But…but…this goes against the Republican narrative!

American Jobs Act — Final

There really aren’t any controversial elements in here at all. Yes, Republicans are going to push back on any additional spending, but it’ll be hard for them to break this apart and only get the tax cuts through. So it’ll be up to them to go all or nothing. And that’s a risky move right now.

More as it develops…

A very sobering piece to write, no doubt, but needed nonetheless. Especially when you consider the revised GDP numbers from 2008.

From Frum Forum:

Two years ago, Commerce estimated the decline of the US economy at -0.5% in the third quarter of 2008 and -3.8% in the fourth quarter. It now puts the damage at -3.7% and -8.9%: Great Depression territory.

Those estimates make intuitive sense as we assess the real-world effect of the crisis: the jobs lost, the homes foreclosed, the retirements shattered. When people tell me that I’ve changed my mind too much about too many things over the past four years, I can only point to the devastation wrought by this crisis and wonder: How closed must your thinking be if it isn’t affected by a disaster of such magnitude? And in fact, almost all of our thinking has been somehow affected: hence the drift of so many conservatives away from what used to be the mainstream market-oriented Washington Consensus toward Austrian economics and Ron Paul style hard-money libertarianism. The ground they and I used to occupy stands increasingly empty.

A decline of -8.9%.

Conservatives…let that sink in for a moment.

Anybody now think the stimulus was too big?

This from the Economist:

We can’t know exactly how things would have played out in a world in which key policymakers had better data. If the true scope of the economic disaster in the fourth quarter had been clear, however, it seems certain that Ms Romer’s models would have shown a need for more stimulus, that the White House would have agreed to push for more (and perhaps a lot more), and that Congress would have been much more receptive to a bigger bill. A drop of 8.9% does seem much more terrifying, after all, than a 3.8% decline. Bigger stimulus would have reduced the economic deterioration in subsequent months. The Fed might also have been more aggressive.

Of course, it’s not impossible that knowledge of the dire state of the economy would combine with a bigger stimulus plan to shake faith in American finances. It is unlikely, however. At the end of 2008, America’s net debt-to-GDP ratio was less than 50%. Other large economies were also tanking, and money was flooding into Treasuries. In late December of 2008, yields on 10-year Treasuries fell to near 2%.

America had plenty of room and every reason to borrow and spend heavily. What it didn’t have, unfortunately, was an accurate picture of the economic situation. And that was a crippling limitation indeed.

Frum closes it out with this tribute to Susan Sontag’s famous challenge to her left-wing brethren in 1982:

Imagine, if you will, someone who read only the Wall Street Journal editorial page between 2000 and 2011, and someone in the same period who read only the collected columns of Paul Krugman. Which reader would have been better informed about the realities of the current economic crisis? The answer, I think, should give us pause. Can it be that our enemies were right?

Your thoughts?

Looks like businesses are finally feeling some confidence.

Maybe they read my post? Probably not.

Regardless, if the above number holds up when the government reports on Friday it would represent triple what Wall Street was predicting.

Daily Finance has more good news:

Separately, private placement firm Challenger, Gray & Christmas said planned layoff announcements in December by U.S. employers fell 34% to 32,000 in December from about 49,000 in November. That brought 2010 layoffs to about 530,000, the lowest total since 1997 and a 59% reduction from 2009, when job losses reached a seven-year high.

ADP’s December report showed that job gains were concentrated in services and in small and midsize businesses. Services added 270,000 jobs — the sector’s largest monthly increase on record, ADP said. Small businesses added 117,000 jobs; midsize businesses, 144,000; and large businesses, 36,000.

Construction employment was unchanged in December — but that ends the more than three-year-long monthly losing steak that started in June 2007. Goods producers added 27,000 jobs, manufacturing employment increased by 23,000 and financial services added 8,000 jobs.

We had signs that something like this could happen last month when jobless claims hit a 2.5 year low

Long story short, the trends are going the right way. Let’s hope they continue.

When an economic bubble bursts, normalcy can only return when price excesses created during the bubble are wrung out of the market. A recession is often the painful but necessary market mechanism that corrects the pricing distortion and consequent misallocation of capital that occurs in a bubble. When government intervention prevents the mispriced asset class from fully deflating, capital continues to be misallocated and economic malaise lingers on. This is the takeaway message from Peter Schiff’s Wall Street Journal editorial:

Schiff defended his thesis on CNBC:

Schiff’s holiday forecasts have become a regular feature on this blog. As long as his prognostications prove to be more right than wrong (as we’ve seen over the last five years) it is a tradition we will continue to observe. I do not find it particularly difficult to appreciate the wisdom in his common sense analysis. In fact, I find it much more difficult to understand how anyone could expect that a problem that was:

• Triggered by Federal government market-distorting social engineering policies intended to permit people to buy homes they cannot afford…
• Enabled by Federal Reserve Bank expanding the money supply and keeping interest rates artificially low to create the illusion of affordability for overpriced housing…
• Fueled with massive deficit spending…

could be solved by:

• More federal government market-distorting social engineering policies intended to allow people to to stay in homes they cannot afford…
• Even more Federal Reserve Bank expansion of the money supply enabling even lower artificial interest rates perpetuating the illusion of affordability for overpriced housing and…
• Fueling it all with even more massive deficit spending.

Definition of insanity anyone?

UPDATE: 1/4/10
Instead of insanity, how about Insana? On Friday last, Ron Insana opined specifically to refute Schiff’s thesis. Basically he is saying there is so much pent-up demand, real estate prices are so low, and the economy is improving enough that the housing market will stabilize here:

^{Cross-posted from “Divided We Stand United We Fall“}

Big time speech today from the guy who definitely has his eye on the White House.

Here’s the video…

I’ll offer the transcript below after my analysis.

Personally, this feels disingenuous from a guy like Bloomberg who has repeatedly used the government to regulate New York City businesses and consumer behavior six ways to Sunday. Not that I’m opposed to many of his moves, but the idea that he’s setting up this canard of “between a government that would stand on the sidelines and one that would take over the game” is pretty transparent.

Let’s remember, Bush started the bailouts. Obama merely finished them. And, by the way, the government recently sold its stake in Citigroup and turned a $12B profit. Obama doesn’t want the government to be overly involved in the private market, and his administration hasn’t taken any sort of active, day to day role in the corporations we bailed out. This is not a statism approach. And yet Bloomberg is positioning it as such. That’s unfortunate and I expected more from Mike. Oh well.

But what this type of rhetoric tells me is he wants to run in 2012. Imagine a third party candidate who is literally one of the most trusted and successful businessmen in recorded history. And he’s held elected office. And he’s a moderate Republican who is really a Dem, but who’s paying attention to labels these days.

