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The Recession That Wasn't
Tweet Share on Facebook May 9, 2008 Comment (34)Recession? Where? Looking back months from now, we may find that the economy grew 0.6 percent in the fourth quarter of 2007, 1.2 percent in the first quarter of this year, and 2.5 percent (according to a model from Macroeconomic Advisers) in the second quarter. Now my buddy Barry Ritholtz over at the Big Picture blog has criticized me and economist Brian Wesbury and CNBC's Larry Kudlow for having the temerity to conclude that since the economy expanded in the first quarter—gross domestic product rose at a 0.6 percent annual pace, according to preliminary government estimates—that the economy, well, expanded in the first quarter. (FYI: That initial take may have underestimated first-quarter growth by half given today's economic data, which showed a closing of the U.S. trade gap.)
Ritholtz goes on to note that of the 11 post-World War II recessions, four started with positive-growth quarters, two were flattish, and five were negative. Now all this may sound crazy if you had ever heard that recessions were defined as back-to-back quarters of negative growth. Indeed, by that measure, the 2001 recession was not a recession at all. But the National Bureau of Economic Research uses a more complex calculation. From the NBER website:
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Hillary Clinton, Madame Vice President
Tweet Share on Facebook May 8, 2008 Comment (130)A Barack Obama-Hillary Clinton ticket is an idea that I have been promoting as a real political possibility—to much skepticism, I admit. But none other than my fellow Greek-American George Stephanopoulos also thinks it could happen: "I mean, first of all, would Senator Obama go for it? Can he get over the bitterness of this campaign? Can he be convinced that it's the strongest ticket? Third, of course, would Senator Clinton take it? I think if it was offered in the right way, yes."
I think a guy like Sen. Jim Webb of Virginia would be a logical pick—downscale appeal, a Vietnam vet, defense background as a Navy secretary under Ronald Reagan, from a swing state. Currently, the Intrade betting market gives "the field" the best odds of getting picked, at 35 percent. That means someone (Claire McCaskill? Ed Rendell? Colin Powell?) other than listed potential candidates Hillary, Webb, John Edwards, Bill Richardson, Al Gore, Wes Clark, Mark Warner, Evan Bayh, Joe Biden, Sam Nunn, Ted Strickland, Tom Daschle, Chris Dodd, Tom Vilsack, and John Kerry. Of that group, Hillary is in first with 18 percent, and Webb second at 11 percent.
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Tracking Our Recession Obsession
Tweet Share on Facebook May 8, 2008 CommentCouncil of Economic Advisers Chairman Edward Lazear on the state of the economy (via the Wall Street Journal): "I would be very surprised if the [National Bureau of Economic Research], looking back at this period, would date this as a recession.... There are even indications that revised first-quarter estimates would be slightly stronger than 0.6%. The optimists seem to have been closer to right on that than the pessimists."
And this economic nugget from today's data, as interpreted by the econ team at JPMorgan Chase:
Initial jobless claims declined to 365,000 in the week ending May 3 from 383,000 the prior week, and the four-week average edged up to 367,000 from 364,500. Jobless claims have been especially volatile in recent months, though looking through the noise claims have remained close to 375,000. While claims are elevated, it is comforting and somewhat surprising that they have only pierced the 400,000 level once this year.
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Fiscal Stimulus, Rebates, and the Economy
Tweet Share on Facebook May 8, 2008 Comment (1)How much will the fiscal stimulus package help the economy? The computer model over at Macroeconomic Advisers gives this answer:
The economic stimulus that we expect from these rebates is a key determinant of the GDP growth profile in our forecast. We assume that households (on average) spend about 40% of the rebates within several months of receiving them. This provides a very important boost to consumption growth through the middle of the year. With that boost, and the other (less important) aspects of the package, we expect the fiscal package to add about 2 percentage points to real GDP growth in both the second and third quarters.
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Can the Economy Survive $200-a-Barrel Oil?
Tweet Share on Facebook May 7, 2008 Comment (50)It's an economic experiment I would rather not take part in: seeing how $200-a-barrel oil would affect the U.S. and global economy. "The possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months, though predicting the ultimate peak in oil prices as well as the remaining duration of the upcycle remains a major uncertainty'' is what Goldman Sachs economist Arjun Murti wrote earlier this week. (Note that Murti blames the weak dollar for a good part of the continuing rise in oil prices.)
