NDN Blog

Jonathan Chait argues that Speaker Boehner has no choice but to shut down the government because the Tea Party won't let him compromise with the White House and Democrats.

Politico's David Rogers updates on the latest in the budget wrangling. The facts on the ground seem to confirm Chait's thinking:

For Boehner, the great challenge is to hold his party together for a final deal and the GOP is still pursuing a strategy of first maximizing its Republican vote before reaching out to House Democrats.

Aides dismissed suggestions that there is already an active campaign to solicit moderate Blue Dog lawmakers-however much their votes may be needed. Instead the leadership feels it must prove its loyalty first to its large, conservative freshmen class, since even tougher party votes lie ahead this spring with the debate over the 2012 budget and raising the federal debt ceiling.

Eric Cantor seems to be having a very difficult time with these budget negotiations, so difficult that he has no idea what's actually going on.

David Leonhardt writes that the Federal Reserve is consistently overestimating both growth and the likelihood of inflation, and has therefore done too little to address unemployment. He explains why:

Why is this happening? Above all, blame our unbalanced approach to monetary policy.

One group of Fed officials and watchers worries constantly about the prospect of rising inflation, no matter what the economy is doing. Some of them are haunted by the inflation of the 1970s and worry it may return at any time. Others spend much of their time with bank executives or big investors, who generally have more to lose from high inflation than from high unemployment.

There is no equivalent group - at least not one as influential - that obsesses over unemployment. Instead, the other side of the debate tends to be dominated by moderates, like Ben Bernanke, the Fed chairman, and Mr. Meyer, who sometimes worry about inflation and sometimes about unemployment.

The similarities between the budget battle and limited action by the Fed are striking. In both cases, priorities are being misplaced because of a lack of political gravity on the side of unemployment and growth, so almost theological fears of inflation and the size of government are winning the day. And, in both cases, the frightening severity of current economic conditions - high unemployment, weak demand, a weak housing market, rising energy prices, global instability, and the aftermath of the Japanese earthquake and tsunami - are not being fully accounted for.

At least in the case of the Fed, inflation hawks have an actual policy case. In the case of the budget battle, however, there's zero chance that the GOP's cuts will create jobs or growth or address the national debt.

David Leonhardt points out that the world's poorest are enjoying dramatically improving standards of living:

In a new book called "Getting Better," Charles Kenny - a British development economist based in Washington - argues that the answer is absolutely not. Life in much of Africa and in most of the impoverished world has improved at an unprecedented clip in recent decades, even if economic growth hasn't.

"The biggest success of development," he writes, "has not been making people richer but, rather, has been making the things that really matter - things like health and education - cheaper and more widely available."

NYU professor William Easterly argues that the Eastward movement of economic activity is a good thing for the West:

the richer are our trading partners, other things equal, the more demand for our products, the more and better jobs created thereby, the more gains from trade, the more innovation as the extent of the world market grows, and the more we can benefit from the additional human capital and innovation happening in the East.

Amar Bhidé, a professor at the Tufts University's Fletcher School of Law and Diplomacy, has a new book out chronicling how the use of algorithms and pricing models in finance has "replaced the judgments of thousands of individual bankers and investors, to disastrous effect."

For you econ wonks out there - the Brookings Papers on Economic Activity are now available for free. Yes, free!

Finally, (h/t Ben Smith) a Rolling Stone article on how two early 20-somethings in Miami became global arms dealers is a gripping read.

The new issue of Democracy Journal is out today, and - as usual - makes a strong contribution to the national conversation around the economy. Of interest to followers of NDN Fellow Dan Carol's work on bottom-up economic development is Andrei Cherny's piece entitled "Individual Age Economics," Cherny writes:

The task ahead in the Individual Age is to create a Horatio Alger economy, a drive to rebuild the possibility of upward mobility that is at the heart of the American experience. For today's middle-class Americans, life is a game of "Chutes and Ladders" with more chutes than ladders. While individuals have been thrown back upon themselves, both progressives and conservatives have acted as if the economy still functions from the top down. If America is to recapture the economic growth that was Hamilton's concern and the broad equality of opportunity that was Jefferson's dream, our mission must be to forge a new economics for the Individual Age that rethinks our economy from the bottom up.

Read the rest of the current issue here.

Ezra Klein points out that Congressional Republicans are being penny-wise and pound foolish about deficits. It's a crazy situation, but taken in totality, the House Republican economic strategy of cuts this year, health care repeal, and making the Bush tax cuts permanent offers, by independent estimates, less growth, fewer jobs, and more debt.