Another theory…he wants to force Obama’s hand to adopt his policies.

Whatever the reason, Mike knows he has a seat at the table and he’s not letting that go to waste.

Here’s the transcript…

**************

MAYOR MICHAEL R. BLOOMBERG OUTLINES SIX CRITICAL STRATEGIES TO TACKLE UNEMPLOYMENT, SPUR JOB CREATION AND BRING ABOUT LONG-TERM ECONOMIC GROWTH

Mayor Bloomberg’s Remarks as Prepared for Delivery at a Breakfast at the Brooklyn Navy Yard Co-Sponsored by the Association for a Better New York and the Brooklyn Chamber of Commerce Follow:

“Thank you, Bill, for those kind words – and it’s a pleasure to welcome everyone to the Brooklyn Navy Yard, which we’ve turned into one of the most successful, private sector urban manufacturing districts in the country.

“This is the place where America used to make battleships – the Maine, the Arizona, the Missouri. And now, the private companies you see out these windows make everything from the kevlar vests worn by the U.S. Army’s special forces to the Sweet and Low that you just put in your coffee.

“We’re here this morning to discuss the most pressing and immediate challenge facing our country: helping more people get back to work. The national recession that began in 2008 hit New York – like everywhere else – hard. And today, many New Yorkers are still feeling the pain.

“But over the past 12 months, New York City has been leading the nation in private sector job growth. In fact, our economy has grown twice as fast as the country’s – and eight times as fast as the rest of the state’s. Our economy has grown faster than any other major city’s in the country – and none of that growth has come on Wall Street. Since last October, we have added 55,000 private sector jobs – in industries with average salaries between $35,000 and $92,000. These are middle-class jobs – in accounting, engineering, advertising, health care, retail, tourism – even construction. Here at the Navy Yard, we’ve added 2,300 jobs over the past eight years, and we’re set to add 3,100 more over the next three.

“The economic policies that we have pursued to drive this growth have been neither left nor right, liberal nor conservative. Despite what ideologues on the left believe, government cannot tax and spend its way back to prosperity, especially when that spending is driven by pork barrel politics. Federal spending to stimulate the economy had a temporary, positive impact – but we are two years past the economic meltdown of 2008, and unemployment is still too high, the underlying economy is still too weak and the federal deficit is still rising too fast.

“At the same time, despite what ideologues on the right believe, government should not stand aside and wait for the business cycle to run its natural course. That would be intolerable, given the enormous unemployment we face, and the worsening job prospects for the 15 million people who are trying to find work.

“Government is not an innocent bystander in the marketplace, and it should not pretend to be. In the face of the current economic weakness, government must act: decisively, responsibly and immediately.

“For New York City to continue our growth, we need our federal and state governments to chart a middle way – between a government that would wash its hands of the problem and one that seeks to supplant the private sector; between a government that would stand on the sidelines and one that would take over the game.

“This is not to say that we should try splitting the difference between Democratic and Republican positions – that’s thinking too small. While it’s true there are no simple solutions to complex problems, fortunately there are solutions that can get us out of this mess, that can be embraced by those across the political spectrum, and that can start us on the road to long-term sustainable recovery.

“Common sense solutions that are straight-forward and relatively cost-free: things we can do together, to put people on private payrolls and encourage new investment; things that increase personal opportunity, instead of dependence on taxpayer bailouts and taxpayer handouts; things that encourage entrepreneurship and attract global talent and capital.

“By taking these steps, we can do a far more effective job of unleashing capitalism’s most powerful force – innovation. Unless we innovate, we cannot hope to succeed. And if we do innovate, there is no way we can fail.

“The current barriers standing in the way of innovation and job creation are much more political than economic. We need change, and whether the recent elections will be a cure for America’s economic problems – or just another symptom of our dysfunctional politics – remains to be seen.

“What is clear is, though, is that the country is growing more and more frustrated with government’s inability to keep America prosperous and fair and more skeptical that the jobs we need are coming soon. As families struggle to get by, they have seen little but partisan gridlock, political pandering and legislative influence-peddling. Finger-pointing, blame games, and endless attacks. Put simply: when it comes to creating jobs, government hasn’t gotten the job done. The central defining issue of the day is jobs, and that is what government at all levels must be focused on. Washington and Albany are not working, and as a result, too many Americans are out of work, out of savings and out of patience.

“Last month, voters turned against Democrats in Washington for the same reason they turned against Republicans in 2006. Democrats now, and Republicans then, spent more time and energy conducting partisan warfare than forging centrist solutions to our toughest economic problems. This abdication of responsibility has many causes, including party primaries that take place in gerrymandered districts where moderates are out-numbered and independents are often excluded. Bloggers and partisan pundits feed a 24-hour news cycle that values conflict over consensus, rewarding people at the extremes who scream the loudest.

“The result? Both parties follow the mood of the moment – instead of leading from the front. They incite anger instead of addressing it – for their own partisan interests. They tell the world about every real or imagined problem in America – and not what is right with America. Especially in these tough times, we need our leaders to inspire the whole country – not criticize half of it.

“It’s time to take a step back and ask ourselves: when did success become a bad word in America? When did cooperation in government become treason? The new ‘politics as usual’ is making a mockery of our democracy – and a mess of our country. We’ve got to stop it – because we’re paying a heavy price. In fact, right now, we are falling behind the world in education, technology, economic opportunity – even life expectancy.

“This can’t go on. We’ve got to pull together, and focus on what’s important for America – and then roll up our sleeves and fix the things that need fixing. This is the greatest nation on earth – the Shining City on the Hill as Ronald Reagan called it. And I believe, as Bill Clinton said, that there is nothing wrong with America that cannot be cured by what is right with America.

“Our freedom, our ingenuity, our work ethic, our creativity, our openness to new ideas and new people, our belief in a better tomorrow – these are the qualities that have allowed us to confront and overcome the toughest of challenges. And these are the qualities that elected officials at the local, state, and federal levels must work to unleash right now. To do that, we need to shift course. We need those in government to stop demagoguing and start delivering.

“The conventional wisdom that the two parties hold diametrically opposed beliefs on how to promote economic growth is simply wrong. It’s very encouraging that the White House and Republican congressional leaders have reached a compromise agreement to extend tax cuts and unemployment benefits – and it’s proof that bi-partisanship really is possible in Washington. But this cannot be the end of bi-partisanship – it must be the beginning. Cutting taxes is easy enough – cutting the deficit is another story. The Deficit Reduction Commission offered a good start, but it’s disappointing that Congress is choosing not to debate its recommendations. We can’t afford to keep pushing these tough decisions off. We need more than a commission, and more than lip service. We need results. And not next year or the year after – but now.

