Crisis Impact on US Cities

by Dollars and Sense

From The Financial Times. Worthy of note:

Because of assessment cycles, for example, it often takes several years for city property taxes to reflect changes in property values. For this reason, cities will feel the deeper effects of the recession beyond 2009, with the worst years being 2010 and 2011, the survey predicted.

That dynamic poses a potential headwind for a national economic recovery, as local governments lay off workers and scrap projects to cut costs.

"One out of seven jobs in the US is the state and local government sector," said Christopher Hoene, director of the NLC centre for research and innovation. "It suggests that this sector is large enough to drag the economy down."

It represents about 12-13 per cent of national gross domestic product, equivalent to the tourism sector, Mr Hoene said. "This is a big sector of the economy: they hire, they spend, they invest and not in inconsequential ways."

Recession hits US cities' finances
By Nicole Bullock in New York
Financial Times
Published: September 1 2009 13:44 | Last updated: September 1 2009 13:44

The finances of US cities continue to deteriorate as the ripple effects of a national recession reach local revenues, according to research.

For 2009, 88 per cent of city finance officers said their cities were less able to meet fiscal needs than in 2008, amid declining house values, restrictive credit markets, slowed consumer spending and rising unemployment, a survey conducted by the National League of Cities and released on Tuesday shows.

Read the rest of the article

Labels: employment, financial crisis, fiscal policy, housing market, meanest cities, municipal finance

 

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9/01/2009 11:13:00 AM 0 comments

 

Obama in His Labyrinth

by Dollars and Sense

From the Financial Times:

Deficit disorder

By Edward Luce

Published: June 25 2009 19:53 | Last updated: June 25 2009 19:53

Back in February, Barack Obama's presidency suffered an early setback when Judd Gregg, the Republican senator from New Hampshire, withdrew as his nominee for commerce secretary. Mr Gregg, who was to be the most high-profile exhibit of Mr Obama's bipartisan credentials, decided he could not belong to an administration that would preside over such high budget deficits.

The figure then being projected for this year was above the $1,000bn mark for the first time. But in the few short months since, the number has rocketed much further--to $1,800bn (1,106bn pounds, 1,291bn euros) or 13 per cent of gross domestic product.

The Congressional Budget Office, a nonpartisan watchdog, forecasts that the US will post deficits in excess of a trillion dollars in each of the next 10 years. Even on its relatively optimistic assumptions for economic growth, moreover, the CBO predicts national debt will double to 82 per cent of GDP in the next decade--a level not seen since the second world war.

This would push the US close to the chronic debt levels seen in Japan and Italy. "People used to talk about America's long-term fiscal crisis," says Douglas Elmendorf, head of the CBO. "That crisis is now."

Once merely a worthy subject of concern, America's fiscal outlook has rapidly become the object of widespread alarm. "Aside from weapons of mass destruction and terrorism, America's fiscal situation is the most dangerous challenge facing the country," says Mr Gregg. "Unchecked, it will reduce growth, weaken the dollar and ultimately undermine America's global leadership role."

Read the rest of the article

Labels: baillout, Barack Obama, financial crisis, fiscal policy, Monetary Policy, tax policy

 

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6/26/2009 06:06:00 PM 0 comments

 

Stiglitz On the Fiscal Crisis Of the State

by Dollars and Sense

From Common Dreams:

Fiscal Plan Fails both Markets and Taxpayers

by Joseph E. Stiglitz

Let's be clear: President Barack Obama inherited an economy in freefall and could not possibly have turned things around in the short time since his election. Unfortunately, what he is doing is not enough.

The real failings in the Obama recovery program lie not in the stimulus package -- though it is too heavily weighted toward tax cuts, and much of it merely offsets cutbacks by states -- but in its efforts to revive financial markets. America's failures provide important lessons to countries around the world that are or will be facing increasing problems with their banks:

* Delaying bank restructuring is costly, in terms of both the eventual bailout costs and the damage to the overall economy in the interim.
* Governments do not like to admit the full costs of the problem, so they give the banking system just enough to survive, but not enough to return it to health.

* Confidence is important, but it must rest on sound fundamentals. Policies must not be based on the fiction that good loans were made, and that the business acumen of financial-market leaders and regulators will be validated once confidence is restored.
* Bankers can be expected to act in their self-interest on the basis of incentives. Perverse incentives fueled excessive risk-taking, and banks that are near collapse but are too big to fail will engage in even more of it. Knowing that the government will pick up the pieces if necessary, they will postpone resolving mortgages and pay out billions in bonuses and dividends.
* Socializing losses while privatizing gains is more worrisome than the consequences of nationalizing banks. American taxpayers are getting an increasingly bad deal. In the first round of cash infusions, they got about 67 cents in assets for every dollar they gave (though the assets were almost surely overvalued, and quickly fell in value). But in the recent cash infusions, it is estimated that Americans are getting 25 cents, or less, for every dollar. Bad terms mean a large national debt in the future.
* Don't confuse saving bankers and shareholders with saving banks. America could have saved its banks, but let the shareholders go, for far less than it has spent.
* Trickle-down economics almost never works. Throwing money at the banks hasn't helped homeowners: foreclosures continue to increase. Letting AIG fail might have hurt some systemically important institutions, but dealing with that would have been better than to gamble upwards of $150 billion and hope that some of it might stick where it is important. One of the reasons we may be getting bad terms is that if we got fair value for our money, we would by now be the dominant shareholder in at least one of the major banks.
* Lack of transparency got America's financial system into this trouble. Lack of transparency will not get it out. The Obama administration is promising to pick up losses to persuade hedge funds and other private investors to buy out banks' bad assets. But this will not establish ''market prices,'' as the administration claims. Banks' losses have already occurred, and their gains must now come at taxpayers' expense. Bringing in hedge funds as third parties will simply increase the cost.
* Better to be forward looking than backward looking, focusing on reducing the risk of new loans and ensuring that funds create new lending capacity.

