Economy

This morning I had the opportunity of attending the "As the Economy Screams" discussion hosted by the New America Foundation. Focusing on the current problems of the United States economy, the senior economic advisors for presidential candidates Barack Obama, John Edwards, Hillary Clinton, and John McCain explained their candidate's economic agenda in a few short minutes and fielded questions from the crowd and press. I've bulletpointed some of the remarks made by the advisors below.

Austan Goolsbee
Senior Economic Advisor, Barack Obama for President

- In order to maintain the status of richest and most productive nation in the world, it is essential to focus on long-term investments in the areas of education, energy, and technology.
- Many of the economic fears that we are now facing are a result of a troubled healthcare system, college becoming less affordable, and a distribution of income that cannot promote a healthy economy. As a result, savings are falling and consumer debt is rising.
-In the short run, it is essential to have tax relief for the middle class and invest in the long term issues enumerated above in order to provide a light at the end of the tunnel for many struggling American workers today. In increasing savings by setting up an automatic enrollment program, and not just tax cuts alone, workers can immediately begin to save for their future.
- "ipod" style of government, where everything works easily, smoothly, and responds fast to problems can bring our country to new heights

Leo Hindery
Senior Economic Advisor, John Edwards for President

- "John Edwards feels like Paul Revere in search for a horse."
- The United States economy is falling and the only ones not feeling it are those sitting on the top.
- First off, it is unfair to label the sub-prime crisis as a misfortune brought about in America by the poor failing to live up to their responsibilities. The credit crisis in general was brought about not only by people struggling to make their payments, but also by irresponsible lenders, so this problem ranges widely across the economic spectrum.
- There are about 90% of Americans living in stagnant growth and this period of time has the most unequal economy since 1928.
- When it comes to the effects of globalization, America needs to look at trade as a fairness issue, similar to many environmental practices. Overall, the economy severely needs quick action and cutting Americans small checks that won't arrive until June will not benefit anyone.

Gary Gensler
Senior Advisor, Hillary Clinton for President

- There is currently a huge disconnect between the debates in Washington and the people of the United States. Many Americans are living a single pink slip away from foreclosure and have virtually no savings to assist them.
- If America can have long-term optimism for universal health care, addressing the needs to get students from kindergarten through college, and creating a savings program, short-term drops will be eliminated.
- The American people need to find a plan to be dependant on our own resources because it will help the economy and reduce serious national security threats.

Kevin Hasset
Senior Advisor, John McCain for President

- If you add up all the promises that the United States makes versus the revenue that the country has coming in, we are about 50-60 trillion dollars short.
- Foreign countries continue to buy up American securities, but if the American government cannot address the long-term problems facing the country, the foreign investors that the United States relies upon will begin to question their investments.
- There are many opportunities to fix stimulus problems, but the United States can't and shouldn't continue to "borrow money from the Chinese to drop from helicopters" in order to provide short-term relief for workers across the country.
- Restoring the competitiveness of US corporations by giving companies more room to function will help businesses create a more competitive edge in the future. In short, helping firms will help the people.

Some interesting Q & A

Question: If in office starting Janurary 20th, what specific aspect of a stimulus package would immediately be put forward first?

Hindery (Edwards): There needs to be a reformation of the current health care system and implement ideas from the "green economy" that is constantly in the news. Take resources at the disposal of the federal government and put them into domestic needs like heating costs. It is important to realize that putting cash in hands of the consumers will only pay off their amounting bills, not encourage them to go out and spend more.

Goolsbee (Obama): The biggest criticism of fiscal stimulus is that the government can't get money into the hands of the people in time. If you apply an optimistic view, looking at America's history, recessions typically last for about eleven months before turning around. If the first checks can't get in the hands of the consumers until June and additional checks might be needed, there is possibility of the market correcting itself, and then the influx of $150 billion or more, then actually leading to further inflation. The only solution to this problem is immediate cash in hand to the people who are in most dire need.

Gensler (Clinton): Stimulus package announced last week is the United States' best option with $40 billion dollars given in immediate tax rebates in addition to money to help people facing foreclosure. Then a large portion of the package will be given to the states so that each state can analyze and implement a plan that works best in their specific citizens.

Hasset (McCain): Stimulus packages will most likely not work unless it is associated with permanent tax cuts to dispel the fears of the American people of further recession and give them the opportunity to spend more money. In addition, by lessening restrictions on corporations, they can adapt to the economy and respond today, not in June when checks might be written. By allowing companies to act more freely, everyone will benefit from their productivity and gains.

Question: How should the government deal with growing debt?

Goolsbee (Obama): Openness and transparency is a problem. America needs to regain a trust in credit rating agencies and all other forms of government. Establishing a more critical review process for agencies is not anti-business or anti-market. Furthermore, Americans need to realize that losses from the mortgage crisis are large, but not huge when compared to the economy as a whole. By starting with correcting the problems with homeowners and lenders on a micro level, losses then further up the chain to large corporations can be minimized or avoided.

Hindery (Edwards): As seen in this mornings increase, European and Asian markets are better at recognizing the long-term effects of the United States economy on the world. The United States problems arise from 25 years of trade, state, consumer, and corporate fluctuations and often-regulatory responses have been neglectful. If we can reform these systems, the chances of this kind of economic downturn can be side stepped in the future.

