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August 2011

August 29, 2011

Suicide attacks on U.N. -- in Abuja and in Washington

Jeffrey Laurenti

Preoccupied as they were over the weekend by the looming threat of Hurricane Irene, Americans were scarcely aware of the deadly suicide bomber attack that leveled the United Nations offices in Nigeria’s capital of Abuja on Friday.  A group with deepening ties to Al Qaeda claimed responsibility.

Islamist extremists’ hostility to the United Nations is well known.  Osama bin Laden famously reviled it as “nothing but a tool of crime” that “surrendered the land of Muslims [Palestine] to the Jews” and works hand-in-glove with the United States in places like Afghanistan.

But the United Nations is now at risk from an even more destructive assault – from conservative fundamentalists now in power in the U.S. Congress. 

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August 27, 2011

The need to rethink housing policy

Harold Pollack

A great philosopher writes in the New Republic:

Gretchen Morgenson and Joshua Rosner just published a major book, Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon. The book is excellent in explaining the misconduct of executives who ran Fannie Mae and Freddie Mack. Yet it goes off the rails by overstating the role of these firms (and understating the role of others) in creating the housing meltdown and the closely-linked foreclosure crisis. Indeed, our current economic crisis should prompt us to ask more far-reaching questions about the origins of the crisis.

Looking back, many of us—and by “us,” I certainly include liberal Democrats—were slow to recognize the general dangers posed by the housing bubble, and the specific dangers posed by the political economy of government sponsored enterprises (GSEs). Many of us were also unduly credulous about the presumed benefits of home ownership. While perhaps not as easy to address, these uncomfortable questions must be raised if we hope to guard against the possibility of something of this magnitude from happening again.

More here. And no, we don’t get to pick the titles…

August 25, 2011

Graph of the Day: Is the "Great Recession" Really a Household Debt Crisis?

Benjamin Landy

“Why is everyone still referring to the recent financial crisis as the ‘Great Recession’?” asks Harvard economist and former IMF chief Kenneth Rogoff, in a recent article for Project Syndicate. “The phrase 'Great Recession' creates the impression that the economy is following the contours of a typical recession, only more severe – something like a really bad cold,” he adds. “But the real problem is that the global economy is badly overleveraged.”

Unfortunately, the American household is no exception. While political discourse has been dominated in recent months by arguments over our enormous national debt, climaxing with the tense mid-summer negotiations over the debt ceiling in Washington, the problem of household debt has gone largely unmentioned in the media. Now that is beginning to change, as a consensus develops among economists, pundits, and policymakers that Americans’ paralyzing mortgage and credit card debt is the main factor holding the economy back from recovery.

Household debt

The facts are these: although household debt peaked at $116,457 per household in 2008—nearly 100 percent of GDP at the time the financial markets collapsed—mortgage and credit debt has decreased merely seven percent as of 2010. The average American household would have to deleverage an additional 97 percent to return to 1976 levels. And while no one is arguing that household debt needs to be at those levels to restart the economy, it is generally understood that consumption will not increase adequately until Americans’ debts are significantly lower.

When we last experienced a deep recession in 1982, the household debt-to-GDP ratio was about 45 percent, or $17,286. So when the government adjusted its monetary policy, the economy was able to recover quickly. Today, with the average household still holding over $100,000 of debt, a more ambitious program will be required to return demand—and thus unemployment—to pre-recession levels.

Thankfully, a recent New York Times report indicates that the Obama administration may be planning just that. According to the article's sources, who would not be named, White House officials are currently weighing a variety of proposals to allow millions of homeowners to refinance their homes with government-backed mortgages at current low interest rates of about 4 percent, saving those homeowners $85 billion a year and creating a strong stimulus to the economy.

The Washington Post's Ezra Klein, for one, is not optimistic that this kind of government-backed refinancing program could work in the current political climate, but at least it proves that the administration is paying attention to the household debt problem and trying to come up with creative solutions to stimulate demand. Until we find a way to do that, millions of Americans will remain jobless, and the economic recovery will continue at its anemic pace. At the very least, the administration's recognition that the "Great Recession" is really a household-debt crisis sends the positive message that Obama's "pivot" to job creation is more than just hot air.

 

View more from the Graph of the Day Series.

Bolstering An Economy That Has Fallen $1 Trillion Below Potential

Andrew Fieldhouse

When Congress returns to session, policies for job creation are expected to be at the forefront of the legislative calendar. The federal government can and should put Americans back to work, as was done in the Great Depression and earlier in this recession. Numerous policies to boost economic activity and employment—including infrastructure spending, unemployment benefits, and tax cuts—were beneficially employed in the 2009 American Reinvestment and Recovery Act, but on an inadequate scale, as measured by the gap between actual and potential economic activity. Millions of Americans could be put back to work by expanding fiscal policy on an appropriate scale, meaning hundreds of billions of dollars in additional government spending.