According to a new Gallup poll, 54 percent of Americans see either jobs/unemployment or the economy as the most important issue facing the country. That number compares to the 13 percent who see the deficit/debt as the number one issue.

And a poll conducted by the National Opinion Research Center at the University of Chicago shows that Americans overwhelmingly favor increased spending on domestic programs:

The public's top priority for increased spending - education - provides a contrast, with views across partisan lines holding steady despite sharper concerns about the deficit. Three-quarters favored higher spending on education.

Majorities also supported higher spending on assistance to the poor (68 percent), protecting the environment (60 percent), halting rising crime (60 percent), Social Security (57 percent), dealing with drug addiction (56 percent) or drug rehabilitation (52 percent), and assistance for childcare (52 percent).

In governing, there are generally two reasons political leaders make decisions: policy and, more often, politics. That's why the current obsession with near term budget cuts is so mind-boggling. While the long-term fiscal picture is an important policy question, there are not political or policy reasons to make anywhere near the cuts currently on the table.

From a policy perspective, we often hear that the United States is broke. If you only read one thing today, read about why the United States is not. Not only is the US not broke, it's not anywhere close. Bloomberg's David Lynch lays out why:

"The U.S. government is not broke," said Marc Chandler, global head of currency strategy for Brown Brothers Harriman & Co. in New York. "There's no evidence that the market is treating the U.S. government like it's broke."

The U.S. today is able to borrow at historically low interest rates, paying 0.68 percent on a two-year note that it had to offer at 5.1 percent before the financial crisis began in 2007. Financial products that pay off if Uncle Sam defaults aren't attracting unusual investor demand. And tax revenue as a percentage of the economy is at a 60-year low, meaning if the government needs to raise cash and can summon the political will, it could do so.

From a political perspective, while, again, people care about debt, the fiscal picture is, at best, a secondary issue. From a new Bloomberg poll:

Americans are sending a message to congressional Republicans: Don't shut down the federal government or slash spending on popular programs.

Almost 8 in 10 people say Republicans and Democrats should reach a compromise on a plan to reduce the federal budget deficit to keep the government running, a Bloomberg National Poll shows. At the same time, lopsided margins oppose cuts to Medicare, education, environmental protection, medical research and community-renewal programs.

While Americans say it's important to improve the government's fiscal situation, among the few deficit-reducing moves they back are cutting foreign aid, pulling U.S. troops out of Afghanistan and Iraq, and repealing the Bush-era tax cuts for households earning more than $250,000 a year.

The results of the March 4-7 poll underscore the hazards confronting Republicans, as well as President Barack Obama and Democrats, as they face a showdown over funding the government and seek a broader deficit-reduction plan.

"Americans do not have a realistic picture of the budget," says J. Ann Selzer, the Des Moines, Iowa-based pollster who conducted the survey. "We all know people who are in debt yet cannot for the life of them figure out where the money goes."

Overall, public concern about the deficit -- which is projected to reach $1.6 trillion this year -- is growing, although it's still eclipsed by employment, with poll respondents ranking job creation as a higher priority.

I understand why a conservative movement would listen to a base obsessed with shrinking government. What I don't understand is why anyone else would.

In the past weeks, NDN and the New Policy Institute hosted two major events on the economy. The first, a discussion with Rob Shapiro of NDN, William Gale of Brookings, budget expert Stan Collender, and Kevin Hassett from AEI, is called "The Budget and the Economy:"

At the second event, NDN's Rob Shapiro led a discussion on "Winning the Future" with National Economic Council Deputy Director Jason Furman:

Hoping to avoid the fate of other leaders in the Arab world, the King of Saudi Arabia has introduced a number of welfare measures targeting unemployed or poor young people.

Martin Wolf, in the FT, tells us why youth are in such a revolting state of mind.

David Leonhardt looks back on the debate between Germany and the United States on stimulus versus austerity. Turns out austerity didn't really work - Why Budget Cuts Don't Bring Prosperity. Now if only there were an ongoing debate to which this evidence could be applied...

Mother Jones says "It's Inequality, Stupid" and has some snazzy charts to back it up.

Jonathan Chait tries to understand why Republicans are moving things in the direction of a government shutdown.

The National Journal counts down to government shutdown.

Today at 12pm NDN and the New Policy Institute will host Dr. Jason Furman, Assistant to the President for Economic Policy and the Principal Deputy Director of the National Economic Council, for an important discussion of the Obama Administration’s economic strategy. The conversation will focus on President Obama’s budget and efforts to "Win the Future" in the competitive, global economy of the 21st century. Dr. Furman will deliver brief remarks and NDN Globalization Initiative Chair Dr. Robert Shapiro will lead a discussion.