Hillary Clinton's new ad "Falling Through" focuses solely on the economy and her proposals to fix the problem. As she says in her debates, it's not about putting a band-aid on the problem.

For more information on NDN's coverage of the 2008 Presidential election, click here.

An article in the Washington Post today exposed a growing problem that parallels the economic downturn in America. In his article, Michael Fletcher speaks to the growing level of middle class individuals who are experiencing long-term unemployment:

"In November, nearly 1.4 million people -- almost one in five of those unemployed -- had been jobless for at least 27 weeks, the juncture when unemployment insurance benefits end for most recipients. That is about twice the level of long-term unemployment before the 2001 recession."

In the wake of the housing market crisis and prospects of recession, America's relatively low unemployment rates have masked concern for this development. Yet Fletcher finds that this growing number of long-term unemployment is indicative of a polarizing labor market; strong on the top and bottom, demand is weak for the jobs in the middle.

Concern has sparked attention on the Hill and in presidential campaigns as fiscal policy and an economic stimulus package remain a top priority. This is evident in both Clinton's and Obama's fiscal stimulus proposal, which calls for some $10 billion to extend and expand the Unemployment Insurance program.

Following Federal Reserve Chairman Ben Bernanke's stimulus package speech yesterday, President Bush has announced his intentions of soon providing immediate strategies to fight off looming recession. While the specifics of the plan are not yet known, and unlikely to be explained in depth at the plans' announcement today at 11:50am, Bush has called for the plan to be "effective, simple, and temporary". Such a plan would most likely call for direct tax rebates giving consumers cash in hand to bolster the economy while being able dispel their own fears.

At the opening of the market, Wall Street responded well to this announcement having risen 125 points at the time of this writing. While it is still far too early to forecast the larger scale impact of this recent problem, Bernanke is optimistic saying, "We're not forecasting recession but, rather, at this point, slow growth."

I listened to Bernanke's testimony on the Hill today and here are some of the key points that were made:

• Bernanke and Bush have called for an economic stimulus package in an attempt to avoid recession.
• Bernanke mentioned that fiscal action “could be helpful” in giving “broader support for the economy” than a reduction in interest rates alone. Further, he mentioned that “putting money into the hands of households and firms would be more effective” than provisions such as a permanent tax cut.

While no specific provisions were advocated, Bernanke showed clear support to the general concept of an economic package to boost the economy.

The White House admitted that “some boost is necessary” to deal with this economic downturn, accepting for the first time that intervention is needed.

House Speaker Nancy Pelosi met with congressional leaders to create legislation in order to “energize the weakening economy.”

Upon his return from the Middle East, President Bush called for a conference call with congressional leaders to discuss the possibility of an economic stimulus package. 

Bernanke has signaled his intentions to cut interest rates by .5%, but noted that a package containing fiscal policies should be implemented “quickly and structured so that its effects on aggregate spending are felt as much as possible within the next 12 months.”

Bernanke made clear that if such actions are not made in a timely, direct, and temporary fashion, they would be ineffective, if not detrimental. He warns that a fiscal policy which increases the budget deficit will make confronting the challenges of an aging population and health care, among other factors, more difficult.

Brian Blackstone's Wall Street Journal and Jeannine Aversa's Associated Press articles provide further detail into this issue. 

David Leonhardt of the Times today has an excellent piece today comparing the 1992 Bush Recession to what might be end up being called the 2008 Bush Recession. As he notes what makes this coming slowdown/recession different from 1992 is that in the Bush era the middle class was already in what might be called a recession despite record GDP and productivity growth and very strong corporate profits and a soaring stock market. Even before this slowdown the typical family's income had dropped by over a $1,000 after gaining more than $7,000 in the Clinton era; wages have been flat; and the number of those in poverty, without health insurance and struggling with high levels of debt had increased.

At NDN we agree with the sentiment of some in the piece that the critical thing for policymakers is to focus on offering a new economic agenda that makes this new age of globalization work for all Americans. The most important impact of a stimulus will be to show the American people that their government, after 7 years of ignoring their increasing struggle, is watching their backs, and working to help them and their families once again prosper. But it would be unfortunate if the stimulus debate ended up distracting our political leaders from focusing on the much larger and more difficult challenge of restroring broad-based prosperity in our new economic age.

It is also important for our leaders to realize that the American people's concerns about the economy was sky high long before this recent downturn. As this analysis of the 2006 exit polls shows, there is a strong argument that concerns about the economy drove the outcome of the 2006 Congressional elections much more than the Iraq War. Political and economic elites have been very slow to recognize these pre-slowdown economic realities because for those on the upper end have had a remarkable decade. Their incomes increased, their assets soared, their taxes were significantly reduced. I know from my travels that few American elites were intuitively sympathetic to the middle class struggle of the Bush era because for them things were getting better, much better. And now that the economy is slowing, and their friends on Wall Street are getting fearful of the future, it is essential that the governing class in the United States not accept a $100 billion stimulus as an adequate response the economic challenges of our day. Much more must be done. And offering this new economic strategy that makes globalization work for all Americans is what our Globalization Initiative has been focusing on for the past several years.