Category Archives: Economy

Tax-Cut Snake Oil

Source: Economic Policy Institute, September 12, 2008

Two new reports from the EPI and the Center for American Progress (CAP) take a hard look at the effectiveness of “supply-side” tax cuts for the wealthy and find they fail to spur economic growth or increase tax revenues–as claimed repeatedly by political leaders on the right. The reports are being released today at a joint EPI/CAP event examining supply side tax cuts, featuring two former White House economic advisors, Larry Summers and Jeffrey Frankel. Read EPI’s Briefing Paper Tax-Cut Snake Oil and the joint EPI/CAP report Take a Walk on the Supply Side for more information. Check back on Monday for a video of the panel discussion, which includes an examination of related polling data.

Making the Most of the Economic Downturn: Seven Steps States Can Take Today

Source: Deloitte LLP, 2008

From the summary:
After years of prosperity, tough times have returned for state budgets.

But there is an upside. Today’s downturn presents an opportunity to attack both the current crisis and the longstanding structural problems that hobble government operations. Instead of producing “quick fixes,” tough times should be a catalyst for deeper changes that improve long-term prosperity and withstand unpredictable budget cycles and shifting demographics.

Fiscal hardship, though unpleasant, can open the door to innovation that would rarely happen during times of prosperity.

“Making the Most of the Economic Downturn” presents seven steps states can take today to seize the opportunity to tackle longstanding structural problems that leave state budgets vulnerable to economic swings and shortchange both taxpayers and benefit recipients.
1. Cut smartly
2. Consider consolidation
3. Think differently
4. Communicate realistically
5. Plan for economic ups and downs
6. Take action
7. It’s all about execution

Green Recovery: A New Program to Create Good Jobs and Start Building a Low-Carbon Economy

Source: Robert Pollin, Heidi Garrett-Peltier, James Heintz, and Helen Scharber, Center for American Progress, September 9, 2008

From an article:
A new report released today shows that the United States can create 2 million jobs over two years by investing in a rapid green economic recovery program.

The new report shows that, in addition to creating 2 million jobs nationwide over two years, this $100 billion green economic recovery package would:

• Create nearly four times more jobs than spending the same amount of money within the oil industry and 300,000 more jobs than a similar amount of spending directed toward household consumption.
• Create roughly triple the number of good jobs–paying at least $16 dollars an hour–as spending the same amount of money within the oil industry.
• Reduce the unemployment rate to 4.4 percent from 5.7 percent (calculated within the framework of U.S. labor market conditions in July 2008).
• Bolster employment especially in construction and manufacturing. Construction employment has fallen from 8 million to 7.2 million jobs over the past two years due to the housing bubble collapse. The Green Recovery program can, at the least, bring back these lost 800,000 construction jobs.

The report is accompanied by state-by-state fact sheets showing the potential impact on each state in terms of investment and new jobs.

The Housing Bubble and Retirement Security

Source: Alicia H. Munnell and Mauricio Soto, Center for Retirement Research, Issue Brief 8-12, September 2008

The brief’s key findings are:
• During the housing boom of 2000-2007, house prices rose 60 percent.
• One-quarter of homeowners extracted equity.
• One-third of the extracted equity was consumed.
• With the bursting of the bubble, this pattern has caused a 14 percent decline in net worth for the typical household nearing retirement.
See also:
Working Paper

The National Debt: Who Bears Its Burden?

Source: Marc Labonte and Gail E. Makinen, Congressional Research Service, RL30520, February 28, 2008

From the summary:
The United States has been free of a national debt for only two years, 1834 and 1835. In its first year, 1790, the country faced a debt of $75 million. From FY1998 to FY2001, the federal government ran budget surpluses. Since then, the budget has returned to deficit, and the debt had risen to $5 trillion by 2007. It rose to a high of 108.6% of gross domestic product (GDP) at the end of World War II; declined to a post-World War II low of 23.8% of GDP in 1974; and, then, rose to another high of 49.5% of GDP in 1993.

The national debt results from borrowing to finance budget deficits. Historically, the major cause of debt accumulation has been war. The United States has financed the extraordinary expenditures associated with war by borrowing rather than by raising taxes or printing money. This pattern was broken by the large budget deficits of the 1980s, the first half of the 1990s, and the period subsequent to 2001, which caused the national debt to rise substantially as a fraction of GDP.

Although economists have long recognized that a national debt imposes an inescapable burden on a nation, they have debated whether the burden is borne by the generation who contracts the debt or is shifted forward to future generations. There has also been some controversy over the nature of the burden.