There is no "mystique" in finance: The era of believing that something can be created out of nothing should be over. Short-sighted responses by politicians -- who hope to get by with a deal that is small enough to please taxpayers and large enough to please the banks -- will merely prolong the problem.

An impasse is looming. More money will be needed, but Americans are in no mood to provide it -- certainly not on the terms that we have seen The well of money may be running dry, and so, too, may be America's legendary optimism and hope.

Labels: fiscal policy, fiscal stimulus, Joseph Stiglitz

 

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3/24/2009 07:21:00 PM 0 comments

 

Christina Romer Defends Fiscal Stimulus

by Dollars and Sense

Romer is chair of the president’s Council of Economic Advisers (and an economic historian at Berkeley). In a talk at the Brookings Institution on Monday, she took on the crowd claiming that Keynesian fiscal stimulus policies failed in the 1930s:

I wrote a paper in 1992 that said that fiscal policy was not the key engine of recovery in the Depression. From this, some have concluded that I do not believe fiscal policy can work today or could have worked in the 1930s. Nothing could be farther from the truth. My argument paralleled E. Cary Brown’s famous conclusion that in the Great Depression, fiscal policy failed to generate recovery “not because it does not work, but because it was not tried.” The key fact is that while Roosevelt’s fiscal actions were a bold break from the past, they were nevertheless small relative to the size of the problem.

A good omen for fiscal policy.

Alas, her remarks were disappointing on the deeper question of the causes of the crisis:

Most obviously, like the Great Depression, today’s downturn had its fundamental cause in the decline in asset prices and the failure or near-failure of financial institutions.

Too bad she didn't talk about the steep rise in inequality; stagnant real wages; households’ expanding use of credit to fill the gap between those stagnant wages and rising living costs; excess capacity and overproduction...

Read the whole talk here.

Labels: Christina Romer, fiscal policy, fiscal stimulus, Great Depression, Keynesianism

 

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3/11/2009 11:49:00 AM 0 comments

 

Obama's ($1.7 Trn Deficit) First Budget

by Dollars and Sense

From The Financial Times:

Obama forecasts $1,750bn deficit
By Andrew Ward and Edward Luce in Washington
Published: February 26 2009 11:24 | Last updated: February 27 2009 09:56
Financial Times

President Barack Obama on Thursday unveiled the most expansive blueprint for federal government involvement in the US economy in more than a generation in a ten-year budget outline that showed this year’s deficit quadrupling to $1,750bn.

The document, which lays out ambitious plans to create universal health insurance and adopt an economy-wide carbon permit trading system by 2012, was heavily panned by Republicans.

The budget would see George W. Bush’s tax cuts for the wealthiest expire by 2011 and introduce new tax increases on families earning $250,000 or more to pay for healthcare expansion.

In a sign of intense partisan battles to come, Mitch McConnell, the Republican leader in the Senate, where the US president needs supermajorities of at least 60 votes to push bills through, said: “Unfortunately, at this juncture, while the American people are tightening their belts, Washington seems to be taking its belt off."

The budget also allowed for about $750bn for "financial stabilisation efforts", on top of the $700bn already granted to Wall Street. The potential aid was shown as a net cost of $250bn because the government would anticipate recouping some of the money. Peter Orszag, White House budget director, said there were "no plans" to seek more aid for banks but the measure indicated it was a strong possibility.

The 134-page document outlines a legacy inherited from Mr Bush of what it calls "mismanagement and missed opportunities and of deep, structural problems ignored for too long".

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Labels: bailout, Barack Obama, budget, financia crisis, fiscal policy, fiscal stimulus, taxes

 

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2/27/2009 01:45:00 PM 1 comments

 

Agreement on Stimulus Package

by Dollars and Sense

From The Financial Times:


Deal reached on $800bn US stimulus package

By Alan Beattie in Washington and Alan Rappeport in New York
Financial Times
Published: February 6 2009 13:46 | Last updated: February 7 2009 11:53

US Senate Democrats agreed on Friday to cut their hopes for a larger economic stimulus package and support an $800bn compromise that would give President Barack Obama an important but narrow victory.

