Entries Tagged as 'economy'

Cain’s 999 ‘Plan’ is Just a Slogan

October 12th, 2011 at 5:02 pm 20 Comments

At last night’s Republican debate, Michele Bachmann said “If you turn 999 upside down, the devil is in the details.” It was a clever line. Problem is that when it comes to Herman Cain’s 999 plan, there are no details, because there is no plan. What there is is a slightly longer list of talking points, with something that looks like the protean stirrings of a plan sandwiched between them.

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A Template for a GOP Economic Plan

September 28th, 2011 at 11:36 pm 23 Comments

America is now coping with the debt binge of the past decade and stagnating incomes across the board. Trying to provide some cushion for those left economically behind may be a good short-term strategy. But policy makers also need to work toward a restructuring of America’s economic architecture. Unless America’s economic vitality is restored, all plans to reduce the weight of the national debt are moot. A perpetually failed American economy will lead to skyrocketing debt levels, an ever-diminished standard of living, and a weakening of the ability of the United States to project power across the globe.

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Why Canada Can’t Win Forever

David Frum September 24th, 2011 at 10:15 am 28 Comments

In my column for the National Post, generic I ask if Canada is about to face an economic downturn:

Is Canada’s luck finally running out?

Through three bad economic years, buy cialis Canada has emerged as an island of relative stability amid the global storm. More Canadians are working today than were working in the summer of 2008. No other major Western economy has done so well.

Canada has the lowest debt burden of any G7 country. The turmoil in the Eurozone and the gloom in the United States feel very far away from the stability and prosperity of Canada.

Yet Canadians should be warned:

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Unhappy Labor Day For Small Businesses

David Frum September 5th, 2011 at 8:30 am 65 Comments

On the eve of Labor Day, the Obama National Labor Relations Board issued a clutch of new rulings.

One, probably the most important, will make it easier for unions to organize a “micro-unit” within a larger work force. To cite an example from a case last year: after a failure to organize a casino’s dealers, a union sought permission to organize just the poker dealers. It lost, but the new rule improves future odds.

A second new rule strengthens the carry over of pre-existing unions after an acquisition or merger.

The third requires employers to post an 11″ by 17″ poster reminding employees of their right to organize. That last rule inflamed a friend of mine, who manages a small business especially hard hit by the economic slump.

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A Recovery Menaced By Dysfunctional Politics

July 29th, 2011 at 11:28 am 79 Comments

In a time of fundamental uncertainty, case what do we know for certain?

No, order that’s not a Yogi Berra kind of question.

Timing of passage of an increase of some size in the national debt ceiling remains uncertain.

Which side will blink first remains uncertain.

Final form of the legislation remains uncertain.

Market reaction remains uncertain.

But we do know some things for certain.

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Obama’s 5 Big Debt Negotiation Mistakes

David Frum July 25th, 2011 at 12:17 pm 74 Comments

In my CNN column, I write about the five major mistakes President Obama has made in his handling of the debt-ceiling debate and the economy.

If the debt ceiling crisis were a movie, President Barack Obama would deserve an Oscar for his performance in the role of “the last reasonable man.”

But of course the crisis is not a movie. The crisis is a deadly serious clash of ideas and interests. And there, the president has lost his way.

Obama has lost his way so badly that even his core liberal supporters should be questioning whether they have got the right man in the job.

The indictment has five headings:

1. Obama has ceased to lead on the economy.

The management guru Stephen Covey famously said: “The main thing is to keep the main thing the main thing.” Economic recovery is — or should be — the main thing. In 2009, Obama advanced a series of bold proposals to accelerate recovery: his big fiscal stimulus, the auto bailout and so on.

The president’s proposals did not fail, exactly. But they did not work as advertised. The American economy limps weakly forward, leaving millions out of work.

During the Great Depression, President Franklin Roosevelt demanded from his administration “bold, persistent experimentation.” By contrast, Obama put measures in place at the beginning and waited for them to yield results. And waited. And waited. And waited.

Finally, at the end of 2010, he added one more measure to the mix: a partial cut to the payroll tax, included as part of the deal that renewed the Bush tax cuts.

