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Why Low Inflation Seems High
Tweet Share on Facebook January 27, 2011 Comment (6)Does Ben Bernanke ever buy gas? Or shop at the supermarket?
If he did, the Federal Reserve Chairman would probably know that a lot of everyday items have gotten more expensive lately. Yet the Federal Reserve—whose primary job is to control inflation, along with unemployment—isn't worried at all about rising prices. If anything, the Fed is worried that inflation is too low, not too high. "Measures of underlying inflation have been trending downward," the Fed reported in its latest update on the economy. "Longer-term inflation expectations have remained stable."
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A User's Guide to Government Spending Cuts
Tweet Share on Facebook January 27, 2011 Comment (1)If Democrats and Republicans agree that government spending needs to be slashed, it should start happening sometime soon, right?
[See why you might be better off than you think.]
Naaaaah. President Obama has outlined one type of spending plan, Republicans another. There's some overlap, which could yield minor cuts this year or next, but the two sides still have major differences that are likely to prevent any big changes in government. Obama wants to cut some spending while doubling down on other areas he considers pillars of the future economy, such as clean energy, biomedicine, information technology, and education. Republicans say we can't even afford that, and need to cut just about everything in sight. Since the dickering is likely to last for months (or years), here's a tip sheet on what's coming and how ordinary folks should prepare:
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4 Things Washington Might Accomplish This Year
Tweet Share on Facebook January 25, 2011 CommentRepublicans and Democrats might sit together every now and then, but that doesn't mean they'll get much done. In fact, 2011 could be a year of historic inaction in Washington.
[See why you might be better off than you think.]
Republicans would love to unravel healthcare reform, the Dodd-Frank financial reforms, and several other initiatives passed during President Obama's first two years. But Democrats who still control the Senate will bat down the Republicans' counter-reform efforts, and if they didn't, Obama would veto them anyway. There will also be lots of talk about slashing spending, to start paying down the crushing national debt. But few politicians will have the guts to vote for real spending cuts in the run-up to the big presidential election in 2012.
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Why Talk Trumps Action on 4 Economic Priorities
Tweet Share on Facebook January 25, 2011 CommentThe Republicans who took control of the House of Representatives this year used their first major legislative act—a vote to repeal the 2009 healthcare reform law—to come down firmly against big government programs. But they may have set an unwitting precedent for the entire year in Washington: Symbolism trumps substance.
[See why you might be better off than you think.]
As everybody inside the Beltway knows, the bill to repeal President Obama's signature healthcare reform has no future, because the Senate—still controlled by Democrats—won't approve it, plus President Obama would veto it if they did. If Republicans end up winning both houses of Congress in 2012—plus the White House—it might be a different story. But they'd have to start the process all over again in 2013, which makes this year's repeal effort a pure political stunt.
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More Things We Might Have to Give Up
Tweet Share on Facebook January 21, 2011 Comment (3)It can be hard to tell what's worth paying attention to in Washington, and what's safe to ignore. The recent vote in the House of Representatives on the misnamed "Repealing the Job-Killing Health Care Law Act," for instance, was a symbolic act by Republicans determined to institutionalize their opposition to President Obama's health-reform law. Even though it passed in the House, it has no hope of passage in the Senate, which is still controlled by Democrats. So if you bought the hype and caught all the proceedings on C-Span, you invested your time in a bit of Potemkin politicking.
[See why you might be better off than you think.]
Other Beltway maneuvers, however, should get everybody's attention, and those include the mounting pile of plans for reducing the ballooning national debt and making the federal government solvent again. Budget politics are impossibly arcane, with spending on thousands of programs controlled by mandarins on Capitol Hill and their special-interest cronies, all of whom excel at the dark art of disguising how they spend your money. Yet Washington's borrowing binge is almost over, and the endgame will directly affect millions of Americans. We're going to pay more in taxes and get less back from our government. So if you've been thinking of enhancing your civic involvement, now might be a good time.
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5 Reasons to Stop Fearing China
Tweet Share on Facebook January 21, 2011 Comment (161)Its economy is going gangbusters, and it barely felt the global recession that has left the world's most advanced nations with a nasty hangover. It has cornered the market on some of the world's most valuable minerals. It has a fancy new stealth fighter, proof that it can turn out world-class technology. And its parents are raising overachieving kids who seem way smarter than the slackers slouching around in America's schools.
