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“On Economic Stupidity”: How Little Many People Who Would Be President Have Learned From The Past

Bill Clinton’s 1992 campaign famously focused on “the economy, stupid.” But macroeconomic policy — what to do about recessions — has been largely absent from this year’s election discussion.

Yet economic risks have by no means been banished from the world. And you should be frightened by how little many of the people who would be president have learned from the past eight years.

If you’ve been following the financial news, you know that there’s a lot of market turmoil out there. It’s nothing like 2008, at least so far, but it’s worrisome.

Once again we have a substantial amount of troubled debt, this time not home mortgages but loans to energy companies, hit hard by plunging oil prices. Meanwhile, formerly trendy emerging economies like Brazil are suddenly doing very badly, and China is stumbling. And while the U.S. economy is doing better than almost anyone else’s, we’re definitely not immune to contagion.

Nobody really knows how bad it will be, but financial markets are flashing warnings. Bond markets, in particular, are behaving as if investors expect many years of extreme economic weakness. Long-term U.S. rates are near record lows, but that’s nothing compared with what’s happening overseas, where many interest rates have gone negative.

And super-low interest rates, which mainly reflect market forces, not policy, are creating problems for banks, whose profits depend on being able to lend money for substantially more than they pay on deposits. European banks are in the biggest trouble, but U.S. bank stocks have fallen a lot, too.

It looks, in other words, as if we’re still living in the economic era we entered in 2008 — an era of persistent weakness, in which deflation and depression, not inflation and deficits, are the key challenges. So how well do we think the various presidential wannabes would deal with those challenges?

Well, on the Republican side, the answer is basically, God help us. Economic views on that side of the aisle range from fairly crazy to utterly crazy.

Leading the charge of the utterly crazy is, you won’t be surprised to hear, Donald Trump, who has accused the Fed of being in the tank for Democrats. A few months ago he asserted that Janet Yellen, chairwoman of the Fed, hadn’t raised rates “because Obama told her not to.” Never mind the fact that inflation remains below the Fed’s target and that in the light of current events even the Fed’s small December rate hike now looks like a mistake, as a number of us warned it was.

Yet the truth is that Mr. Trump’s position isn’t that far from the Republican mainstream. After all, Paul Ryan, the speaker of the House, not only berated Ben Bernanke, Ms. Yellen’s predecessor, for policies that allegedly risked inflation (which never materialized), but he also dabbled in conspiracy theorizing, accusing Mr. Bernanke of acting to “bail out fiscal policy.”

And even superficially sensible-sounding Republicans go off the deep end on macroeconomic policy. John Kasich’s signature initiative is a balanced-budget amendment that would cripple the economy in a recession, but he’s also a monetary hawk, arguing, bizarrely, that the Fed’s low-interest-rate policy is responsible for wage stagnation.

On the Democratic side, both contenders talk sensibly about macroeconomic policy, with Mr. Sanders rightly declaring that the recent rate hike was a bad move. But Mr. Sanders has also attacked the Federal Reserve in a way Mrs. Clinton has not — and that difference illustrates in miniature both the reasons for his appeal and the reasons to be very worried about his approach.

You see, Mr. Sanders argues that the financial industry has too much influence on the Fed, which is surely true. But his solution is more congressional oversight — and he was one of the few non-Republican senators to vote for a bill, sponsored by Rand Paul, that called for “audits” of Fed monetary policy decisions. (In case you’re wondering, the Fed is already audited regularly in the normal sense of the word.)

Now, the idea of making the Fed accountable sounds good. But Wall Street isn’t the only source of malign pressure on the Fed, and in the actually existing U.S. political situation, such a bill would essentially empower the cranks — the gold-standard-loving, hyperinflation-is-coming types who dominate the modern G.O.P., and have spent the past five or six years trying to bully monetary policy makers into ceasing and desisting from their efforts to prevent economic disaster. Given the economic risks we face, it’s a very good thing that Mr. Sanders’s support wasn’t enough to push the bill over the top.

But even without Mr. Paul’s bill, one shudders to think about how U.S. policy would respond to another downturn if any of the surviving Republican candidates make it to the Oval Office.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, February 12, 2016

February 13, 2016 Posted by | Economic Growth, Economic Policy, Federal Reserve, Recession | , , , , , , , , | 1 Comment

“Destructive In The Long Run”: The Red State Economic Miracle That Wasn’t

For years progressives in blue states have had to put up with listening to conservatives in red states bray about their supposed economic “miracles” of low-tax, low-investment paradises of low employment in places like Texas and North Dakota.