The payroll tax holiday is welcome if late. But it was small (2 percentage points out of the 12.6% paid by workers and employers) and was almost immediately offset by the surge in oil prices after the so-called Arab Spring. That surge took back from workers every dollar of the $110 billion in tax relief delivered by the payroll holiday.

And since December, Obama has surrendered entirely to the claim that we can somehow fix the economy by fixing the debt problem. The truth is the opposite: Fix the economy, and the debt problem will shrink to much more manageable proportions.

2. Obama does not effectively use the domestic powers of the presidency.

Talk radio shows accuse Obama of acting like a Third World dictator heading a thug government. That’s a devilishly ingenious line of attack on a president who actually makes weaker use of his domestic power than any since Jimmy Carter.

Example: The U.S. recovery that commenced in the summer of 2009 stalled in the spring and summer of 2010. Many economists blame the stall on the Federal Reserve’s April 2010 decision to stop providing additional monetary stimulus for fear of igniting inflation. Those inflation fears proved utterly misplaced, and in late 2010 the Federal Reserve resumed its monetary stimulus.

Where was the president during this crucial debate? AWOL.

Yes, yes, the Federal Reserve is independent and all that. But other presidents have succeeded in making their views known and respected on monetary policy. Obama had a unique chance to influence the debate, because through the summer of 2010 two of the seven seats on the Fed’s Board of Governors stood vacant. The president nominated expansion-minded governors to fill the seats. The nominations were put on hold by Republican senators. And what did the president do? Did he take to the airways to demand action on his nominees? Did he punish the senators by stopping federal projects in their states? Did he fill the seats with recess appointments?

To borrow the answer from Fred Armisen’s imitation of Obama on “Saturday Night Live”: “I’m seeing two big accomplishments: jack and squat.”

3. Obama cannot communicate empathy for Americans in economic distress.

Remember that video of the Obama supporter expressing her exhaustion and disappointment with the president’s record of help to the middle class?

Watch it again, and pay careful attention to what the president does. He first makes a perfunctory effort to connect with the woman in front of him as a fellow-parent. Then he rattles off a list of small programmatic changes: in the student loan program, in credit card regulation, none of them especially relevant to the woman in question. He finishes with a “stay the course” message that must ring hollow in the ears of all those for whom the “course” means unemployment of 38 weeks or longer.

Notice what the president does not do. He does not thank his questioner for defending him. He does not ask her questions of his own. He is so determined to sell his narrative, that he cannot hear or honor her fears. And indeed the questioner did lose her job a few weeks after the town hall meeting.

For two years, Obama’s economic message has been “recovery is around the corner.” He has delivered this message from factory floors and restaurant tables. He has not spoken in front of groups of unemployed; he has not spoken at welfare offices.

Obama’s disconnect from those in distress may explain the remarkable collapse of his support among younger whites, once one of his most important groups of supporters. Pew reports a 10-point surge in Republican identification among whites under age 30 since 2008. These are some of the voters hardest hit by this recession. They are voters to whom this president has spoken least.

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The Economy Can’t Survive Abrupt Spending Cuts

David Frum July 12th, 2011 at 1:24 pm 76 Comments

I’m trying to think of an economic precedent even remotely comparable to an abrupt hit-the-wall 44% cut in federal government spending.

The closest I can imagine – and it is not very close – is the defense build-down at the end of World War II.

That build-down was foreseen and planned even before the end of the war. It occurred over three years, not three weeks. Still, it was big:

In an economy of about $200 billion (in the money of the time), annual government spending was reduced by $56 billion.

And what was the real-world effect of the build-down? In the 12 months from 1945 to 1946, GDP dropped by almost 11%.

Happily, the US economy of 1946 was well-positioned to absorb the government cutback.

1) Consumers had accumulated large savings through the years of bond drives, military pay, and rationed goods.

2) Nobody was surprised. Everybody knew that the war would end, and that the military would thereafter shrink rapidly.

3) The cutback was associated with the triumph of American institutions and a more hopeful future: victory, peace, and reconstruction.

Result: by 1947, the US economy was growing strongly again. (Although GDP did not catch up to the 1945 level until 1950.)

Contrast that to now!

1) The consumer is tapped out, still deeply in debt from the housing bubble, and facing the continuing depreciation of the most important consumer asset, housing.

2) Everybody expects a deal to happen at the last minute, so a non-deal would jolt and shock markets.

