Economy

The Romney camp continues to hit Obama on the economy. Romney's latest web ad calls for new leadership, citing Presiden Obama's inability to spark a recovery after three years.

The numbers that the ad uses paint a gloomy picture. 23.3 million Americans are out of work, underemployed, or no longer looking for work. We have seen 40 straight months of unemployment over 8%. Median household income is down nearly $4,000. The ad shifts from ominous to uplifting, with Mitt Romney telling an audience, "this is our time."

This ad is the latest from Romney that neglects to outline his policies for growing the economy. He is running a very cautious campaign, one that argues for the necessity of his leadership based on the failure of Obama's. Romney has yet to explain logically how exactly his policies would help Americans meet the challenges of a 21st Century Economy.

The Daily Border Bulletin is up! Today´s stories include:

Chamber of Commerce endorses immigration reform- In an op-ed published in the McClatchy-Tribune newspapers, Thomas J. Donohue, president and CEO of the U.S. Chamber of Commerce, said that immigrants can strengthen economic growth, job creation, and competitiveness as this country faces a sluggish economic recovery and persistently high unemployment.

Police departments in Arizona prepare for lawsuits on the SB 1070- As the nation awaits the Supreme Court’s decision on  Arizona’s SB 1070 bill, opponents of the 2010 immigration law are preparing to sue police departments on claims that officers racially profile, while supporters are set to sue police agencies for failure to enforce the law, according to Fox News Latino.

Mexican economy grows faster than Brazil´s- After 17 years of macroeconomic stability, low inflation, manageable debt, an open economy and increasing competitiveness, the Mexican gross domestic product increased 3.9 percent in 2011, ahead of Brazil’s growth of 2.7 percent, reported The New York Times on Monday, June 18th.

The Candidates Speak in Ohio

Yesterday, President Obama and Republican presidential hopeful Mitt Romney gave speeches in the crucial swing state of Ohio outlining two distinct economic philosophies. Obama’s speech, billed as a reframing of his economic argument, characterized the election as a choice between two fundamentally different visions on how to grow the economy, create jobs, and reduce the deficit. Romney’s speech rehashed his overarching campaign rhetoric, that Obama is hostile to business and that the economy’s meager recovery demonstrates the president’s inability to effectively manage the economy. This election, as both candidates recognize, hinges on which candidate voters think can best lead on the economy. Voters must realize that Republicans are offering an anachronistic economic approach, while Democrats offer one calibrated to meet modern economic challenges. 

A Struggling Economy

Unemployment remains above 8%. Demand for goods and services is weak, and the long term unemployed account for nearly half of our unemployed population. GDP grew only 2.2% in the first quarter of 2012, compared with a historical average of 3.1%. A Federal Reserve Report from earlier this week showed a huge drop in median American wealth. 

These facts indicate short-term hardships for many Americans. But they also point toward long term obstacles to prosperity. NDN has produced a wealth of research on structural shifts in the economy away from “things” toward “ideas.” Evidence strongly suggests that our workforce is not prepared to succeed in this changing business environment.  In 2011, the CBO reported that approximately one half of one percentage point of unemployment above 5% is attributable to a “skills mismatch,” that is, our workers increasingly lack the skills that employers look for. That amounts to 14% of unemployment above the natural rate and roughly 700,000 unemployed workers. 

Further, the CBO identified “skills erosion” as another contributor to high unemployment. Skills erosion occurs during prolonged periods of unemployment when workers lose the chance to build skills on the job. The CBO attributed one quarter of a percentage point of unemployment above the natural rate to this skills erosion, but stated this share will grow. With nearly 3 million people out of work for more than six months, this skills erosion has significant implications for the US’s economic future. Long term economic success is contingent on a workforce able to perform in a rapidly changing, hi-tech workplace.   

Two Fundamentally Different Visions

As Obama made abundantly clear during his Ohio speech, the candidates offer two distinct visions for how to put our economy back on track. These two visions embody two different economic philosophies: one that places its full faith in the private sector and another that believes in the right combination of public and private investments. 