“Forging bi-partisan agreements around economic issues is not easy, but I believe common ground exists not only on tax relief and not only on deficit reduction but on many other areas that drive job creation. Lying at the heart of that common ground is an idea that has the potential to fire our economic engines by sparking the powerful economic force I mentioned at the outset: innovation.

“Throughout American history, innovations combined with government investment have created fundamental and lasting structural changes to the economy that spurred new private sector investment, new jobs, and new prosperity for the country. For instance, after the financial panic of 1819, it was New York Governor DeWitt Clinton who built the Erie Canal – ushering in a new era of westward development and growth. In the 1860s, with the Civil War tearing the country in two, Lincoln’s transcontinental railroad set the stage for America to fulfill its manifest destiny, by opening new markets and allowing private sector innovations – in industries like steel and oil – to drive a new era of national growth. When the country was seemingly near collapse in 1907, it wasn’t long before people like Henry Ford pioneered mass production techniques that ushered in a new age of industrial growth, with government building new roads, bridges, and tunnels to support it.

“President Roosevelt’s New Deal helped mitigate the Great Depression. But it was the aftermath of World War II – which saw the development of new industries like aircraft technology and nuclear energy – that gave birth to the modern economy. When the G.I. Bill of Rights opened college to the working class for the first time in history, ‘The Greatest Generation’ – using the infrastructure created by FDR, Truman, and Eisenhower – built the strongest, most advanced economy the world has ever known. Then, when recession came in the late 70s early 1980s, we climbed out of it with the help of technologies – like microchips and lasers – that gave rise to entirely new industries, and millions of good-paying, high-skilled jobs. At the same time, America made big investments in basic science and let the free market work its wonders.

“After the recession of the early 1990s, the internet – which originated from both public and private investment – launched a boom that has revolutionized the world. And today, cell phones have shown the potential to alleviate more global poverty – by empowering users to tap into commerce, education, health care, and information – than any government or private aid program in history.

“What are we doing to unleash innovation today?

“The answer is, unfortunately: not enough. Unfortunately, very little of the stimulus package passed in Washington promotes innovation. Very little of the health care bill passed in Washington promotes innovation. And the Obama administration will have to be very careful to make sure that the financial services bill passed this year doesn’t hinder innovation.

“Creating an innovation-based economy means linking our policy and spending decisions to economic goals – not political goals. ‘Shovel-ready’ projects is a nice political slogan, but it is not an effective long-term economic recovery strategy – or even a strategy for addressing unemployment. Most of those shovel-ready projects require physical skills that the unemployed don’t have – and in most cases, those jobs are only open to members of trade unions. The same is true for many of the so-called “green jobs” that the stimulus bill supported.

“We need strategies for putting people in all industries back to work, doing jobs they have the skills to do – or that they can learn. And that means the federal government must do more – right now – to create the conditions, and pursue the strategies, that will lead to more private sector investment.

“The good news, I believe, is that these engines for growth are not liberal or conservative – left or right. They are made-up of centrist, fiscally-responsible measures that majorities in both parties should support – and I’ll briefly touch on six of them. You might call them the Six Steps to Economic Recovery and Job Creation. And they are the very same six steps we are using here at the Navy Yard and across the five boroughs.

“First – and this is an easy one – instill confidence.

“Building confidence is a big part of getting the private sector to invest. There is much pessimism in the system because there is much uncertainty about what Washington might or might not do – on taxes, regulations, and policies. And that uncertainty breeds economic paralysis. Banks have money but are reluctant to loan. Businesses have money but are reluctant to invest in new equipment or new hires. Families, fearing a double-dip recession, are reluctant to spend. The potential for progress is there but nothing is happening. Why? Because government solutions ooze ambiguity.

“Right now bureaucrats in Washington – at the direction of lobbyists – are writing thousands of regulations over the health care and financial services industries – the ‘fill in the blank’ sections in the bills that Congress passed this session. Writing these regulations will probably create more jobs for lawyers and accountants to interpret, explain, and evade than the number of real jobs created by the legislation itself. With billions of dollars at stake, this process has chilled economic activity. We need certainty, rationality, consistency and predictability in the rules of the game. Improving individual business confidence is the most powerful way to stimulate the economy – and best of all, it’s free.

“One of the reasons why New York City has been leading the nation in job growth over the past year is that people have confidence in our City’s future. In fact, fewer people left New York City in 2009 than in any other year since these records first started being kept in 1991. Why are more people staying – and coming? Because they believe in New York. They believe in our future. They want safe streets, good schools, beautiful parks, exciting cultural opportunities – and mostly, they want career opportunities. And they know that no other place in the country is delivering as much in all of these areas – as consistently and effectively – as New York City. And so – even through the worst national recession America has faced in decades – people are continuing to move to and invest in our city.

“Second: Promote trade.

“New York City was founded on international trade, and it is the reason why we became the country’s largest and strongest economic engine. The more trade we do with foreign partners, the more markets we create for domestic producers, the lower the prices we pay for the goods we buy, and the better off we all are.

“I was glad to see President Obama travel to India to make the case for investment here. We need our federal representatives to be salespeople for America – not just in India, but in China, the Middle East, Latin America, and all over the world. Most governments around the world take attracting foreign investment, and selling the products they make at home, to be one of their primary responsibilities. Our state and federal governments, too often, take it for granted. And too often governments do even worse: they block overseas companies from investing here, and selling their products here.

“Protecting domestic industries from foreign competition is a sure way to stifle innovation and job creation, as our experience protecting the American auto industry sadly attests. The trade agreement the Obama Administration has hammered out with Korea, which should win support from a majority of both parties, would help create jobs in our most promising industries, while also allowing American consumers to save more of their paychecks.

“America is still a nation of producers – but what we manufacture has changed. Instead of making t-shirts and televisions, we now make products that require greater skill – from designing fashions to writing software to creating content for the media and arts, like here at the Steiner Film and TV Studios. The more international markets we can open up for these products, the more jobs we can create here at home. And if we don’t get into those markets, other countries will. Already, more and more of those who have been competing on wages are now competing on skill, and that’s a competition we can’t afford to lose.

“Third: Reform regulations.

“It’s not that we need more regulation or less regulation – it’s that we need smarter regulation – regulation based on what companies do today, not what their industries have been called for decades.