Democrats said a vote on passage of the measure--drafted by leaders of a group of moderate lawmakers from both parties--and closely watched overseas as a sign of US commitment to help revive the world economy, would be held on Tuesday.

"We are pleased the process is moving forward and we are closer to getting Americans a plan to create millions of jobs and get people back to work," said White House spokesman Robert Gibbs.

The tentative agreement followed news that the US economy lost a half-million jobs for the third month running in January, bringing the unemployment rate to the highest level since in 1992 and increasing the pressure for government action to stimulate the economy.


The compromise plan proposed by a group of centrist Republicans and Democrats would cut spending on items like health and education to bring the total to $780bn, below the $819bn package already agreed by the House of Representatives

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Labels: bailout, Barack Obama, financial crisis, fiscal policy

 

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2/07/2009 11:29:00 AM 0 comments

 

NYT on ASSA

by Dollars and Sense

From the business section of today's New York Times. Louis Uchitelle drew about the same conclusion I did in my post a couple of days ago, on the basis of that panel with Marty Feldstein and the SF Fed head. Click here for the full article —CJS

Economists Warm to Government Spending but Debate Its Form

By LOUIS UCHITELLE | January 6, 2009

SAN FRANCISCO — Frightened by the recession and the credit crisis that produced it, the nation's mainstream economists are embracing public spending to repair the damage—even those who have long resisted a significant government role in a market system.

But there is not much agreement yet on what type of spending would produce the best results, or what mix of spending and tax cuts.

"We have spent so many years thinking that discretionary fiscal policy was a bad idea, that we have not figured out the right things to do to cure a recession that is scaring all of us," said Alan J. Auerbach, an economist at the University of California, Berkeley, referring to the mix of public spending and tax cuts known as fiscal policy.

Hundreds of economists who gathered here for the annual meeting of the American Economic Association seemed to acknowledge that a profound shift had occurred.

Labels: ASSA, economic stimulus, fiscal policy, Martin Feldstein, recession

 

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1/07/2009 07:41:00 PM 0 comments

 

Report from the ASSA

by Dollars and Sense

A quick report from the 2009 meetings of the Allied Social Sciences Association (as the economists grandiosely call their meetings) in San Francisco. This will have to be short, since I am on the clock at an Internet café one block from the San Francisco Hilton at Union Square, not having brought my laptop with me on the trip. Plus I have to get back to our booth at the book exhibit to haggle with someone from the company that runs the book exhibit about the fact that two of our boxes never arrived at the booth, even though we shipped them at great expense via UPS. Ah, professional meetings!

My panel went well on Saturday. It was sponsored by the Union for Radical Political Economics (URPE), and the title of the panel was Using Economics for Social Change: Five Organizations Report. The other panelists were Heidi Hartmann of the Institute for Women's Policy Research, Larry Mishel of the Economic Policy Institute, Kevin Danaher of Global Exchange, and David Barkin of Universidad Autonoma Metropolitana-Xochimilco in Mexico. The panel was officiated and organized by Lane Vanderslice of World Hunger Education Service. It was quite well attended--I'd say around 50 people were there, including several familiar faces, including Randy Albelda of UMass-Boston (and a D&S associate) and Pat Duffy, URPE staffperson. A short but lively discussion period followed. I enjoyed all the talks, but I was particularly excited about David Barkin's reports about solidarity economics activity among indigenous people in rural areas of Mexico.

The only other panel I've had time to visit was another URPE-sponsored panel, on minimum wages. I had hoped to catch the talk by Jeannette Wicks-Lim of the Political Economics Research Institute (she's working on an article for D&S on a related topic) comparing Earned Income Tax Credits vs. minimum wage increases as ways of improving poor people's living standards. I got there too late, but caught an interesting paper by Manuel Pastor of USC profiling immigrant communities in LA.

Our friend Arlene Geiger, econ prof at John Jay College, stopped by the book exhibit booth and reported that she'd gone to some mainstream panels to see what the mood of the profession is about the recession and financial crisis. She reported that one extremely well-attended panel on the financial crisis seemed to indicate that no one in the room thought that the recession would be anything but long and deep. Another packed panel entitled "The Revival of Fiscal Policy" revealed disagreements between Marty Feldstein of Harvard and John Taylor of Stanford about the value of fiscal policy. Janet Yellin of the SF Fed was a discussant (I'm missing a panel on the subprime crisis that she's presiding over right now). I will press Arlene for a fuller report, but the impression she seemed to get was that mainstream economists still have their heads in the sand on the issue of whether government has a role in guiding the economy (even if they can't help but recognize the need for government action in the current crisis).

Frequent D&S blogger Polly Cleveland, of Columbia U., also stopped by the booth. She'd been focusing on sessions on the history of economics, including one on the history of the Chicago School. She promised a full report for the blog.

I'm almost out of time, so I will wrap this up; I promise more coverage soon.

--Chris Sturr, D&S co-editor

Labels: ASSA, fiscal policy, John Taylor, Marty Feldstein, solidarity economics

 

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1/05/2009 01:28:00 PM 0 comments