The fact that these economies were creating mostly minimum-wage jobs with terrible safety nets and awful infrastructure fell on deaf ears. So did the response that those jobs were temporary and fossil-fuel based, and would not last. Undiversified economies based on a single natural resource tend to fare poorly over time.

And indeed it looks like progressives are getting the last laugh due to low oil prices:

States dependent on oil and gas revenue are bracing for layoffs, slashing agency budgets and growing increasingly anxious about the ripple effect that falling oil prices may have on their local economies. The concerns are cutting across traditional oil states like Texas, Louisiana, Oklahoma and Alaska as well as those like North Dakota that are benefiting from the nation’s latest energy boom.

“The crunch is coming,” said Gunnar Knapp, a professor of economics and the director of the Institute of Social and Economic Research at the University of Alaska Anchorage.

Michael Hiltzik at the L.A. Times had more on the topic earlier this week:

A greater danger to the state’s boom-era reputation is that the receding tide may expose a lot of economic wreckage to public view. One consequence of the state’s low-tax, low-service credo is that infrastructure spending has been starved, just at the moment when it’s most needed. As the Texas Tribune reported last year, local roads have become so damaged by heavy oil-patch traffic that in some districts the only option has been to convert paved roads to gravel — there’s no money for repaving, despite the state’s burgeoning wealth.

That shows how little pressure has been placed on the oil industry to carry its fair share of the public cost of the boom or contribute adequately to public investment. When the boom becomes a bust, there will be even less money, and you can bet that the oil industry will be pleading poverty.

When it isn’t simply padding the bottom lines of the wealthiest Americans, most conservative economic policy tends to be about taking the easiest, most aggressive and short-sighted approach to any problem. Eliminating taxes so you can entice corporate grifters may net some immediate transitory gains, but it’s destructive in the long run. Similarly, putting your eggs into the fossil fuel basket doesn’t just destroy your local environment and add to the climate change already ravaging your state, it also puts you at severe risk of economic seizures if fossil fuel prices decline.

 

By: David Atkins, Political Animal Blog, The Washington Monthly, December 27, 2014

December 28, 2014 Posted by | Big Oil, Fossil Fuels, Red States | , , , , , , | 1 Comment

“The Gall Of Dick Cheney”: His Whole Legacy Is Wrapped In Wrong And Written In Blood

The situation in Iraq is truly worrisome, as militants threaten to tear the country asunder and disrupt the fragile, short-lived period absent all-out war there.

We have strategic interests in preventing Iraq from unraveling, not least of which is that we don’t need the country to become a haven for terrorists, particularly those who might see America as a target.

And of course, there is the uneasy subject of oil: Volatility in the region has already sent global oil prices soaring. On Wednesday, militants were said to have taken control of Iraq’s largest oil refinery.

We have to tread carefully here. There are no saints to be seen in this situation. Everyone’s hands are bloody. And, we don’t want to again get mired in a conflict in a country from which we have only recently extricated ourselves.

As we weigh our response, one of the last people who should say anything on the subject is a man who is partly responsible for the problem.

But former Vice President Dick Cheney, who was in the administration that deceived us into a nine-year war in Iraq, just can’t seem to keep his peace.

In an Op-Ed published with his daughter, Liz, in The Wall Street Journal on Tuesday, the Cheneys write:

“Rarely has a U.S. president been so wrong about so much at the expense of so many.”

This, from the man who helped lead us into this trumped-up war, searching for nonexistent weapons of mass destruction, a war in which some 4,500 members of the American military were killed, many thousands more injured, and that is running a tab of trillions of dollars.

During the lead-up to the war, Mr. Cheney said to Tim Russert: “I really do believe that we will be greeted as liberators.” Nothing could have been further from the truth.

Even if it were indeed rare to be “so wrong,” as Mr. Cheney puts it, he was vice president in an administration that was much more tragically wrong. His whole legacy is wrapped in wrong.

At one point in the article, the Cheneys state:

“Iraq is at risk of falling to a radical Islamic terror group and Mr. Obama is talking climate change. Terrorists take control of more territory and resources than ever before in history, and he goes golfing.”

Mr. Cheney must think that we have all forgotten the scene from “Fahrenheit 9/11,” Michael Moore’s 2004 documentary, in which President George W. Bush, brandishing a club on a golf course, looks into the camera and says,

“I call upon all nations to do everything they can to stop these terrorist killers. Thank you.”