3) A congressional forced non-payment of US bills would represent a signal and shaming failure of US institutions, sowing doubts about US credibility and reliability among investors and vendors worldwide.

All in all: it would be pretty bad.

So why are we doing this again? To force budget cuts that could be achieved just the same through the ordinary budget process? That’s it?

Fiscal Stimulus Didn’t Work, Now What?

July 5th, 2011 at 12:00 am 29 Comments

A report from the White House Council of Economic Advisers has indicated that the stimulus added 2.3 to 3.2 percent to gross domestic product in the first quarter relative to what it otherwise would have been. The same report indicated that the stimulus was responsible for 2.4 to 3.2 million jobs. This is being reported as good news.

What should we have expected from the stimulus? Actually, what we should have expected was stimulus. For $800 billion, of course gross domestic product had to go up in the first quarter and at least someone should have been employed. But and it is a big but, the stimulus should have reduced overall unemployment and brought private investment dollars into the economy that would have sustained any short term economic gains from the stimulus. The real benefit of stimulus, not simply increased spending, should be appearing in current economic news. It is not.

And what should a new job cost? If 2.4 to 3.2 million jobs cost $800 million, that is a cost of $250,000 to $350,000 per job. It makes one ask for a more precise accounting of the spending. Shouldn’t we have expected more jobs?  Weren’t we promised an unemployment rate of less than 8%? And there appears to be little or no sign that these jobs were not, in part, a continuation of state and city government jobs which are going to be lost in 2011 and 2012 due to state finances.

What is the solution now? Did we sell the seed corn by using up our borrowing opportunity and maxing out the nation’s debt? Perhaps.

Romney Goes for Obama’s Jobs Record

David Frum June 30th, 2011 at 8:55 am 26 Comments

Here’s a powerful Romney ad that (unlike those unintentionally hilarious Pawlenty ads) actually delivers its message:

Is China’s Growth an Illusion?

June 28th, 2011 at 1:06 pm 14 Comments

While the United States and other developed economies continue to deal with the scars left by the global financial crisis, China has been widely celebrated as a model of how to weather such storms. But do these claims really match reality? In an op-ed published last week, Chinese premier Wen Jiabao defended his country’s response to the crisis and praised its ongoing efforts to address long-term economic problems. However, Minxin Pei, director of the Keck Center for International and Strategic Studies at Claremont McKenna College and a noted China expert, was not convinced by the premier’s arguments.

“It is the standard official version of China’s response to the crisis,” he told FrumForum. “The premier did not mention that a huge amount of money was wasted” in the implementation of the fiscal stimulus, he said. Dr. Pei focused particularly on the financial consequences of the spending package for local governments in China, noting that they “borrowed heavily from banks and used the money on projects that will not be economically viable.  China will face another round of huge non-performing loans.”

He  was also highly critical of Mr. Wen’s plan for addressing the Chinese economy’s long-term challenges, arguing that despite the government’s moves to spur domestic demand, the “structure of the Chinese economy remains out of balance, with consumption too low and investment too high.”

In print, Dr. Pei has also expressed pessimism about the policies to curb inflation and inequality that the premier touted in his piece. He sees the interest-rate hikes and other monetary measures the Chinese have used to tame inflation thus far as “window dressing” and writes that the only “long-term solution lies in difficult financial sector liberalization, fiscal reforms and privatization,” which is unlikely to happen soon due to opposition from politically powerful state-owned enterprises. Dr. Pei has also claimed that the regime’s efforts to reduce economic inequality are too timid and focus on wage disparities while neglecting more harmful wealth inequality. He sees both inflation and inequality as serious threats to political stability in China.

Many of Dr. Pei’s criticisms of China’s fiscal stimulus find support in media coverage of the measure. On Monday, the New York Times reported that, according to Chinese auditors, local government debt had reached $1.7 trillion (27 percent of Chinese GDP) and that many of the infrastructure projects that those loans were taken to finance were yielding poor returns. Fears about the waste involved in the spending package have been growing for some time; a Wall Street Journal op-ed from August of last year warned that the flood of state-backed loans unleashed, combined with restrictive Chinese investment regulations, had channeled capital from productive investments into housing stock and set off a real-estate bubble.