•10 Questions for Austan Goolsbee –

Obama, GOP in quiet talks to extend tax cuts – The White House and congressional Republicans have begun working behind the scenes toward a broad deal that would prevent taxes from going up for virtually every U.S. family and authorize billions of dollars in fresh spending to bolster the economy.  Negotiations have accelerated in recent days as Congress has confronted deadlines for extending a series of tax cuts that expire at the end of the month, renewing emergency jobless benefits and keeping the government funded into next year.  The talks mark the dawn of a new era on Capitol Hill, with resurgent Republicans holding far more leverage and commanding a more prominent role in crafting legislation. The private discussions, which parallel a more public set of talks, have left many Democrats grousing that President Obama is being too quick to accommodate his adversaries, who are still a month away from taking control of the House and expanding their presence in the Senate.

10 Questions for Austan Goolsbee – Austan D. Goolsbee, an economics professor on leave from the University of Chicago, became chairman of President Obama’s Council of Economic Advisers in September. He talked with John Harwood of the Times and CNBC at the White House recently about the state of the economy and Republican criticisms of the administration’s policies. Here is a condensed, edited version of their conversation:

Fed Loans to Foreign Central Banks Justified – Well, now we know how much the Federal Reserve loaned under 10 different programs during the depth of the financial crisis, and to whom. Fed critics such as Independent Sen. Bernie Sanders, a self-proclaimed socialist from Vermont, called the information "incredible and jaw-dropping" and wants an investigation. Actually, it is incredible and jaw-dropping. At various points between Dec. 1, 2007 and July 21 of this year, the Fed had loaned–or purchased assets–worth $3.3 trillion to try to stabilize financial markets on the verge of collapse. Not only was the effort remarkably successful, so far the central bank hasn’t lost a dime. Yes, billions of dollars were loaned to key foreign central banks, such as the European Central Bank and the Bank of England, so they could in turn lend dollars to banks in their jurisdictions. Some loans went directly to foreign banks that active in U.S. markets. However, with the interbank lending market frozen, and those foreign banks unable to borrow dollars, they could have been forced to dump many U.S. assets and do severe damage to American institutions.

ProPublica is my favorite one-stop shop for presenting the Fed data dump in an at-a-glance format. The main thing that jumps out is that three banks, more than any others, were the primary recipients of the Fed’s lending facilities:


Bailout datapoint of the day, Morgan Stanley edition – I’ve included the banks in positions 4 and 5 just to make clear how big the gap is here: Citi, Merrill, and Morgan Stanley each borrowed more than $2 trillion from the Fed in total. No one else borrowed even $1 trillion. Of course, a lot of these were overnight loans being rolled over day after day: it’s not like the Fed ever lent this much money at any one time. But the sums involved are still astonishing, especially for Merrill Lynch and Morgan Stanley. We all know what happened to Citi and to Merrill, but this underlines just how rocky Morgan Stanley was at the height of the crisis.

The American Jobs Emergency Requires Action –This is not a recovery. It’s a continuing jobs emergency and it demands action.We learned this morning that unemployment rose to 9.8 percent in November and employers added only 39,000 jobs. Private employers added 50,000 — the smallest gain since January. Government employment continued to shrink. We’re heading in the wrong direction. In October, the jobless rate was 9.6 percent, and employers added 172,000 jobs. Private-sector job growth totaled 160,000. At this rate unemployment won’t return to its pre-recession level for more than a decade, if ever. Over 15 million Americans were jobless in November. This doesn’t include those who are working part-time but would prefer to work full time. Nor does it include a record 1.3 million who are too discouraged even to look for work.   Nor does it take account of the fact that most families are dependent on two breadwinners. So to figure out the true impact on most families, all these numbers have to be doubled. Nor does it reflect the fact that the level of unemployment tracks level of education. Only 5 percent of those with college degrees are now unemployed, while more than 20 percent of everyone else is without work

