Promising Developments and a Reminder of the Importance of Data

Now that the elections are behind us and the political gamesmanship and biased data-based assertions can be quieted, we hopefully can get down to the business of governing. I am very encouraged by the President being returned to the White House as the unbiased data shows our imperfect President has actually done a much better job in managing our economy than others have led you to believe. The economy has been slowly improving over the past many months, with improving housing markets and a return of the stock market since the crisis in the fall of 2008. However, he did a poor job of managing expectations.

Per the study of 18 historical housing led financial crises, presented in December, 2008 by professors Carmen Reinhart (University of Maryland) and Kenneth Rogoff (Harvard University), the average housing turnaround takes six years, so that would take us through the end of 2013, on average. They also note the equity markets recover more quickly and the unemployment numbers improve following that, which they have and are. The reference to a jobless recovery is not unheard of. For more summary, please refer to an earlier post on May 9, 2012 called “Managing Expectations – The Aftermath of the Financial Crisis.”

Yet, we are not out of the woods and we have this self-made fiscal crisis looming at year-end, when all the tax breaks end at one time and the severe spending cuts occur. And, what happens in Europe and China affect us even more. Yesterday’s stock market correction was more due to the travails in Europe that reverberate here. And, truth be told, when China falls from 10% GDP growth to 7% like it has, it impacts us more than other changes. So, we have and are making progress in light of global economic concerns. Falling off this cliff at year-end would be intellectually interesting as it abruptly does on an immediate basis what needs to be done in a concerted but planned basis. The concern is it is predicted to take us back into a recession, so we should not ignore those warnings. We must thoughtfully address these issues and need both sides at the table to avoid the cliff, but use it as the lever to make longer term changes.

I am encouraged that Speaker John Boehner has publicly stated his willingness to work with the President. I am encouraged that the President has reached out to the Congressional leaders. That truly is the most significant mandate that the American people have asked them to do. Act like Governor Chris Christie and President Obama did on the initial Hurricane Sandy response. That is how you are supposed to act. We do not want the leaders to act like Senators McConnell and Reid per my last post on the “60  Minutes” piece. We do not want leaders to avoid compromise. We need thoughtful spending cuts and increases to revenue.

Yet, we need to act with good data in mind. Here are a couple of data points I have repeatedly mentioned from earlier posts from people much smarter than me.

– We have a lot of room to increase revenue from taxes and that has to be considered in some fashion. This was included in the Simpson-Bowles Deficit Reduction Plan. Per the well-respected, Paris based Organization for Economic Cooperation and Development (OECD), the US is one of the least taxed countries in the world, tracking at 32nd out of 34 countries measured since at least 1965. Our Tax revenue per GDP was 24.1% in 2009 versus the average of the 34 countries of 33.8%. In 2000, the year before the Bush Tax cuts and when we were last in a surplus budget, it was at 29.5% versus the average of 35.3% for these 34 countries. That 5.4% difference in ratio from 2000 to 2009 makes a huge difference on our deficit. For more information, please refer to an earlier post on May 19, 2012, “What Kind of Tea is the Tea Party Drinking?”

– We have to create more jobs and they are increasing. To my GOP friends, the first stimulus did not fail. The election is over. Per Michael Grunwald, Senior Editor of Time magazine, he reported that six non-partisan economists – JP Morgan Chase, Moody’s, Macroeconomics Advisors, IHS Global Insight, Economy.com, and the Congressional Budget Office (CBO) – said the stimulus created 2.5 million jobs, improved GDP by 2% and kept us out of a depression. It was classic Keynesian economics. We actually need more of this and need it to build infrastructure. Please note all borrowing is not equal. When you borrow to build an asset such as a bridge, highway or electrical grid, it is much different from borrowing to pay for operations. This is America’s history of public/ private partnerships to invest in our future. For some reason, this debate took a very unproductive tone by people who should know better. History has proven these measures create jobs as the government aid the investment and private industry builds on that investment and hires people. For more on this article, please refer to an earlier post on August 26, 2012, “Another Big Hairy Audacious Lie – Failed Stimulus.”

– We have 46 million Americans in poverty. This is not just a middle class issue, as many have moved into this category. Per a recent Harris Poll, 47% of Americans are living paycheck to paycheck. Per the book I have written two posts last month about – “The Rich and the Rest of Us – A Poverty Manifesto”  by Tavis Smiley and Cornel West, we have to be mindful of the two Americas. And, to bring this issue home, let me repeat a statistic from their book meant for shock effect – 70% of food stamp recipients in America are white. Poverty knows no color and will harm anyone. It should be defined by what it is – poverty is the lack of money. I mention these final set of data points as we cannot gut programs to help those in need. We need to be smart about what and where we cut, but we must make some cuts. We need to help people climb a ladder out of poverty, as that will lead us to recovery for them and our country. We should focus on that mission as we look to spend our money more judiciously.

I go back to the Simpson-Bowles Deficit Reduction Plan. The blue print is in there. We do need to make some cuts, but we do need to raise revenue. People do not want the latter, but we have been living off debt for too long. We must pay for what we have spent. For politicians to say otherwise is poor stewardship.  I hope our politicians will be wise stewards and work together to make this happen. And, I hope they will use real data to support those decisions. We need them to.

Advertisements

6 thoughts on “Promising Developments and a Reminder of the Importance of Data

  1. We do need to come to some sort of compromise that will include spending cuts and tax increases on those making over $250,000.

    “Compromise” was short lived with both Speaker Boehner, House Majority Leader Eric Cantor, and Senate Republican Leader Mitch McConnell. It seems that “compromise” was presented as the White House going along with what they want. Boehner cited the failed policies of 1986 as being the “exemplary model” and even tweeted this morning that “raising taxes is a nonstarter.” McConnell said in a statement that the President needs to propose solutions that “actually have a chance of passing the Republican controlled house and a closely divided Senate”.

    They are just doubling down on their positions and allegiance to the Anti Tax Pledge they have all signed.

    • McConnell is not going to play ball as it is not in his nature. Hopefully, Boehner will be more willing to compromise and deliver his constituents. Thanks for commenting. BTG

  2. I really can’t see any end to the gridlock. There are egos involved and favors to pay back after a very expensive election. Loyalty for this Congress is to party and corporations, not to country. I agree with Roseylinn. Sorry.

    • Unfortunately, we need for you to be wrong on this. I hope they realize this, but will likely not. I see a busy time just before New Years. I would hate to be in a payroll department. Thanks as always for your comments, BTG

      • It will be interesting to see if this Congress renews the subsidies for solar energy before the end of the year. That may be a litmus for what happens in the coming years.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s