The Recovery Act did what it was designed to do: it turned the economy around and increased employment by millions of jobs. The economy was plunging at an annualized rate of 8.9% in the fourth quarter of 2008, the last quarter before the Recovery Act began to support the economy. The Recovery Act was signed into law in February 2009 and the additional government expenditures and tax cuts quickly surged to an annualized rate of $319 billion (2.3% of gross domestic product) in the third quarter of that year. As the Recovery Act ramped up, the economic contraction slowed sharply to 0.7% in the second quarter of 2009 and growth resumed in the third quarter; this was no coincidence. Increased economic activity boosted employment, everything else being equal, and the economy was creating jobs by the first quarter of 2010, albeit from a deeply depressed level of employment. Estimates by private sector forecasters and the Congressional Budget Office suggest that the Recovery Act increased employment by roughly 3-4 million jobs—in line with administration projections—but this fell far short of recouping the number of jobs lost. Monthly job losses began slowing in February 2009 when the Recovery Act first kicked in, but the economy still lost a staggering 8.8 million jobs between February 2008 and February 2010.

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Medicare Spending Slows Sharply

Maggie Mahar

It is an article of faith, at least among conservatives, that as long as Medicare remains a government program, outlays will rise relentlessly, year after year. Only “the market” could possibly tame Medicare inflation, they say. The fear-mongers argue that unless we either shift costs to seniors; raise the age when they become eligible for Medicare; or turn the whole program over to private sector insurers, Medicare expenditures will bankrupt the country.

Here is the truth: Both Standard & Poor’s (S&P) and the Congressional Budget Office (CBO) now have 18 months of hard data showing that Medicare spending has begun to slow dramatically. Health reform legislation has not yet begun to kick in to pare Medicare payments, but something is changing on the ground. As I pointed out in an earlier post, Medicare spending began to plunge in January of 2010. After levitating by an average of 9.7 percent a year from 2000 to 2009, CBO’s monthly budget reports show that Medicare pay-outs are now rising by less than 4 percent a year. (Over the year ending June 2011, Standard & Poor’s reckons that the cost of Medicare claims rose by just 2.5 percent.  But S&P’s Medicare index does not include Medicare Advantage, the private sector option that costs the government significantly more than traditional Medicare.)

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August 24, 2011

Senator Coburn's misguided political philosophy

Harold Pollack

Senator Tom Coburn got into hot water with his odd town hall musings about President Obama’s intent “as an African-American male” “to create dependency because it worked so well for him.” In a delightful Freudian inversion, Coburn labeled President Obama’s political philosophy “goofy and wrong.”

Senator Coburn is a good man, but his narrow social vision is deeply misguided. If you want to see why, watch this two-year-old CNN clip, and then read below

  

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August 22, 2011

Graph of the Day: In Defense of Warren Buffett

Benjamin Landy

Billionaire investor Warren Buffett became a controversial figure last week when his provocative op-ed, “Stop Coddling the Super-Rich,” landed prominently on the New York Times editorial page. “My friends and I have been coddled long enough by a billionaire-friendly Congress,” Buffett wrote. “It’s time for our government to get serious about shared sacrifice.” His suggestion, that the government immediately raise taxes on Americans making more than $1 million—and even more so on those making in excess of $10 million—set off a firestorm of criticism from conservatives.  

Among the more misguided attacks was a CNN.com opinion piece by Jeffrey Miron, a senior fellow at the Cato Institute and director of undergraduate studies at Harvard University, who outright dismissed the significance of increased government revenues. “The first problem with Buffett’s view,” Miron writes, “is that the number of super-rich is too small for higher rates to make much difference to our budget problems. . . . Imposing a 10% surcharge on this income would generate at most $73 billion in new revenue—only about 2% of federal spending.”

Miron is right that $73 billion won’t solve our “budget problems,” which I take to mean our $14.4 trillion national debt. Nobody is arguing that. But that hardly means $73 billion is inconsequential. In order to illustrate just how much money $73 billion is, I did some research to discover some of the things you could buy with that kind of money. The graphic below shows just a few examples.

73 billion final

If you were more militarily inclined, $73 billion could also buy you sixteen Nimitz-class nuclear-powered aircraft carriers—the largest and most powerful capital ship in the world—or 1,327 brand new F/A-18 Super Hornets from Boeing. And $73 billion could quintuple NASA’s operating budget, providing enough funds to develop and maintain an international lunar base for the next five years, according to CSIS cost analysis. Less than half that amount would provide safe drinking water for the entire planet, helping save the nearly 6,000 children who die every day from diseases associated with contaminated water supplies.