Corporate profits in America: Gimme a “V” – The Economist – AMERICA’S recession was cruel to capital and labour: both employment and profit margins collapsed. The recovery has been a different matter. Employment has barely grown and unemployment is near its peak, but profits are on a tear. Pre-tax profits were $1.7 trillion, annualised, in the third quarter, just topping their 2006 peak, though as a share of gross domestic income they remain short of a record. Corporate earnings have benefited from both the return to profitability of the banks and the growing contribution of foreign operations—gross overseas profits now represent a third of the total. Robert Mellman of JPMorgan Chase eliminates the effects of both write-offs and foreign activity by examining only domestic profits as a share of corporate value added. The resulting picture is even starker. After falling to their lowest in over 50 years, profit margins are already back at levels exceeded only well into previous economic expansions (see chart). With the current expansion still young, Mr Mellman reckons profits by this measure are destined to reach their highest level since the 1960s.

A Bad Jobs Day; Mancession and Education Revisited – There was a 2009 meme about how the recession was really a “mancession”, where male-dominated fields like construction and finance had a larger hit and unemployment was going to hurt men much more than women. This story had a lot of legs in 2009 when unemployed rose much more rapidly among men than women. I argued at the time that this was a false dichotomy, and that the evolving nature of families securing homes and benefits leads to “two-income traps” where either parent being unemployed in a family put the family at risk. Men being more vulnerable than women ignores how vulnerable households themselves have become. Here’s what those two look like now:As you can see, male unemployment has stayed the same or trended slightly down (down 0.4% over the 12 month period) and female unemployment continues to trend up (up 0.4% over the past 12 month period). So I think we are seeing a move towards a greater gender parity in unemployment. To whatever extent the recession was hitting men more than women, that is disappearing rapidly right now.

Beijing May Try to Cool Economy – China will tighten its monetary policy next year, the country’s leaders said Friday, a sign that they are increasingly concerned about inflation and an overheated economy. The move, announced in an article by Xinhua, China’s official news agency, comes as other nations, including the United States, continue to grapple with a global recession. Xinhua reported that the Politburo, the elite team led by nine members at the top of the Communist Party hierarchy, had decided that China’s monetary policy should shift “from relatively loose to prudent next year.” The article also said China “will continue its proactive fiscal policy,” meaning that investment spending would not be severely curbed.

What About the Obama Tax Cuts? – Below are the tax cuts that the Republican plans omit. They’ll all expire at the end of December unless Congress extends them.

  • Child Tax Credit expansion. The 2009 Recovery Act allowed low-income working families to count more of their earnings in calculating the value of their Child Tax Credit. If Congress doesn’t extend this provision, 10.7 million families will lose part or all of their child credit. For example, a single mother with two children who works full time, year round at the minimum wage and earns around $14,000 would see her child credit plummet by nearly $1,500, from $1,725 to $263 (see graph).
  • EITC improvements for married couples and larger families. Some low-income working couples receive a smaller Earned Income Tax Credit if they marry than if they had remained single. The Recovery Act included marriage penalty relief that reduced this financial penalty by allowing married couples to receive somewhat larger EITC benefits. Families with nearly 5 million adults and more than 8 million children will be affected if this change expires.
  • The Recovery Act also expanded EITC benefits for families with three or more children. Prior to 2009, these families — which make up a disproportionate share of all low-income working families — received the same EITC benefits as families with two children. The Recovery Act, by boosting EITC benefits for larger families, strengthened work incentives for more than 3 million low-income working families with children.
  • Making Work Pay. Created in the Recovery Act, this tax credit reduces the amount the federal government withholds from the paychecks of more than 90 percent of working Americans; it’s worth up to $800 per couple. If Congress doesn’t extend it, working families would see their paychecks go down starting on January 1. For example, a nurse and a machinist who have two children and earn a combined $65,000 would have an extra $800 withheld from their paychecks over the course of 2011. (The tax bill that the House passed yesterday didn’t extend Making Work Pay, but it did extend the child credit and EITC improvements.)
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