The Republicans have been very clear on how they intend to grow the economy. Representative Paul Ryan’s budget, which calls for massive spending and tax cuts, is a manifestation of this philosophy. According to the Tax Policy Center, the Ryan budget would result in nearly $10 trillion in tax cuts. To even begin making up this lost revenue, the plan slashes government spending on everything from research to social programs for the poor. And even then, Ryan still needs to make up $700 billion in lost revenue. It is thus very unclear whether the plan could actually reduce deficits. Further, the Tax Policy Center finds that Romney’s tax plan would actually end up raising rates for the poorest Americans. Republicans, however, believe that these massive spending cuts, coupled with tax breaks for the wealthy, will unleash the private sector and create jobs. 

Obama offers a very different economic philosophy. The President plans to cut the deficit by $4 trillion over the next decade with discretionary spending cuts and tax raises on wealthy Americans. The American Jobs Act, the centerpiece of Obama’s economic strategy, will put millions of people back to work by investing in infrastructure and clean energy and rewarding businesses for creating jobs. It seeks to support the middle class by helping responsible homeowners refinance their mortgages at lower rates. 

An important aspect of Obama’s budget is its expansion of research funding. A 2005 report from the National Bureau of Economic Research shows that since the late 1980s, research conducted at universities has played an increasingly important role in industrial innovation. The report, which looks at patent data, shows that a significant number of industrial patents originated in labs in America’s eminent research universities – whether they were based off university research or the product of industrial researchers with advanced degrees. Funding to universities is therefore crucial to cultivating both the ideas and the human capital that make America a leader in innovation. The philosophy is simple: create near term jobs, grow the middle class and make prudent investments for the long-term. 

Adopting the Republican approach would be calamitous for America’s economic future. It fails to make the necessary investments this country needs, not to mention the impact it will have on demand by cutting important social programs. It backs off of education and research funding during a time when we need it the most. Not only is the Ryan budget unsympathetic to the most disadvantaged Americans, it makes little economic sense amid deep structural shifts in our global economy. It operates under the assumption that, if left to its own devices, the free market will address the structural challenges I mentioned above. It therefore leaves the fate of the middle class to a fickle market, The Obama economic plan on the other hand, while not focused immediately on deficit reduction, makes important investments that will induce growth and job creation and reduce debt in the long-term by preparing the American economy for the 21st century.   

The Myth of the Anti-Business, Spending-Crazed Obama Administration 

Romney’s characterization of the Obama administration as inimical to the private sector is inaccurate. Since Obama took office, we have seen the highest corporate profits in history and record breaking IPOs. He recapitalized our banks and bailed out the auto industry, which today is stronger than it was before the recession. Under Obama’s leadership, the private sector has created more jobs in the past 27 months – 4.3 million – than it had during the seven years preceding the recession. Obama cut the payroll tax to reduce the cost burden on employers. He signed into law the Small Business Jobs Act of 2010, which provides over $12 billion in lending support to small businesses across the country. By most counts, Obama has been a friend to businesses. 

Moreover, Republican accusations that Obama is a profligate spender are not supported by the data. When Obama took office in 2009, government expenditures as a percentage of GDP grew from 32.6 to 37.1. But most of this increase was due to the Troubled Asset Relief Program (TARP), which bailed out the banks, and the stimulus bill, both of which ensured that our recession didn’t turn into a depression and which saw private sector growth months after their implementation. From 2009 onward, spending as a percentage of GDP has fallen gradually too 35.4. Much of this continued expenditure comes from higher Medicare costs and income support programs like unemployment insurance. On average, spending has increased by 2.9 percent annually, compared with 3.4 percent under Bush and an overall average of 2.7 percent since Ronald Reagan assumed office in 1981. 