[See why you might be better off than you think.]
China is clearly on a roll. President Hu Jintao's recent visit to Washington, replete with a formal state dinner, put China's leader on a par with President Obama and the world's most powerful politicians. Many in China feel it's finally their time to displace America as the world's preeminent power, a turnabout that's on the minds of many Americans, too. In a recent Pew Research poll, an astounding 47 percent of Americans said that China is the world's leading economic power, while just 31 percent felt that the United States is No. 1—a complete reversal of Americans' views just three years ago. As if that's not enough, the new bestseller Battle Hymn of the Tiger Mother, by Amy Chua, trumpets the superiority of demanding, Asian-style parenting over the indulgent coddling that American parents prefer. Now that really hurts.
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Why You Might Be Better Off Than You Think
Tweet Share on Facebook January 20, 2011 Comment (9)There are plenty of things wrong with the U.S. economy, and practically everybody knows what they are. Unemployment is way too high. Pay is stagnant, and raises scarce. Government debt is out of control. For many, it feels like it's harder to get ahead. And America as a whole seems to offer fewer opportunities.
[In pictures: 12 ways our quality of life is improving.]
There's plenty of data that suggests that's all true. Yet America remains one of the most comfortable places in the world to live, and prosperity is still well within many people's reach. It just depends on how you define it.
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When a Tax Hike Is Good News
Tweet Share on Facebook January 13, 2011 Comment (13)If you live in Illinois, you got some jarring news recently: Income taxes are going up by 66 percent.
Politicians usually want to cut taxes and put more money in voters' pockets, not raise taxes and make their constituents' lives harder. So something must be dreadfully wrong to force such a draconian hardship on earnest citizens.
[See 20 industries where jobs are coming back.]
Something is, in fact, wrong in Illinois, which arguably has the most dysfunctional finances of any state in the country. And it's a bad time for any tax increase, given that the economy is still weak and many families are still struggling to get by. But the ability of politicians to make a tough decision like raising taxes, no matter how unpopular, is a perverse kind of good news that suggests a bigger economic disaster may not happen.
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Why $4 Gas Will Cause Less Pain This Time
Tweet Share on Facebook January 12, 2011 Comment (26)When gas prices hit $4 per gallon back in the summer of 2008, America's drivers had a collective breakdown. No other single item affects the American psyche like gas prices, which are advertised on every street corner and magnified by the media every time they hit an uncomfortable threshold. No wonder car sales stalled, consumer-confidence collapsed, and some motorists even mothballed their cars, switching to buses or bicycles to get around.
[See 10 reasons you don't need a hybrid.]
Gas prices retreated during the recession, plunging all the way to $1.60 by the end of 2008—a much-needed break for consumers at a time when many other things were going wrong. But a recovering economy has once again lifted the price of gas above $3, an unusual spike during the winter months, when motorists typically drive less. With the global economy heating up—especially in oil-thirsty China—many forecasters expect oil prices to keep rising, bringing gas prices along with them.
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Why Barnes & Noble Is Thumping Borders
Tweet Share on Facebook January 10, 2011 Comment (12)Some corporate battles go on for years, with titans vying for dominance in endurance races where the lead can routinely change hands: Apple v. Microsoft. Dell v. HP. Boeing v. Airbus.
[See 20 companies that cratered in 2010.]
But other battles are more like a war of attrition, an all-or-nothing fight with the spoils going to the last man standing. That may be the kind of struggle that Borders Group and its main rival, Barnes & Noble, are locked into. The book business, of course, is rapidly changing, thanks to the same digital technology that has transformed the music, news, travel, and entertainment industries. That has left the big, traditional booksellers fighting to stay in business—with Barnes and Noble now starting to look like a lone survivor. Both big retail chains struggled during the recession, closing stores, revamping their strategies, and enhancing their digital offerings. Barnes and Noble now seems to be rebounding, with a surge in retail and online sales during the December holiday season. December 23, in fact, was the biggest sales day ever for the nation's largest bookstore chain.
Rick Newman
The global economy is mysterious, even scary. Chief Business Correspondent Rick Newman connects the dots. In addition to his writing for U.S. News, Rick is the co-author of two books: Firefight: Inside the Battle to Save the Pentagon on 9/11, and Bury Us Upside Down: The Misty Pilots and the Secret Battle for the Ho Chi Minh Trail.
Read Rick's latest blog entries here.
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