“Today, derivatives are as important to agricultural and insurance companies as they are to banks. But they’re all regulated by different government agencies that are dominated by lobbyists, guided by partisanship, and overseen by a laundry list of legislative committees. And as we all know, government agencies inevitably become more consumed with their turf and their power than with the quality of service they provide to their customers. Legislatures inevitably layer more and more rules and regulations on the agencies, carefully tailored around the needs of industries that support their re-election campaigns.

“Here in New York City, we’re tackling the challenge head-on, by re-thinking the entire way our agencies interact with the public – so that an agency’s work is focused around its customers, not its rules.

“We need more of this approach at both the state and federal level. We need to re-think and re-build government with the consumer in mind – that is, the American workers and taxpayers, not bureaucrats and special interests.

“Four: Cut business taxes.

“High federal business taxes can lead companies to move operations overseas – look at how tightly Ireland is clinging to its low corporate tax rate. Similarly, high local taxes can lead businesses, and business leaders, to move out of state.

“It’s very encouraging that this week’s compromise agreement between the White House and Republicans to extend the Bush tax cuts also cuts taxes for companies that invest in new plants or equipment. It’s critical that Congress pass these cuts so that new spending and new investments can create new jobs.

“In New York City, we’ve cut taxes for 17,000 small businesses and sole proprietors, which has given a real boost to businesses just getting off the ground and it helps encourage more out-of-work New Yorkers to launch their own start-ups.

Five: Invest in job training.

“We’ve seen what a difference it can make here in New York City. Up until 2004, our Workforce One Career Centers were placing about 500 New Yorkers in jobs a year. Last year, in the depth of the national recession, we made 25,000 job placements – a fifty-fold increase. And this year, we’re on track to reach 30,000 job placements. How did we do it? We did it by completely revamping our Workforce centers, by connecting our job-training programs to our economic development programs and offering training in the skills that companies are looking for now – not five years from now. By doing this, we’ve been better able to connect the supply of labor to the demand for labor. And we’ve also improved access to our training and placement services, by expanding the number of centers and their hours of operation.

“Today, we are announcing that we will open 10 new Workforce One Express Centers across the City over the next year. The Express Centers will focus exclusively on screening and matching jobseekers to jobs – and they will partner with community colleges, public libraries, and neighborhood organizations in areas where there are high concentrations of unemployment. Our goal is to increase job placement to 35,000 in 2011, and to 40,000 in 2012.

“Cities across the country have expressed interest in our approach – and the federal government is wisely funding the replication of our approach in Tulsa, Oklahoma, and parts of Ohio. But it could help many more unemployed people by opening more centers like ours around the country, especially in areas with high concentrations of unemployment.

“Making sure that companies are able to hire the people they need brings us to our sixth and final step: Fix immigration.

“There is nothing we could do to unleash innovation and job growth that would be more powerful than fixing our broken immigration system. Right now, our immigration policy is a form of national suicide. We educate the best and brightest from around the world, and then we tell our companies that they can’t hire them. We ship them home where they can take what they learned here and use it to create companies and products that compete with ours. The rest of the world is thanking us! They’re doing everything they can to attract those very people – and we’re doing our best to help them.

“Any person with the skills our companies need ought to be able to work here. And any entrepreneur with capital to invest ought to be able to immigrate here. Immigrant-owned companies have created over 400,000 jobs nationwide since 1990 – and one-quarter of high-tech companies founded in the U.S. since 1990 have had immigrants as founders. The next generation of immigrant entrepreneurs is waiting in the wings – and letting them in would be one of the best ways to start solving our unemployment problem.

“In New York, we know the economic power of immigration – because we see it every day. Nearly 40 percent of city residents were born outside the U.S., and beyond the cultural, religious, and civic contributions they make to our city – they do something else: they work. They start businesses. They create jobs. They pay taxes. We need more of that, not less.

“Here at the Navy Yard, we took advantage of a federal program that provides a green card to anyone who is willing to invest more than $500,000. That helped the Navy Yard attract $60 million in new investment – and now Steiner Studios has used the same program to attract another $65 million to fund its expansion.

“We want even more foreign capital to come here – so that more jobs are created here. The federal government could do that very simply: by making it easier to qualify for the program. And it should go further, by creating a new visa that allows immigrant entrepreneurs who have U.S. investors to come to America to launch their businesses. Any elected official who says he or she is pro-business ought to be able to get behind this idea.

“Even if the road ahead for comprehensive immigration reform may be tougher in today’s climate, the two parties ought to be able to join together in making it easier for businesses to hire the people they need. Right now, there are many high-skill jobs that American companies cannot fill, because they cannot find the workers – and other companies are struggling to fill low-wage jobs that Americans will not take. Family reunification is a compassionate goal, but when it comes to assigning visas, we can no longer afford to disregard the needs of our businesses. Allowing companies to far more easily hire and keep the best and the brightest and the hardest-working would be perhaps the most powerful economic stimulus package Congress could create. It would not cost a nickel, and most importantly, it would help businesses expand and hire more unemployed Americans.

“In New York City, we have made innovation the centerpiece of our economic development and job creation strategies. Whether it’s the small business incubators we’ve created in industries ranging from food service to fashion or the investments we’ve made in large bioscience labs or the infrastructure we’ve funded here in the Navy Yard and around the City, we have created the conditions that incentivize private investment, encourage entrepreneurship, and attract global talent.

“That is not a liberal or conservative approach to job creation – it’s an effective approach. And it’s an approach we need more of at the state and national level.

“We don’t have all the answers here in New York City. But we do understand that if we embrace our strengths as a country – our entrepreneurial foundation, our culture of innovation, our world-class higher education system, our freedom and social mobility, and our diversity – if we embrace these strengths, we can grow our economy, create jobs, and reconstitute our broken system. If we make the choice to commit to these goals, we will have the change we want.

“We all know that hard choices await us – at every level of government. Here in New York we faced similar tough fiscal choices following the devastating attacks of 9/11. Back then, we made the tough decisions. They weren’t always the popular decisions – but they were the right decisions. And they laid the foundation for the City’s resurgence.

“Today, we again have our future in our own hands. We can blame others or we can put our nose to the grindstone and get back to work. We can keep kicking the can down the road and allow the country to fall farther behind, as we have in recent years or we can face up to the hard choices and do what Americans have done so well in the past: Pull together, remembering who we are, and why our ancestors came here.

“Hard-working New Yorkers inspire me every day – and I believe in the American work ethic and the American Dream more than ever. We are strong as a nation and resolved as a people and if we act and seize this moment, we can continue to be the greatest country ever brought forth in this world.

“Thank you.”

Take a look…

I’m sorry, but I literally can not understand the thought process here. They talk about deficit spending until they’re blue in the face, but they favor massive, unpaid tax cuts for the super rich, while wanting to deny unemployment benefits for the people who need it most. Baffling.