A Clear Choice 

The President is correct in identifying this election as a choice between two economic visions. One purports to “unshackle” the private sector through massive spending and tax cuts. Given deep structural changes in the global economy, this philosophy is outdated. The other makes prudent public investments in our workforce, our infrastructure, and the sources of American innovation to tackle short term ills and position America for long term success. This plan induces more growth, which will lead to more jobs and less debt. The consequences of a Republican win: les growth, less jobs, more debt. The choice is clear, and it is up to voters to make the right one. 

Since late 2008, NDN and I have urged Congress to help Americans stay in their homes by taking steps to reduce foreclosure rates and stabilize housing prices.  These recommendations reflected basic economics: The worst recession in 80 years would inevitably exacerbate the housing bust as abnormally high foreclosure rates drove down housing values.  This, we predicted, would leave all American homeowners poorer.  Moreover, this “negative wealth effect" would dampen both consumer spending and business investment, producing a persistently slow expansion.  Congress refused to take steps, and unfortunately we were right about the results. 

Today, the Federal Reserve confirmed the negative wealth effect we have warned about.  The Fed calculates that U.S. families' median net worth fell by nearly 39 percent from 2007 to 2010.  Average net worth, which is pulled upward by high-net-worth people at the upper end of the spectrum, also fell by nearly 15 percent.  Moreover, the decline in people’s home equity accounted for 82 percent of the decline in the total median net worth of American homeowners.

Congress must finally act to relieve these pressures.  American taxpayers today own Fannie Mae and Freddie Mac.  One step Congress could take would be to direct Fannie and Freddie to provide temporary bridge loans to homeowners whose mortgages they hold and which are in danger of foreclosure.   To be fair to all homeowners, those who accept these loans would return to the taxpayers 20 percent of any eventual capital gain, in addition to repaying Fannie and Freddie for the loans.  This simple measure will help stabilize everyone’s housing prices and stem the negative wealth effect, producing at last a much stronger and more sustainable expansion. 

Update - Watch Rob talking about the report on the NewsHour tonight! (SR)

The Obama campaign released a new ad today targeting Mitt Romney’s management of the Massachusetts economy during his time as governor.

The ad states that under Romney, Massachusetts’ debt grew to $18 billion, giving Massachusetts the highest debt per capita of any state. Further, the ad notes that during Romney’s governorship, Massachusetts fell to 47th in job creation. Instead of looking at specific policies, this ad questions Romney’s economic leadership, implying that Romney’s inability to manage Massachusetts’ economy demonstrates that he will be unable to tackle similar challenges on a national scale.  

The Obama campaign has generally refrained from attacking specific Republican policies and has instead opted to run against Romney’s career – both at Bain Capital and as governor of Massachusetts. Similarly, Republican ads have simply called for the end of government spending and cite persistent unemployment as evidence of Obama’s failed economic leadership. Other than a recent Obama ad on the American Jobs Act, neither side is outlining policy solutions to address the deep structural changes in the American economy that are leaving our workers behind.

Democrats don’t seem to be challenging the Paul Ryan budget, which, if approved, will drastically reduce social programs and revenues. Nor do Republicans seem to be responding to the Democratic logic of the President's jobs bill, which emphasizes investing in our workforce. As the election nears, perhaps we will begin seeing clearly enumerated policies and more distinctive economic philosophies. Until then, we wait.

Your Daily Border Bulletin is up! Today´s stories include:

Report highlights illicit money flows from Mexico to the U.S.- A report by Global Financial Integrity found that deposit data from the Bank of International Settlements show that the United States is the top destination for Mexican funds.

Foreign homeownership is up in  the U.S.- A survey released Monday by the National Association of Realtors   found that international buyers accounted for 8.9 percent of the dollars spent on residential real estate in the U.S. in the 12-month period that ended in March, The Wall Street Journal reported.

Violence in Juárez decreases- The month of May had the lowest number of slayings in Juárez in more than three years, reports El Paso Times.

