Paul Krugman and Robin Wells

U.S. Approved Business With Blacklisted Nations – Despite sanctions and trade embargoes, over the past decade the United States government has allowed American companies to do billions of dollars in business with Iran and other countries blacklisted as state sponsors of terrorism, an examination by The New York Times has found.  At the behest of a host of companies — from Kraft Food and Pepsi to some of the nation’s largest banks — a little-known office of the Treasury Department has granted nearly 10,000 licenses for deals involving countries that have been cast into economic purgatory, beyond the reach of American business.

Training College Graduates for Dependency By Counterfeiting Genuine Accomplishment – Some excerpts from "The College Degree Fraud," by Robert Weissberg, Professor of Political Science-Emeritus, University of Illinois: "For more than a half-century, government has tried to close racial gaps in educational attainment. Sad to say, those gaps have proven intractable. Nevertheless, the impulse remains as heartfelt as ever (perhaps due to its financially lucrative character), but the emphasis is now shifting from actual learning to equality of graduation rates. President Obama has spoken of adding 5 million graduates to the workforce by 2020, and credential-mania is now all the rage. This shift is a disaster in the making; imparting knowledge is commendable, but just handing out diplomas is harmful deception. A cynic might aver that the shift from knowledge to graduation rates is a tacit admission that the gap-closing quest is futile. That today’s college degrees, regardless of the recipient’s race, are increasingly "manufactured" versus reflecting real learning is strongly suggested by a recent Bureau of Labor Statistics report. Specifically, contemporary "college graduates" are increasingly employed in positions once occupied by high school graduates.
 

Where Do We Go from Here? – Paul Krugman and Robin Wells – President Obama, a master of understatement, did it again when he described the Democratic midterm losses as a “shellacking.” No, it was a massacre. The party lost support from virtually every demographic group. Even Michigan auto workers whose jobs were saved by the bailout of GM voted Republican. While Democrats got some comic relief from Christine O’Donnell in Delaware and Carl Paladino in New York, in reality it is hard to see how things could have been much worse.  Conservative-leaning states won by Obama in 2008—Virginia, North Carolina, and Indiana—swung back to the Republican column. Critical swing states that Obama won in 2008—Ohio, Pennsylvania, and Florida—abandoned the Democrats. What’s left is an electoral map that looks a lot like the 2004 presidential election. Was this disaster caused by reactions to the awful economy—an economy that Obama believes he saved, but not sufficiently to please voters? Or was it, as the Republicans believe, a repudiation of Obama and all that he and Nancy Pelosi stand for?

Ex-IMF official still lost in the incredulous void – Sometimes ex-IMF officials shed the burden of having been associated with that institution and make a creative contribution to the public debate. More often they do not and continue to perpetuate the errors that underpin almost all of the IMF’s output. If there was ever an institution that has passed its use-by date it is the IMF. Today, ex-IMF Chief Economist Simon Johnson (now at MIT) claimed that the way to assess fiscal sustainability is “whether a country has the political will to raise taxes or cut spending when under pressure from the financial markets”. So for all those readers who have written in saying “doesn’t Johnson have credibility” and “therefore is what he is saying sensible” I have three words – No and No. In a Bloomberg opinion piece – Tax Cutters Set Up Tomorrow’s Fiscal Crisis – Johnson claims that the recent tax decision pushed through the US Congress by a beleagured president: … moved us closer to a fiscal crisis, just as the euro zone now is experiencing.  Did it? Answer: definitely not!

Inventories and the Wonders of GDP Accounting – The news stories are coming out on the Commerce Department’s release of revised data on 3rd quarter GDP and it seems that almost everyone has missed the story. The headlines of the articles are telling us that GDP growth was revised up slightly from 2.5 percent to 2.6 percent. While that may sound like at least somewhat positive news a more careful review of the data shows the opposite. While the rate of GDP growth was revised up, the rate of final demand growth was revised down. Final demand, which is GDP excluding inventory accumulations, grew at just a 0.9 percent annual rate in the 3rd quarter, the same as its growth rate in the second quarter. The reason that GDP growth was revised upward was a more rapid reported growth in inventories. The reported rate of inventory accumulation in the 3rd quarter was $121.4 billion (in 2005 dollars), the fastest pace ever. This added more than 1.6 percentage points to the rate of GDP growth in the quarter. It is very unlikely that this pace of inventory growth will be sustained.