Well, okay, not baffling. What I’m guessing is that many in that 62% hear “unemployment” and think people are just lazy. However, in order to get unemployment benefits you have to prove you’re seeking work. Meanwhile, they have no problem with corporations making record profits but not hiring anybody.

Oh, and they’re also forcing people to work longer hours for no more pay…

Nonfarm business sector labor productivity increased at a 2.3 percent annual rate during the third quarter of 2010, the U.S. Bureau of Labor Statistics reported today. Labor productivity is calculated by dividing an index of real output by an index of the combined hours worked of all persons, including employees, proprietors, and unpaid family workers. Output increased 3.7 percent and hours worked increased 1.4 percent in the third quarter. (All quarterly percent changes in this release are seasonally adjusted annual rates.) Nonfarm business productivity increased 2.5 percent from the third quarter of 2009 to the third quarter of 2010, as output increased 4.3 percent and hours worked rose 1.7 percent.

Good times.

Obama is baiting the trap and if the GOP candidate doesn’t take it in 2012, it could spell trouble for the Dems.

Last night the President said this…

I have no doubt that everyone will find something in this compromise that they don’t like. In fact, there are things in here that I don’t like — namely the extension of the tax cuts for the wealthiest Americans and the wealthiest estates. But these tax cuts will expire in two years. And I’m confident that as we make tough choices about bringing our deficit down, as I engage in a conversation with the American people about the hard choices we’re going to have to make to secure our future and our children’s future and our grandchildren’s future, it will become apparent that we cannot afford to extend those tax cuts any longer.

We already know that tax cuts for the wealthy are wildly unpopular and polling shows this again and again. And the sentiment among Tea Partiers is that the deficit needs to come down, and quick. Since Romney (I’m assuming he’ll be the GOP’s choice) can’t attack Obama on healthcare since he enacted virtually the same system in Massachusetts while Governor, the “big spender” message is what he’ll shellac Obama with…and it’ll stick.

But here’s the thing…voters aren’t going to let the GOP have their cake and eat it too. They’re already seeing how they’re saying one thing and then doing another with this tax cut compromise. So, if Romney makes a campaign pledge to let those tax cuts expire due to the rising deficit, he could win. If not, I don’t see much hope for the GOP.

Three caveats to this.

#1 – If Sarah Palin somehow manages to win the nomination, I don’t think there’s anything she can do to actually win the White House. So this argument will be moot. Well, there is one really outside chance and it’s talked about in #2. So let’s get to that…

#2 – If Huckabee gets nominated, and I see him as Romney’s biggest challenge, he’s probably going to run on the FairTax plan, which makes the above moot as well. So if Palin adopts this idea, that could be good for her campaign.

#3 – As always, a terrorist attack changes everything.

Your thoughts?

In order to get the votes he needs to make sure unemployed Americans get the relief they need (and deserve) and employed Americans continue to enjoy payroll tax cuts, Obama is cutting a deal with the Repubs on the extension of the Bush tax cuts.

As I’ve pointed out previously, this goes against the anti-spending sentiment of the Tea Party and yet here we are…talking about tax cuts for the wealthiest Americans being extended for another couple years.

Funny, I thought the election was about the deficit and spending…

From Wash Post:

The deal has been in the works for more than a week and represents a concession by Obama to political reality: Democrats don’t have the votes in Congress to extend only the expiring income tax breaks that benefit the middle class. The White House estimates that the proposed agreement would prevent typical families from facing annual tax increases of about $3,000, starting Jan. 1.

Obama was able to extract an agreement from GOP leaders to support an additional 13 months of jobless benefits, a 2 percent employee payroll tax cut and extensions of several tax credits aimed at working families that were included in the stimulus bill.

And if you didn’t think one concession to the Repubs was enough, how about two?

The deal also would revive the estate tax, but it would exempt inheritances of up to $5 million for individuals and $10 million for couples. Democrats on Capitol Hill are strongly opposed to setting the cap at that high a level and to the 35 percent rate discussed by Obama and Republicans that would apply to the taxable portion of estates.

And just to make sure we’ll on the same page…tax rates are at the lowest point in 60 years.

And here’s some key points about our deficit crisis and tax revenue…

• Federal taxes are the lowest in 60 years, which gives you a pretty good idea of why America’s long-term debt ratios are a big problem. If the taxes reverted to somewhere near their historical mean, the problem would be solved at a stroke.
• Income taxes, in particular, both personal and corporate, are low and falling. That trend is not sustainable.
• Employment taxes, by contrast—the regressive bit of the fiscal structure—are bearing a large and increasing share of the brunt. Any time that somebody starts complaining about how the poor don’t pay income tax, point them to this chart. Income taxes are just one part of the pie, and everybody with a job pays employment taxes.
• There aren’t any wealth taxes, but the closest thing we’ve got—estate and gift taxes—have shrunk to zero, after contributing a non-negligible amount to the public fisc in earlier decades.

Also, Ben Bernanke notes that the good times are continuing to roll for the rich…

Here’s what Ben has to say about this…

“It’s a very bad development,” he said. “It’s creating two societies. And it’s based very much, I think, on educational differences. The unemployment rate we’ve been talking about. If you’re a college graduate, unemployment is 5 percent. If you’re a high school graduate, it’s 10 percent or more. It’s a very big difference.”

Mr. Bernanke added: “It leads to an unequal society, and a society which doesn’t have the cohesion that we’d like to see.”

Long story short, the rich are having a hell of a good time driving our debt up. If you believe the rich shouldn’t be taxed as much as the rest of us, well, I can’t argue that with you. But if you believe that the more you earn, the more you should get taxed (which is how it was always supposed to work) you have to wonder why this is happening.

More as it develops…

Politico - Who really abandoned Dems?

The survey – “Droppers” and “Switchers”: The Fraying Obama Coalition“

66% of switchers say “too much government spending” was a major reason for their decision not to vote Democratic this year. This is the number-one ranked factor switchers gave in our poll.

• 64% of switchers say deficits are a “serious problem that are weakening the economy” (versus 32% who say “deficits are a concern but we have more pressing priorities”).
• 76% don’t think Democrats are “serious about reducing the deficit.”
• 78% don’t think Democrats are “responsible with taxpayer dollars.”

In fact, 68% of switchers say they would be more likely to support President Obama in 2012 if he offered a serious proposal to reduce the deficit.