This past Friday, President Obama held a press conference to talk about the American economy. While optimistic about private sector growth over the past 27 month, Obama stressed the need for further action to advance the recovery. He also cited potentially weakened European demand in the event of an European financial meltdown as further impetus for action on the economy.

Obama emphasized the need to pass the American Jobs Act, which would put millions of laid off public employees back to work. He highlighted the needs to invest in infrastructure, keep people in their homes, and cut taxes on small businesses. Congressional obstinacy, according to the president, has delayed the bill’s passage and weakened the economy. The overall message appears to be that state and local governments need help putting people back to work.

In response to one reporter’s question concerning Republican allegations that Obama is blaming Europe for his own failed policies, Obama stated that “the private sector is doing fine,” and that in fact the public sector is currently the main drag on the economy. Republicans seized on this statement immediately as evidence that the president is out of touch with the American economy. Romney’s new ad, “Jolt,” attempts to demonstrate a contrast between economic reality and the president’s statement.

As the election approaches, the economy continues to play a crucial role in both campaign’s overarching narratives. While the Obama campaign has begun to articulate tangible policies to confront economic challenges – mainly through advocacy for the president’s jobs bill – Republicans relentlessly attack Obama’s handling of the economy without articulating policy alternatives of their own.

The Obama team released an ad today urging Congress to pass the American Jobs Act of 2011. The ad is part of a broader strategy to articulate Presiden Obama's economic agenda, and is accompanied on the Obama campaign website by a more in depth explanation of the legislation.

The ad takes a positive tone and points to the creation of 4.3 million private sector jobs as a sign of recovery. It makes several other points:

The bill will put teachers and other public employees that were laid off back to work in the near-term. 

The bill's financing requires that wealthy Americans pay higher taxes

Congress has obstructed the passage of the bill, implying that our weak economy is a result of Congressional inaction.

The bill comes amidst heightened Republican attacks on what they deem to be wasteful government spending - spending that has failed to stimulate the economy. The Obama ad and its accompanying description challenge this philosophy by calling for government investments in our infrastructure and workforce to reduce near-term unemployment and modernize our economy for future success.

Today’s post features a new ad from Crossroads GPS, a nonprofit organization associated with conservative super PAC American Crossroads. The ad, which was released yesterday, will run in key election states, including Colorado, Pennsylvania, Ohio, New Hampshire, North Carolina, Michigan, Iowa, Nevada, and Virginia.

The message of the ad is that our weak economy is a direct result of President Obama’s profligate spending. The way to strengthen the economy, according to Crossroads, is to “stop the spending.” A recent opinion piece from Paul Krugman questions the validity of this argument on two levels. First, it notes that spending under Obama has not increased dramatically. Second, it argues that spending has not increased enough to counter the recession.

With the general election less than six months away, we are about to be inundated with ads and speeches from Democrats and Republicans trying to convince us to vote for them. As 13 million Americans continue to look for jobs and our public debt expands indefinitely, voters will be looking for a candidate who they think can provide strong economic leadership. Winning the economic debate, therefore, is crucial to winning the election.

Both sides offer very different narratives on how to get the economy back on track  In this series, which will run throughout the summer, I will document how the economic debate plays out in the political sphere. Looking mainly at campaign advertisements and stump speeches, I report on how the Obama and Romney camps frame their economic arguments and what kinds of solutions they are advancing for America’s economic woes. I welcome any feedback from readers who find interesting local ads pertaining to the economy.

To start things off, here’s a video of former president Bill Clinton stumping for President Obama in New York last night. The full transcript of the speech can be found here.

A couple of interesting points:

Clinton highlights the creation of 4.3 million private sector jobs under President Obama. This seems to refute Republican attacks on Obama’s jobs record.

Clinton equates Republican and European austerity policies, effectively establishing a link between the Republican party's economic philosophy and policies that have contributed to Europe's instability 

Be sure to check back regularly for updates on the debate over the American economy.