainty, the administration should come out with guidelines on how it proposes to solve the “too big to fail” problem. Whether through voluntary break-up of banks it has a stake in, anti-trust measures, or by instituting a too-big-to-fail tax, the administration should lay out clear rules for banks to follow. This will allow big banks to stop chasing their tails on executive decisions — like Bank of America is doing — and get back to business.
It’s reasonably well understood that this year’s federal economic stimulus legislation helped (though not as much as it might have) cushion state and local governments from a fiscal disaster attributable to falling revenues, automatically increasing entitlement expenditures, and balanced budget requirements. The rationale for this federal aid — to keep states and localities from counteracting the stimulative effect of federal spending via tax increases and spending cuts — is less well understood. So, too, is the fact that the continuing fiscal crisis around the country continues to undermine the impact of federal stimulus.
That’s the departure point for an important new article by Harold Meyerson in The American Prospect. Aggregating the numbers, Meyerson reaches a startling but entirely justified conclusion:
[H]ow much does the government’s stimulus come to when we subtract the amount the states and localities are taking out of the economy from the amount the feds are putting in? The two-year Obama stimulus amounted to $787 billion, of which $70 billion was really just the usual taxpayers’ annual exemption from the alternative minimum tax, and $146 billion was actually appropriated for the years 2011 to 2019. That leaves $571 billion that the federal government is pumping into the economy during 2009 and 2010. Subtract the amount that state and local governments are withdrawing from the economy (they have a combined shortfall of around $365 billion, but let’s say they do enough fiscal finagling so that the total of their cutbacks and tax hikes is just $325 billion), and we’re left with $246 billion.
At $787 billion, the stimulus came to 2.6 percent of the nation’s gross domestic product for 2009 and 2010 — not big enough, but a respectable figure. At $246 billion — the net of the federal stimulus minus the state and local anti-stimulus — it comes to just 0.8 percent of GDP, a level lower than those of many of the nations that the U.S. chastised for failing to stimulate their economies sufficiently.
In other words, most of the debates we’ve heard about the size and impact of the federal stimulus effort have ignored the actual net spending once you aggregate federal, state and local government actions. That’s a pretty big omission, and that’s why the University of Chicago’s Harold Pollack and I argued earlier this year that we need to start thinking comprehensively about intergovernmental coordination:
[F]ederal budget debates should expand to include the national budget, the sum total of spending, taxes and policies that implement and finance national governance. At a minimum, the Office of Management and Budget and the Congressional Budget Office should routinely scrutinize the financial impact of proposed federal policies on every level of government.
Meyerson goes on to examine other damaging aspects of our federal system with respect to economic policy that are well worth reading. But what’s most interesting and alarming about his analysis is that it’s so unusual. Most policy discussions in Washington either ignore state and local governments, treat them as an unimportant sideshow, or assume that the many parts of the intergovernmental system move roughly in coordination, and in the same direction. Now more than ever, it’s time to understand that the left hand of our system may be working at active cross-purposes with the right.
The U.S. economy ended 2009 with a bang, growing at a torrid pace of 5.7 percent in the final quarter of the year. That’s an impressive number at any time, but the Obama administration isn’t popping corks because, with at least 10 percent of Americans out of work, the nation’s mood is still in recession.
President Obama’s first State of the Union address was a surprisingly prosaic affair for a man of his oratorical gifts. It was practical, concrete, and workmanlike, long on common sense and short on inspiration.
Since last week’s shocker in Massachusetts, the White House has amped up the populist rhetoric in hopes of deflecting voter anger onto Wall Street bonus babies and health insurance companies. That might make progressives feel better, but it’s unlikely to mollify ornery independents.
The White House yesterday 
It’s the start of a brand new decade, but declinism hangs heavy in the air. And that, says writer Jim Fallows, 
Most progressives were happy to say goodbye to the “aughts,” as dismal a decade as America has endured since the snake-bitten 1970s. But they may be surprised to learn that the U.S. economy’s poor performance on George W. Bush’s watch was actually Bill Clinton’s fault.
As we head into the new year, one of the biggest questions facing the economy is: “Whither the interest rate?” This number is set by the Federal Open Market Committee and its targeting of the fed funds rate – or the rate at which banks lend funds to each other – is currently effectively zero (technically in a range from zero to 0.25 percent). It’s been there for just over a year, and is likely going to stay there for the better part of 2010 (if I could tell you when, I wouldn’t be here – I’d be lighting cigars with hundred-dollar bills some place much warmer).