Apparently President Obama and his political brain trust were diligently taking notes while getting schooled in the midterms. On Monday President Obama announced a federal employee pay freeze for non-military employees. On Tuesday he met with congressional leadership and assured the American people that he heard the voice of the voters:

I have one quibble with the President’s statement. While technically true that the American people may not have voted specifically for gridlock, and while he is also correct they would prefer bipartisan cooperation controlling spending, they did make it clear they’ll happily take gridlock over the kind of crappy and stupidly expensive steamrolled partisan legislation that passed in the last Congress. But, in the bipartisan spirit of taking a bipartisan hatchet to a slashed bipartisan budget, we’ll overlook that nit.

Minutes after the President’s statement, the co-chairs of his National Commission on Fiscal Responsibility and Reform had a press conference to announce that their final report on a deficit cutting plan will be delivered on Wednesday and voted on Friday. Regarding the vote, the Democratic co-chair Erskine Bowles said

“… whatever happens, the commission will have achieved “victory” by starting a national conversation about the federal debt. ‘The era of deficit denial in Washington is over,’ the North Carolinian and former Clinton White House chief of staff drawled.”

I agree.

Wednesday, the President’s bipartisan deficit commission delivered their final report. In three days, the top three stories out of Washington were all about fiscal responsibility, controlling spending and deficits. President Obama and the President’s commission are leading the charge. Real, meaty, substantial proposals are being put on the table. If it were not for wikileaks, this is all we would be talking about, and that is a very good thing.

To be honest, I am irrationally exuberant over these developments and in danger of losing my cynicism. I suspect hope that we going to make real progress on federal spending and the deficit this time. Let me hasten to add that I am not completely delusional. If done correctly, this process will be contentious, noisy, the air will be filled with partisan cries, lamentations and the bellowing of gored oxen. Undoubtedly I will be among those gnashing teeth, tearing hair, and complaining bitterly about whatever makes it out of the sausage grinder. But at least we appear to be starting down a path to some semblance of what passes for fiscal responsibility in Washington D.C.

I have one simple reason for my optimism: The President and his political advisers understand his re-election in 2012 depends on restraining spending and the deficit. Republicans in Congress understand their re-election and majorities in the House and Senate in 2012 depend on restraining spending and the deficit. Even some Democrats in Congress understand their re-election in 2012 depends on restraining spending and the deficit. David Axelrod thinks it important enough to ramp up the Audacity of Astroturf troops mere days after the mid-term.

Even as small a step as the President’s initative on the pay freeze has many on the left up in arms. Obiously still in denial, they found the President’s initiative to be vexing, a capitulation, an ineffectual ploy, bad negotiations, symbolic, doublespeak, blasphemy, stupid, gutless, cretinous, anti-union, pointless, a sellout and a blunder (among other things).

OTOH, those that “get it” understand exactly how damaging this chart was to Obama and the Democratic Party in the midterms. Private sector jobs were lost by the millions, but under this administration public sector jobs (that pay better with greater security than the private sector) were protected. Given the close relationship and massive financial support the Democrats and Obama received from public sector unions like SEIU, it just did not look good. Voters were angry. With the help of letter from a reader, even Ezra Klein gets it now (almost).

Republicans will predictably say that it is weak gruel, and does not go far enough. But, it is a start. Given the depth of the hole our representatives and leaders dug for us over the last ten years, this may be exactly the start we need now.

Thank you Mr. President. If you stay on this path you may even get re-elected, and we can keep our happily divided government.

Cross posted from Divided We Stand United We Fall.

Edited to correct typos.

I am less thankful about what our leaders are doing to our currency. Last year I introduced a new tradition on Thanksgiving – watching the carving of our currency as it is sliced by administration fiscal policy and diced by Fed monetary policy.

Your 2010 Thanksgiving dollar dinner leftovers are served:

For our main course, let us check in with Peter Schiff, who you may recall was right in 2006-07 predicting the impending recession and crash of the real estate bubble. He was right in 2008 about the dollar and early in 2009 when he warned President-elect Obama about the folly of trying to borrow and spend ourselves into prosperity. Monotonously he was right again one year ago when he told us to keep buying gold at $1,084 /oz (up 27% to Wednesday’s close of $1,372/oz) as a hedge against the devaluing dollar.

We cannot expect this remarkable record to continue. Schiff is an economist a financial consultant* – a profession second only to economists with a reputation for being more wrong than right (Paul Krugman being a notable high profile example, having correctly predicted eight of the last one recessions). But, while he is on a hot streak, it behooves us to pay attention to what he has to say.

Serving up the meat and potatoes – Schiff on the insanity of Congress mandating a two headed Fed charter. They are required to manage monetary policy to maintain a stable currency, and also to promote maximum employment by umm.. devaluing the currency:

The Chimera of the Fed’s Schizophrenic Mission - Peter Schiff

For a side dish, Peter Schiff checks in with CNBC and browbeats the usual suspects on Fast Money:

C’mon. A six minute long primitive animation about economics, Fed policy, and quantitative easing – going viral? Three million views? How does that happen?

Finally, for a relaxing after dinner smoke – Enjoy “The Bernanke” as he hits the road to defend the QE2 policy to the world. Good luck with that, Ben.

Cross=posted from “Divided We Stand United We Fall“

The move will save nearly 2,500 jobs.

From The Street:

Hard-hit Kokomo, Ind., got a big boost from Chrysler on Tuesday when the automaker announced it plans to pump another $843 million into three factories to build a new front-wheel-drive transmission.

General Motors, meanwhile, will announce Wednesday that it will invest $163 million in two Michigan plants and an Ohio foundry to make small-car engines, according to a person familiar with GM’s plans. The person was not authorized to talk about the plans ahead of the formal announcement and asked not to be identified.

But wait, there’s more from Chrysler…

Chrysler said the new investment, to start early next year and run through the third quarter of 2012, would raise the company’s commitment to the Kokomo plants to $1.1 billion, pushing its total U.S. factory investment to nearly $3 billion since it emerged from government-funded bankruptcy protection in 2009.

And everybody heard that GM IPO’d this week, right? And it was the biggest IPO ever?

More as it develops…

Hey there corporations!

Hope all is well. If the news today is any indication, looks like things are going great! Your profits have gone up seven straight quarters and collectively reached a record high.

Here, just take a look at this graph…

Wow! You must be pumped!

Also note that you’ve had to pay fewer taxes on those profits too. Who did that? Not Republicans.

So, aside from the tax cuts, why is this happening? Two words: productivity growth. Doing more with fewer people. It’s a decent strategy, but there’s also a downside. You tire your workers out by making them think that you own them because you’re hanging the high unemployment over their heads as reasons to not give them a raise or hire more people to help support them.