No matter how you choose to look at it, $73 billion is a lot of money. With all of the problems our country is facing today, can we afford to turn it down?

 

View more from the Graph of the Day Series.

August 19, 2011

A Speech for Our Hard Times

Harold Pollack

President Obama was giving a speech the other day. I heard something like the following:

Let me warn you and let me warn the Nation against the smooth evasion which says, “Of course we believe all these things; we believe in Social Security; we believe in work for the unemployed; we believe in saving homes. Cross our hearts and hope to die, we believe in all these things; but we do not like the way the present Administration is doing them. Just turn them over to us. We will do all of them- we will do more of them we will do them better; and, most important of all, the doing of them will not cost anybody anything.”

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August 18, 2011

Israel's Settlement Enterprise

Sarah Aoun

With a United Nations vote on Palestinian statehood looming in September, international pressure has been building on Israeli Prime Minister Benjamin Netanyahu. In recent weeks however, a new and internal threat has emerged to challenge the Israeli PM. Since July, thousands of Israelis have been protesting against the rising cost of housing in Tel Aviv and its outskirts, putting an unaccustomed domestic spotlight on the settlement enterprise in occupied territories that has so drained Israeli resources.

While protestors -- in what has been considered Israel’s largest demonstrations on any issue in over a decade -- criticize what they consider to be the government’s indifference to the incredibly high cost of living, this does not seem to be the case in the West Bank and East Jerusalem. There, government subsidies of Israeli settlements offer economic incentives difficult to refuse.

Indeed, over the past several decades, the Israeli government has adopted an encouraging policy towards population shift and settlement building – globally considered to be a violation of international law. This investment across the Green Line has been intended to, and undoubtedly succeeded in, leading to an exponential settlement growth.

1Untitled

Settlements have been one of the most urgent and worrying elements of the Israeli-Palestinian conflict since 1967.  Over the past 35 years, more than 500,000 Israelis have made their homes in the West Bank and East Jerusalem, with leaders of the settler movement aiming to dash hopes of making these territories the core of a future Palestinian state.

The continuing building of these homes has also spurred a number of violent clashes over the years between Israeli settlers and the Palestinians living in these areas for centuries. According to statistics collected by the United Nations Office for the Coordination of Humanitarian Affairs occupied Palestinian territory (OCHAoPt), the majority of these attacks have been undertaken by the settlers.  They have left mostly Palestinian children, women, and elderly severely injured, and some even dead.

Untitled

According to the Fourth Geneva Convention, the Israeli government is supposed to provide protection to the people whose land it is occupying. However, it is evident that no serious measures have been taken by the government to address this issue, as is shown by the stagnant and even at times increasing number of attacks against Palestinian civilians.

The never-ending settlement growth has repeatedly exacerbated the Palestinians, and has reaffirmed their determination to take their plea to the UN and request a compliance with the pre-1967 borders. On the other side, it keeps fueling protestors’ dissatisfaction with the policies East of the Green Line, where the government spends twice as much on a settler as on another Israeli according to a recent study by the Adva Center.

It does not come as surprise then that over 15 percent of the public construction budget is used to expanding West Bank settlement, which are home to only 4 percent of Israeli citizens, according to a report published by the activist group Peace Now.

It is difficult to avoid the conclusion that the settlement enterprise undertaken by the Israeli government has become a fundamental driver of both the Palestinian’s UN call for statehood and the recent protests in Israel. This has not, however, deterred Netanyahu from recently approving the construction of an additional 4,300 homes in East Jerusalem.

However, as seen by the internal and external pressure he faces, it is not only the Israeli PM, but Israel itself, that will continue to deal the repercussions of decades-long policies that have favored maintaining the occupation and developing settlements over the interests of the broader population – until the demands of the protestors are met and priorities are re-evaluated.

Diabetes Prevention Success Story

Naomi Freundlich

For a while now, diabetes has been at epidemic proportions in this country, with nearly 24 million Americans currently suffering from the disease. The great majority have Type-2 diabetes, the kind that is linked to obesity and physical inactivity and is responsible for 90-95% of all cases in people over 40. The costs associated with this epidemic are also enormous: $218 billion each year in medical expenses and lost productivity. In fact, about 10 percent of all U.S. health care spending and a whopping one-third of Medicare dollars is spent on people with diabetes.

The epidemic shows no signs of abating. In the next 25 years, the number of cases is expected to double. According to a report on obesity released last month by the Trust for America’s Health, “Since 1995, diabetes rates have doubled in eight states. Then, only four states had diabetes rates above 6 percent. Now, 43 states have diabetes rates over 7 percent and 32 have rates above 8 percent.

Finally, according to the Robert Wood Johnson Foundation, as a result of the U.S. having the highest rate of obesity among all developed countries, we now have the highest rate in the world of hospitalization of diabetes patients.

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