The current consensus among economists is that the burden of the national debt is largely shifted forward to future generations. However, the burden imposed by the national debt does not arise from debt per se, but from budget deficits that gives rise to a national debt. If an economy is fully employed and the government increases its expenditures, for example, the resultant increase in aggregate demand will cause interest rates to rise and this will reduce or “crowd out” interest-sensitive spending by the private sector. This type of spending is likely to be for capital purposes (e.g., business spending for plant and equipment and household spending for housing and durable goods including automobiles). As a result, the private capital stock inherited by future generations is likely to be smaller and their real income or output will likely be lower. It is the reduction in future output that constitutes the burden of the national debt and it is a burden borne largely by future generations. It is a burden that cannot be decreased by borrowing abroad even though foreign borrowing could leave unchanged the size of the private capital stock.

Crucial to the consensus view (and other views) is the assumption that the economy is fully employed. And the burden discussed must be regarded as a gross burden in the sense that certain intangible gains must be set against it such as freedom from tyranny and domination by a foreign power that might have occurred had the United States lost such a contest as World War II.

DMI’s First Annual Survey on the Middle Class and Public Policy Finds Broad Policy Agreement Among Fearful Families

Source: DMI, August 19, 2008

DMI’s first annual survey on the Middle Class and Public Policy reveals that America’s middle-class households are fearful families – overwhelmingly pessimistic about the direction of the country, especially the economy and high gas prices. Most have little flexibility in their own economic situations and have little if anything left over each month after meeting basic expenses. The middle class is disgruntled with the direction of the country and politicians and see little coming out of Washington that would give them cause for optimism.

Middle-class Americans do know what policies they would like to see enacted. Despite media depictions of a sharp red and blue divide, the nation’s middle class displays broad consensus on a range of public policies aimed at easing their economic squeeze: they support a universal national health insurance plan, requiring employers to provide paid family and medical leave, making it easier for employees to join labor unions and allowing bankruptcy judges to change mortgage payments to keep homes out of foreclosure. A majority of middle-class adults – whether they are Democrats, Republicans, or independents and whether they are supporters of John McCain or Barack Obama for President – believe that these policies represent good ideas for the country. Regardless of party affiliation or presidential preference, these Fearful Families think largely alike.

Big Ideas from New America: An Economic Recovery Program for the Post-Bubble Economy

Big Ideas from New America: An Economic Recovery Program for the Post-Bubble Economy
Source: Bernard L. Schwartz, Sherle R. Schwenninger, New America Foundation, July 2008

From the press release:
America’s economy is in serious trouble, and it will take more than the standard countercyclical measures to fix it. The nation today is mired in a post-bubble economy, and needs a bold and optimistic economic recovery plan that goes beyond conventional thinking. This new proposal from the New America Foundation offers exactly that.

In “An Economic Recovery Program for the Post-Bubble Economy” — the first proposal in New America’s new Big Ideas series — Bernard L. Schwartz and Sherle R. Schwenninger warn of the dangers of misreading the current slowdown, and map out a plan for harnessing the U.S. economy to the two most important new growth drivers: public infrastructure investment and rising global demand for efficiency-enhancing technology.

Mr. Schwenninger, directs New America’s Economic Growth Program. Mr. Schwartz, a member of the New America board of directors, is the former chairman and CEO of Loral Space & Communications, Ltd.

The full text of their proposal — along with supporting data and and video overview — can be found here. Highlights from their proposal, as articulated by Mr. Schwenninger in the video, include:

■ “The most promising two new areas of economic growth are America’s enormous public investment infrastructure needs, and the increased global demand for American technology, created by the drive for greater efficiency by economies around the globe.”
■ “Infrastructure investment is the single best way to stimulate the economy in the short term, and to make it more productive, more efficient in the long term. Infrastructure investment not only creates jobs but also provides additional demand for materials and services throughout the economy.”
■ “To ensure continued funding of public infrastructure investment over the next decade, we recommend that the new administration move quickly to adopt a national infrastructure bank, as proposed by Senators Christopher Dodd and Chuck Hagel.”
■ “Finally, given the magnitude of the housing and credit bubble, a massive public infrastructure investment alone may not be enough to offset consumer weakness and jumpstart new business investment. Rising exports of American goods and services. . . therefore must be a second pillar of an economic growth recovery program.”
■ “There are both political and economic reasons for large surplus economies to shift their economic policy toward more balanced economic growth in the near term. The next administration needs to do a better job of sending the message to large current-account-surplus economies, including the advanced economies of Japan and Germany, that they need to do more to generate their own demand.”

The Economic Impacts of Climate Change and the Costs of Inaction

Source: Center for Integrative Environmental Research, University of Maryland, 2008

From the press release:
Climate change will carry a price tag of billions of dollars for a number of U.S. states, says a new series of reports from the University of Maryland’s Center for Integrative Environmental Research (CIER). The researchers conclude that the costs have already begun to accrue and are likely to endure.

Combining existing data with new analysis, the eight studies project the long term economic impact of climate change on Colorado, Georgia, Kansas, Illinois, Michigan, Nevada, New Jersey and Ohio. Studies on additional states are in the works.

Individual reports in PDF.