That is quickly followed by, “Now, watch this drive,” and a shot of Bush swinging at the ball.

In fact, on one of the rare occasions that Mr. Cheney was actually right, in 1994, he warned about the problems that would be created by deposing Saddam Hussein:

“Once you got to Iraq and took it over, and took down Saddam Hussein’s government, then what are you going to put in its place? That’s a very volatile part of the world, and if you take down the central government of Iraq you can easily end up seeing pieces of Iraq fly off. Part of it the Syrians would like to have to the west. Part of eastern Iraq, the Iranians would like to claim, fought over for eight years. In the north you’ve got the Kurds, and if the Kurds spin loose and join with the Kurds in Turkey, then you threaten the territorial integrity of Turkey. It’s a quagmire.”

That was quite prescient. And yet, the Bush administration pushed us into the Iraq war anyway, and the quagmire we now confront.

That’s why it’s so galling to read Mr. Cheney chastising this administration for its handling of the disaster that Mr. Cheney himself foresaw, but ignored.

I know that we as Americans have short attention spans, but most of us don’t suffer from amnesia. The Bush administration created this mess, and the Obama administration now has to clean it up.

The Cheneys wrote: “This president is willfully blind to the impact of his policies,” Mr. Cheney seemingly oblivious to the irony.

George W. Bush may well have been a disaster of a president (in a 2010 Siena College Research Institute survey, 238 presidential scholars ranked Bush among the five “worst ever” presidents in American history), but at least he has the dignity and grace — or shame and humility — to recede from public life with his family and his painting, and not chide and meddle with the current administration as it tries to right his wrong.

Mr. Cheney, meanwhile, is still trying to bend history toward an exoneration of his guilt and an expunging of his record. But history, on this, is stiff, and his record is c.

 

By: Charles M. Blow, Op-Ed Columnist, The New York Times, June 18, 2014

 

 

 

 

June 20, 2014 Posted by | Bush-Cheney Administration, Dick Cheney, Iraq War | , , , , , | Leave a comment

Why Gas Prices Aren’t Likely To Decide The 2012 Election

This morning’s Washington Post-ABC poll shows that President Obama’s poll numbers are falling in tandem with rising gas prices. Nearly two-thirds of Americans say they disapprove of how he’s handling the situation at the pump. Could gas prices end up swaying the 2012 election after all?

It’s hard to rule anything out, but evidence remains thin that gasoline will be a determining factor in November. While Americans love to grumble about expensive gasoline — and with good reason — political science research suggests that it’s not the main thing that shifts votes. Nate Silver, for one, has found that “there’s not a lot of evidence that oil prices are all that important” a factor in presidential elections. Nor do gasoline prices necessarily dictate the public’s view of the White House: Back during George W. Bush’s presidency, there was a much-linked graph showing his approval ratings climbing and dipping in lockstep with gas prices. But subsequent analysis by political scientist Brendan Nyhan showed that the correlation was just a “statistical artifact.”

The more severe worry for Obama, at this point, is that soaring gas prices could stomp on the nascent economic recovery. The way this typically happens is that pricey gasoline starts crimping the checkbooks of U.S. consumers, who then have less money to spend on other things. (In the Post-ABC poll, most respondents said they were already feeling the pinch.) That leads to slower growth. And slower growth, political scientists agree, really can sink a presidency. As Silver puts it, “higher gas prices are important to the extent that they affect things like G.D.P., inflation and unemployment. But there isn’t evidence that they matter above and beyond that.”

That said, it’s not yet clear whether oil prices actually will crush the current recovery. There’s certainly reason for concern: James Hamilton, an economist at UC San Diego, has found that most U.S. recessions since World War II have been preceded by a sharp run-up in oil prices. But, oddly enough, one person who isn’t gloomy about our current predicament is Hamilton himself. “I find myself in the unusual position,” he recently wrote, “of being less concerned about the impact of oil prices on the U.S. economy than many other analysts.” Hamilton notes that, for now, oil prices are simply moving back to 2011 levels. And price increases that simply reverse earlier declines are less harmful than historic new highs.