Beijing’s housing price fury goes viral – The anger harboured by Beijingers about sky-high housing prices has been captured in a sardonic e-mail spreading in Chinese cyberspace calculating how long it would take peasants, thieves and prostitutes to buy a home. The e-mail, which has gone viral in various versions, provides unscientific but entertaining estimates of how long citizens would need to work to afford a 100-square-metre apartment in central Beijing, which currently sells for about Rmb3m ($450,000). As long as there were no natural disasters, a peasant farmer working an average plot of land would just have been able to afford an apartment if he or she somehow had worked since the Tang dynasty, which ended in 907AD, until today. If a Chinese blue-collar worker had been on the average monthly salary of Rmb1,500 since the opium wars in the mid-19th century and had given up weekends, then he or she might just have been able to afford a place of his or her own. Prostitutes, the e-mail says, would have to entertain 10,000 customers – a marathon feat requiring them to service one customer a night from the age of 18 until the age of 46 without an evening off. The thief would need to conduct 2,500 robberies to find the funds to buy a home. Of course, the e-mail notes, such calculations do not count interior decoration, furniture or household electronics.

Has Spending & Income Hit a Ceiling?  – Personal income and spending continued rising at a moderate pace last month, the U.S. Bureau of Economic Analysis reports. Disposable personal income rose by 0.3% for the second consecutive month and personal consumption expenditures gained 0.4%, logging the fifth straight month of higher spending. . Good news, to be sure, but is there also a glimpse of the new normal in the data? As always, there’s value in stepping back and looking at the rolling 12-month percentage change. By that benchmark, the spending and income renaissance in the wake of the recession’s end in June 2009 seems to have hit a ceiling at roughly 4% annual growth.  It’s possible, of course, that we’ll see higher rates of growth in the months and years to come. But given what we know about the heavy debt load weighing on household balance sheets, it’s reasonable to wonder if the 4% ceiling will hold for the foreseeable future.  Again, a 3%-to-4% rate of growth in spending and income is far from the end of the world, but keep in mind that we’re talking here of nominal rates of growth. Fortunately, inflation is minimal these days, but that’s not a permanent state of macro affairs.

The Humbug Express, by Paul Krugman – Hey, has anyone noticed that “A Christmas Carol” is a dangerous leftist tract? I mean, consider the scene, early in the book, where Ebenezer Scrooge rightly refuses to contribute to a poverty relief fund…, instead of praising Scrooge for his principled stand against the welfare state, Charles Dickens makes him out to be some kind of bad guy. How leftist is that? As you can see, the fundamental issues of public policy haven’t changed since Victorian times. Still, some things are different. In particular, the production of humbug — which was still a somewhat amateurish craft when Dickens wrote — has now become a systematic, even industrial, process. Let me walk you through a case in point…

The Three Wise Men of Fiscal Responsibility? – My boss, Bob Bixby, offers this perspective on how to achieve bipartisan compromise that would reduce the federal budget deficit down to sustainable levels in this CNBC op-ed: If [President] Obama and [incoming House Budget Committee chairman Paul] Ryan join [Senate Budget Committee chairman Kent] Conrad’s call for a summit to negotiate a joint budget plan—building on the solid groundwork of the two commissions—they may be able to achieve a game-changing breakthrough. That assumes, however, that they want the game to change and that they could get other party leaders and partisan guardians and to go along with the idea. The commissions showed that people of differing perspectives can reach consensus if they enter into the process with a determination to reach an agreement for the common good. Moreover, the public is willing to accept the necessary sacrifices to build a better future if they understand the magnitude of the problem and the realistic trade-offs among the options. The missing element is political leadership. Obama, Ryan and Conrad can fill the void.

 New Jersey Pension Gap Hits $54 Billion. – New Jersey’s pension gap grew to $53.9 billion in the last fiscal year, up from $45.8 billion, thanks to market losses and a lack of state funding, according to figures released Thursday. Gov. Chris Christie’s administration said the gap, which reflected the state’s investment positions as of June 30, highlighted the need for proposed cuts to current public workers’ pensions. The $53.9 billion figure reflects the difference between the retirement benefits the state has promised to roughly 780,000 state and local workers over the next few decades and the amount on hand to pay those benefits. In addition, an accounting practice called “smoothing” allows the state to factor market gains and losses over several years — meaning pension funds, on paper, are still feeling the effect of the 2008 market crash.
 Christie, a Republican, wants to reverse a 9% pension bump workers received in 2001 under a Republican administration.

Who Committed Excess Borrowing? – With a hat tip to Rebecca’s post below, normalized borrowing growth in several sectors over the past 25 years. (Source: FRB Flow of Funds data) Yes, there are three very similar (shades of blue) lines—but they are all household and non-profit data. (The growth in "credit market instruments" is, presumably, primarily driven by the non-profit sector.) Note also that borrowing in the non-financial sector (the red line) has the flatest line of all (it’s at the top through the early 1990s and near the bottom as of last year. Compare this with Mike Konczal’s graphic of corporate profit shares over the same period (h/t Brad DeLong) and there is a fairly clear case that accusations from bankers that consumers are suffering because of their foolish, excessive borrowing is a case of a very grimy pot talking to a copper kettle.

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