Murti is hardly alone in such seemingly spectacular speculation. Analysts at Deutsche Bank and CIBC World Markets, investor Jimmy Rogers, and the current president of OPEC have all made such forecasts.
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The American Growth Machine Restarts
Tweet Share on Facebook May 7, 2008 CommentThe latest data show that U.S. worker productivity increased at a 3.2 percent year-over-year rate in the first quarter after rising 2.9 percent in the fourth quarter of 2007 and 2.8 percent in the third quarter. Why is this encouraging? Economist Jim Glassman over at JPMorgan Chase tells us why (bold is mine):
There is a common perception among Americans that something bad is going on that is eroding our living standards. This is pure poppy kapoodle. Productivity is the key to rising living standards... it is a fundamental law of nature. It is how we in the West rose from poverty to the high living standards we enjoy today during the Industrial Revolution and it is why others around the world are trying to do the same. It is through productivity growth, not protectionism, that we in the West can best boost our living standards amid a more competitive global economy.
My take: Every presidential debate should feature multiple questions on what the candidates think needs to be done to increase innovation, productivity, and growth. Every problem America has is harder to deal with if we fail to maximize all those things.
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Climate Taxes vs. Corporate Taxes
Tweet Share on Facebook May 7, 2008 CommentHere's the deal: Barack Obama wants to do a cap-and-auction system on carbon emission allowances, which would bring in $100 billion a year or more to Uncle Sam. Cutting the corporate income tax rate from 35 percent to 25 percent would "cost" $100 a billion a year. John McCain's cap-and-trade proposal—where the allowances are mostly given away—might be scored by the Congressional Budget Office as revenue neutral. If McCain wants a cap-and-auction system, could he not offset his corporate income tax cut with those cap-and-auction revenues?
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Obama Really Is (Ted) Kennedyesque
Tweet Share on Facebook May 6, 2008 Comment (38)"It turns out Obama really is the black Kennedy—but he's not Jack, he's Teddy," is how one economic conservative, in a chat with me, riffed on the common description of Barack Obama as the "black JFK."
What did he mean by that crack? This: Despite Obama's impressive oratorical skills and tremendous likability, his actual policy proposals are pretty much what Democrats have been running on for a generation: higher taxes on labor, capital, and corporations. (Recall that JFK pushed for sweeping income tax cuts.) More government involvement in healthcare. More regulation of business. Skepticism about free trade.
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10 Reasons to Feel Good About the Economy
Tweet Share on Facebook May 5, 2008 Comment (2)Want a bit of good news? Hey, I've got 10 of them for you.
1) "The worst of the crisis in Wall Street is over," Warren Buffett told Bloomberg Television over the weekend. I guess the Oracle of Omaha is in the "recession, not depression" "club.
2) I got an E-mail from one high-profile Wall Street economist who said that first-quarter gross domestic product may have expanded at nearly twice the 0.6 percent rate that the government estimated last week. And his whisper estimate for 2Q is even stronger.
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What Democrats Won't Tell You About Climate Change
Tweet Share on Facebook May 2, 2008 Comment (14)Has there ever been a more timely natural catastrophe than climate change? I mean, here we all are worrying about the future of the American economy—too much debt, jobs and industries moving overseas, new competitors in Asia and India—when what merrily comes along is a perceived civilizational challenge whose solution will not only create a better environment but also—talk about luck!—millions of those high-paying "green-collar" jobs and innovative new industries of the future that Barack Obama and Hillary Clinton have been talking about. As Clinton said in one presidential debate, "This issue of energy and global warming has the promise of creating millions of new jobs in America. It can be a win-win, if we do it right."
Heck, if climate change was a sham, it almost seems that it would be worthwhile to fabricate it, given all the apparent economic benefits. Then again, maybe not. Here is what William Pizer, an economist at Resources for the Future and a lead author on the most recent report from the U.N.'s Intergovernmental Panel on Climate Change, said at a symposium earlier this week here in Washington: "As an economist, I am skeptical that [dealing with climate change] is going to make money. You'll have new industries, but they'll be doing what old industries did but a higher net cost.... You'll be depleting other industries."