Seriously all…it’s time you did your part too. You all know you can add more people to your workforce, it’s just a matter of slow growth so you don’t have to fire them in six months. Yes, we’re all skittish after our near collapse, but it’s in all of our best interests to get more people working so they can buy more of YOUR stuff, right?

Glad we had this simplistic, yet accurate chat.

Looks like the new batch of Republicans are already signaling that they’ll refuse to raise the debt ceiling… even though John Boehner is telling them they must.

From WSJ:

[...] on Thursday, Minority Leader John Boehner (R., Ohio) said he’s been talking to the newly elected GOP lawmakers about the need to raise the federal debt ceiling when it comes up early next year.

“I’ve made it pretty clear to them that as we get into next year, it’s pretty clear that Congress is going to have to deal with this,” Mr. Boehner, who is slated to become House speaker in January, told reporters.

“We’re going to have to deal with it as adults,” he said, in what apparently are his most explicit comments to date. “Whether we like it or not, the federal government has obligations and we have obligations on our part.”

Why is this so important?

If an increase in the current debt limit of $14.3 trillion does not pass, it would suggest the country may not meet its obligations and would shake the financial system. It could rock the bond market, rattle the dollar and scare away foreign buyers of U.S. debt.

It’s one thing to win an election with a lot of incendiary rhetoric. It’s another thing to actually get things done. And it appears that the new members of the GOP are determined to make obstructionism their bread and butter.

Here’s a taste of what some said during their campaigns…

The campaign of Rep.-elect Kristi Noem (R., S.D.) attacked Democratic Rep. Stephanie Herseth Sandlin for voting to raise the debt limit. Rep.-elect Tim Scott (R., S.C.), who like Ms. Noem is joining the House Republican leadership, reiterated Friday that he wouldn’t vote to raise the ceiling.

In February, Republican Reid Ribble blasted Rep. Steve Kagen (D., Wis.), whom he defeated, for voting to increase the debt limit, calling it “unconscionable” and “insane.” He added, “Congressman Kagen is on notice that the people of northeastern Wisconsin are watching and we are outraged.”

Similarly, Rep.-elect Steve Stivers (R., Ohio) blasted Democratic Rep. Mary Jo Kilroy for voting to raise the debt ceiling. “That shows a reckless desire to spend money we don’t have, and borrow money we can’t afford to pay back,” he said.

Rep.-elect Lou Barletta (R., Pa.) cited the raising of the debt limit during the campaign in saying that “Congress and the president are spending our country into servitude.”

So what’s the solution? Well, at least one GOPer is floating the idea of tying a debt ceiling vote to repeal of some of the recent health care legislation. Since we all know that won’t happen…what’s next? Conditional on extension of the Bush tax cuts? Again, seems like a loser when it comes to public perception of not wanting to raise our debt and yet approving unfunded tax cuts for very wealthy people.

What do you think the solution is going to be?

This election cycle precipitated a conversation about the virtues and vices of a divided federal government in both new and traditional media. In the last few days before the vote, the amplitude spiked. Much of the most recent attention is in the form of an attack from the left on the foundation of the divided government voting rationale. Recent entries include Ezra Klein (again and again), Matt Yglesias, New York Times, John Sides (and again), Paul Pierson at American Prospect and Anne Lowrey at Slate.

It almost looks coordinated. No matter. The reason is not hard to understand. The biggest erosion of Democratic support from ’08 to ’10 is from the independent, moderate, centrist, libertarianish vote. For the most part, these voters are not choosing to vote Republican in 2010 because they like the Republican candidates or because they suddenly have embraced GOP values. They are voting Republican to divide the government in the hope of reining in the Democratic agenda and restoring some semblance of fiscal rationality (either that or it is because the voters are stupid and gullible and Republicans tell better lies). The only surprise is that it has taken this long for Democrats to understand that their core problem is not apathy in the base. Their core problem is they have lost the center.

I don’t think this flurry is going to help short term, and in the longer term will be problematical for these scribblers. In two years they will all be making the argument for divided government. It won’t look good.

As a consistent advocate for a divided government voting heuristic, I am of the view that all publicity on this topic is good publicity. Over the four+ years I have been blogging about divided government, this election is the first time I have seen it discussed as if it is a conscious decision, rather than some inchoate, subconscious voter preference that mysteriously shows up periodically in the electoral results.

In any case these posts have kept me busy on my blog offering rebuttals to some of their arguments (for any interested, you can find my responses here, here and here).

Here at the Donk we’ll feature just one attack from liberal darling Paul Krugman. This – an awe inspiring, world class hysterical hissy fit from the lofty platform afforded him by the New York Times:

Divided We Fail – Paul Krugman

Whoa. Somebody get that man a Prozac.

The Economist responds:

Krugman’s Prophecy of Doom – The Economist

The money quote:

“It’s a little sad, isn’t it, when even our most eminent public intellectuals waste so much of their time, and ours, on baseless partisan freakouts?”

I think that pretty much sums it up. Except for what Nike Gardiner at the Telegraph had to say:

Paul Krugman and the last gasp of America’s liberal elites – Nike Gardiner

That first sentence above being the other money quote. That really says it all. Well, except for…
Krugman: The Only Think We Have is Fear Itself - Ed Driscoll

Paul Krugman says “This is going to be terrible” – Ann Althouse

When Paul Krugman says the 2010 election means disaster, you can bet on the opposite happening – Mark Hemingway

To be fair, all the comments quoted in response to Krugman’s column are from right-of-center columnists and bloggers. OTOH, Google could not find anyone of note from the left trumpeting or even defending Krugman’s column.

Methinks even his liberal brethren are embarrassed about this particular Olbermannesque screed.

X-posted from “Divided We Stand United We Fall“

First, the facts from Bloomberg…

The Obama administration cut taxes for middle-class Americans, expects to make a profit on the hundreds of billions of dollars spent to rescue Wall Street banks and has overseen an economy that has grown for the past five quarters.

Now the perception…

A Bloomberg National Poll conducted Oct. 24-26 finds that by a two-to-one margin, likely voters in the Nov. 2 midterm elections think taxes have gone up, the economy has shrunk, and the billions lent to banks as part of the Troubled Asset Relief Program won’t be recovered.

Why?

Because the GOP is lying. And Americans are buying it. That’s all there is to it.

Many will blame the administration for not being able to communicate this message, but how can you combat opposition that will say ANYTHING to make it seem like you are lying and a media that is complacent and won’t hold those who are lying accountable?