For instance, high oil prices have historically inflicted disproportionate harm on the U.S. economy by leading to a cut-back in sales of SUVs and other inefficient vehicles that Detroit has long specialized in. But this time around, he notes, sales are holding steady — perhaps because U.S. automakers have shifted to selling fuel-efficient models. Moreover, low natural gas prices, a warm winter, and improved fuel efficiency have helped insulate U.S. consumers from pricey oil to date. Overall energy expenditures are actually down this year. Americans have been grappling with expensive oil for several years now, and they appear to be adapting.

That should come as a quiet relief to most incumbent politicians. Because the unsatisfying reality is that there’s not a whole lot the White House or Congress can actually do to lower gasoline prices. Oil prices are skyrocketing because global crude supplies remain tight and tensions with Iran are making traders skittish about a possible conflict in a crucial oil-producing region. If Obama could figure out a way to calm down the situation with Iran, that might cause crude prices to settle back down.

But apart from that, options are limited. More domestic drilling won’t bring back $2.50-per-gallon gas, as Newt Gingrich has suggested — oil prices are dictated by the vast world market, of which U.S. production is just a small fraction. The still-in-limbo Keystone XL pipeline is just as likely to raise gasoline prices in the Midwest as anything else. Cracking down on “financial speculators,” as many Democrats have called for, isn’t particularly promising, as many oil traders simply appear to be following fundamentals. And, judging by past experience, releasing oil from the Strategic Petroleum Reserve won’t offer much more than very short-lived relief. Meanwhile, Americans are becoming significantly more oil efficient, but that’s a slow, painstaking process.

That won’t stop politicians from talking about the issue. And it won’t stop Americans from expressing their disapproval. But those are two very different things from swaying an election.

Update: Here’s another notable aspect of the Post-ABC poll to consider, pointed out to me by Third Way’s Josh Freed. At the moment, 63 percent of Americans say that gas prices are causing them financial hardship, with 36 percent saying the gas squeeze is causing “serious” financial hardship. (See Question 11.) But those are actually the lowest hardship numbers since May of 2008 — and, in fact, it’s virtually identical to what Americans were saying in May of 2004, six months before George W. Bush won re-election.

 

By: Brad Plumer, The Washington Post, March 12, 2012

March 13, 2012 Posted by | Election 2012 | , , , , , , , , | Leave a comment

Speculators, Hedge Fund Managers And “Gas Wars”

Nothing drives voter sentiment like the price of gas – now averaging $3.56 a gallon, up 30 cents from the start of the year. It’s already hit $4 in some places. The last time gas topped $4 was 2008.

And nothing energizes Republicans like rising energy prices. Last week House Speaker John Boehner told Republicans to take advantage of voters’ looming anger over prices at the pump. On Thursday House Republicans passed a bill to expand offshore drilling and force the White House to issue a permit for the Keystone XL pipeline. The tumult prompted the Interior Department to announce on Friday expanded oil exploration in the Arctic.

If prices at the pump continue to rise,  expect more gas wars.

In fact, oil prices are rising for three reasons — none of which has to do with offshore drilling or the XL pipeline.

The first, on the supply side, is Iran’s decision to cut in oil exports to Britain and France in retaliation for sanctions put in place by the EU and United States. Iran’s threat to do this has been pushing up crude oil prices for weeks.

The second, on the demand side, is rising hopes for a global economic recovery – which would mean increased oil consumption. The American economy is showing faint signs of a recovery. Europe’s debt crisis appears to be easing. Greece’s pending bailout deal is calming financial nerves on both sides of the Atlantic, and the Bank of England and European Central Bank are keeping rates low. At the same time, China has decided to boost its money supply to spur growth there.

Neither of these would have much effect were it not for the third reason — overwhelming bets of hedge funds and other money managers that oil prices will rise on the basis of the first two reasons.

Speculators have pushed crude oil to $105.28 per barrel, up 35 percent since September. Brent crude, Europe’s benchmark, is now $120.37 a barrel – also worrisome because many East Coast refineries use imported oil.

Funny, I don’t hear Republicans rail against speculators. Could that have anything to do with the fact that hedge funds and money managers are bankrolling the GOP as never before?

But that’s okay. The gas wars may come to a screeching halt before too long, anyway. So many bets are being placed on rising oil prices that the slightest hint the speculators are wrong – almost any sign of expanding supply or declining demand – will set off a sharp drop in oil prices similar to the record one-day fall on May 5 of last year.

 

By: Robert Reich, Robert Reich Blog, February 20, 2012

February 27, 2012 Posted by | Energy, Oil Industry | , , , , , , , | 1 Comment

   

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