The event will be held from 12-1:15pm at NDN/NPI headquarters – 729 15th St NW, First Floor.

Lunch will be available. Click here to RSVP. The event will be live webcast starting at 12:15pm.

On Tuesday, February 22, NDN and the New Policy Institute will host Dr. Jason Furman, Assistant to the President for Economic Policy and the Principal Deputy Director of the National Economic Council, for an important discussion of the Obama Administration’s economic strategy. The conversation will focus on President Obama’s budget and efforts to "Win the Future" in the competitive, global economy of the 21st century. Dr. Furman will deliver brief remarks and NDN Globalization Initiative Chair Dr. Robert Shapiro will lead a discussion.

The event will be held from 12-1:15pm at NDN/NPI headquarters – 729 15th St NW, First Floor.
Lunch will be available. Click here to RSVP. The event will be live webcast.

The President and Senate Democrats are calling it from the same playbook. Today leadership released their plan to "Win the Future" by, you guessed it, "Out-Innovating, Out-Educating, and Out-Building" and out-deficit reducing, as they signed on to the President's five year freeze on domestic discretionary spending.

The Federal Reserve now projects economic growth in 2011 to reach 3.4 to 3.9 percent. That's a nicely upgraded forecast from the previous range of 3.0 to 3.6. The employment picture is less good - 8.8 to 9 percent projected unemployment.

Former Bush speechwriter David Frum explains the conservative budget conundrum as follows:

Today though it's more relevant to think of conservatism as an attempt to draw a line connecting four points:

1) No tax increase
2) No defense cuts
3) No Medicare cuts
4) Rapid move to a balanced budget.

Obviously it's impossible to meet all four of those commitments. It would be difficult enough to combine #4 with even two of the first three.

Much of the struggle within the conservative world can be understood as a quiet debate over which of those commitments to jettison.

Steven Pearlstein declares the beginning of the budget fight by imagining what would have happened if the President had proposed a 60 cent hike in the gas tax a year ago. (The increase came anyway, but just because of increased gas prices.)

Since its budget time, and people are out there complaining about deficits and debt, here's the Most Important Budget Graph in the World, courtesy of the CBO:

What's it say? If you want to control deficits and debt, you've got to tackle healthcare.

For more on the budget and the economy, join NDN and the New Policy Institute for two major events. On Friday, February 18, we will host a discussion with a group of budget experts and economists, and on Tuesday, February 22, we will host a converastion with National Economic Council Deputy Director Jason Furman. Details on both available here.

NDN and the New Policy Institue will be hosting two events on the economy in the budget in the next week. I hope you will join us for both.

Friday, Feb 18 - The Budget and the Economy 

The release of President Obama's budget on Monday marked an important moment in the debate about the economic and fiscal future of the United States. Americans of all points of view are looking to this budget to understand the specifics of the President's approach to the great challenges of the day, from a competitive, global economy of the 21^st century, to the need to accelerate innovation and growth, to long-term debt.

On Friday, February 18, NDN and the New Policy Institute will host a group of economic and budget experts to discuss these matters.

Robert J. Shapiro, Chair, NDN Globalization Initiative

Stan Collender, Partner, Qorvis Communications and author, Capital Gains and Games

William Gale, Senior Fellow, Economic Studies, The Brookings Institution

Kevin Hassett, Senior Fellow and Director of Economic Policy Studies, The American Enterprise Institute

The event will be held from 12-1:30 pm at NDN/NPI headquarters - 729 15th St NW, First Floor.
Lunch will be available. Click here to RSVP. The event will be live webcast.

Tuesday, Feb 22 - National Economic Council Deputy Director Jason Furman on "Winning the Future"

On Tuesday, February 22, NDN and the New Policy Institute will host Dr. Jason Furman, Assistant to the President for Economic Policy and the Principal Deputy Director of the National Economic Council, for an important discussion of the Obama Administration’s economic strategy. The conversation will focus on President Obama’s budget and efforts to "Win the Future" in the competitive, global economy of the 21st century. Dr. Furman will deliver brief remarks and NDN Globalization Initiative Chair Dr. Robert Shapiro will lead a discussion.

The event will be held from 12-1:15pm at NDN/NPI headquarters – 729 15th St NW, First Floor.
Lunch will be available. Click here to RSVP. The event will be live webcast.