Truth is, the Democrats have been saying the above over and over again, but voters apparently just want to believe their own set of facts. And I’m looking square at you Independents and Moderate Dems. Republicans I can understand, but Independents and Moderates aren’t supposed to be snowed by this stuff. And yet you all are getting completely taken. So much so that I’m losing faith in the block of voters who call themselves independent or moderate. Because what that stands for in this election cycle is, apparently, a lack of interest in finding out what’s really going on.

And to that point…

Even a plurality of Democrats, 43 percent, holds this misperception. Overall, 63 percent of those who earn $25,000 to $49,999 say taxes have gone up, compared with 45 percent of those who earn $100,000 or more.

And yet the reality is…

The Obama administration has cut taxes — largely for the middle class — by $240 billion since taking office on Jan. 20, 2009. A program aimed at families earning less than $150,000 that was contained in the stimulus package lowered the burden for 95 percent of working Americans by $116 billion, or about $400 per year for individuals and $800 for married couples. Other measures include breaks for college education, moderate- income families and the unemployed and incentives to promote renewable energy.

More reality…

Today, the Commerce Department reported the economy grew at a 2 percent annual rate in the third quarter as consumer spending climbed the most in almost four years, a sign the expansion is developing staying power. In the past year, the economy has grown 3.1 percent. The third-quarter growth matched the median forecast of economists surveyed by Bloomberg News and followed a 1.7 percent gain the prior three months.

Oh wait…more…

A year and a half after U.S. stocks hit their post- financial-crisis low on March 9, 2009, the benchmark Standard & Poor’s 500 Index has risen 75 percent, and it’s up 15 percent for this year.

More still…

Household purchases, about 70 percent of the economy, rose at a 2.6 percent pace, the best quarter of the recovery that began in June 2009.

Listen, everybody’s entitled to their own opinion, but they’re not entitled to their own set of facts. The GOP and the Tea Party have constructed a seductive, familiar story line, full of danger, intrigue and loathsome, Constitution hating enemies. But none of it squares with reality.

In fact, the only thing that everybody (Dems, Repubs and Indys alike) can agree upon is that we’re spending too much money and that needs to stop. But when the GOP is proposing massive tax cuts for the wealthiest Americans without finding any way to pay for them, you know what’s really going on.

Just remember all of this when you step into the voting booth next Tuesday. You may not agree with some of Obama’s policies, but are you really ready to hand over control to the GOP before Dems have had a chance to pull the economy out of the ditch?

Early in July, we took note of a CNBC panel discussion worrying about a Double Dip and Ron Insana offering an explanation for a stock market rally in the midst of unrelenting bad economic news.

On that day the Dow closed up 276 points at just over 10,000, and since then added another 10%+ (trading at 11,126 as I write this). As I have said before, I do not believe there is any case to be made for a statistical correlation between market direction and political parties in power that will stand up to rigorous mathematical scrutiny over the long term.

However, in the short term, if investors believe that divided government is good for markets, then that expectation can be a self-fulfilling prophecy. That may be what we are seeing in the market now in anticipation of the November results. This expectation of divided government is gaining momentum and the meme is getting traction in the MSM. Two recent examples:

USA TODAY: Voters may sway stocks with possible policy changes

“Forget price-to-earnings ratios. Buy-and-sell decisions on Wall Street are increasingly being driven by power and politics and what voters will do at the polls…

Even though Obama and Democrats swept the polls in the 2008 election, investors would prefer a split Congress, as a balance of power on Capitol Hill makes it less likely that the Democrats will be successful in passing what Wall Street perceives as an investor-unfriendly, growth-challenged agenda.

“A dramatic change in the composition of the House and Senate could significantly alter the legislative strategy for all political leaders, including President Obama,” says Jason Pride, director of investment strategy at Glenmede.

Historically, divided government has been bullish for stocks because it results in what Wall Street refers to as legislative gridlock. And in the words of many Wall Street analysts and economists: Gridlock is good.“

Heh. Where have I heard that before?

A couple weeks ago, in the face of yet another bad jobs report, the market rally continued, prompting an interesting segment on the Larry Kudlow Report. A panel including Steve Moore (who worked for Dick Armey in ’95) and David Goodfriend (who worked for Bill Clinton in ’95) discussed whether the market’s continuing strength was attributable to an anticipation of the return of Divided Government:

The most interesting exchange is between Goodfriend and Moore (around the 5:30 mark) arguing whether Republicans or Democrats could take credit for the prosperity and relative financial sanity that prevailed during the Clinton/Gingrich divided government. I am happy to give credit to both, and to the benefits that accrue when divided government keeps the worst impulses of both parties at bay.

Lest anyone think that Republican Kudlow is being disingenuous and flogging self-serving Republican spin when he asserts that the investor class prefers divided government – let me reprise one of my first YouTube efforts. This from from four years ago, shortly before the 2006 mid-terms. Here we see the selfsame Kudlow noting a rally, wondering if the markets are anticipating the Democrats taking the majority and restoring divided government, prompting what he then called the Pelosi Bull Market:

In any case, If you have been fully invested since the Insana piece ran in July – so far, so good (Past performance is not a guarantee of future results).

x-posted from “Divided We Stand United We Fall”

Bloomberg has some news that reinforces what many of us suspected…the rich save their tax cuts:

Hand the wealthiest Americans a tax cut and history suggests they will save the money rather than spend it.

Tax cuts in 2001 and 2003 under President George W. Bush were followed by increases in the saving rate among the rich, according to data from Moody’s Analytics Inc. When taxes were raised under Bill Clinton, the saving rate fell.

But tax cuts aren’t the primary driver of rich spending.

What is?

The stock market…

The Moody’s research covering couples earning more than $210,000 found that spending by the wealthy is more likely to be influenced by the ups and downs of the stock market than changes in income-tax rates.

Stock-market performance is the “primary factor that is driving the savings of the top 5 percent of households,” said Mustafa Akcay, economist and co-researcher of the savings data.

And here’s a bit more from the CBO about tax cuts for the rich vs. the lower income brackets…

“Policies that temporarily increased the after-tax income of people who are relatively well off would probably have little effect on their spending because they generally would be able finance their consumption out of their income or assets without such a change,” CBO director Douglas Elmendorf testified to Congress on Feb. 23.

On the other hand, tax relief for families with “lower income, few assets and poor credit would probably” spur spending, he said. Elmendorf said because of job losses and a drop in assets over the past two years more families “probably fit that description now.”

Meanwhile, John Boehner gives up even more ground in this fight and admits that only 3% of small businesses would be affected by not extending the tax cuts.

Long story short, extending tax cuts for the rich right now is not a smart idea. The government needs the revenue now more than ever and with the rick likely just holding on to it anyway, the stimulative effects for giving them more of their money back is probably worse than previously projected.

Moving on…