(Everyone knows that the govt unemployment figures are wrong, that they don't include those whose unemployment benefits ahve run out and those who have been unemployed longer than 6 months. I wish people would stop using that skewed govt rate and use the real number, which is around 20% and upwards of 22%, according to some figures.--jef)
Worse Than Ever
By DEAN BAKER
It has been two-and-a-half years since the recession officially began in the United States. While the economy has been growing for more than a year, unemployment remains near the 10.1 percent peak of October 2009. Few economists predict a rapid decline from its June level of 9.5 percent and, with stimulus being phased down over the next year, it is very plausible that the rate will edge higher in coming months.
The US, unlike most western European countries, is not set up to sustain long periods of high unemployment. Its system of social welfare is very much centered on work. This is most evident with health care. The vast majority of non-elderly people get their health care through employer provided health insurance. Individual policies tend to be very expensive, especially for people with any history of medical problems. When people lose their jobs, they generally lose their health care coverage as well. While there is a public program for low-income families, it doesn’t cover most of the unemployed, and the quality is often quite poor.
The same is true of other forms of public support. The US was never very generous to people who are not working, and it has become less so in the last three decades. That is why the prospect of a prolonged period of high unemployment in the US is likely to mean serious hardship for large numbers of people.
The unemployment seen in this recession is already as bad as in the worst previous post-war recession, and it is almost certain to linger much longer. In the 1981-82 recession, unemployment in the US peaked at 10.8 percent in December 1982. However, the economy turned sharply upward at the beginning of 1983, and the unemployment rate fell back quickly. By July 1983 the unemployment rate was down to 9.4 percent, and it had fallen to 8.3 percent by the end of the year.
There is little prospect for a similar turnaround in this downturn. While the unemployment rate has edged down slightly since its October peak, most forecasts show the rate remaining nearly constant or just falling modestly over the next year and a half. Most official projections show the unemployment rate remaining well above its normal level until 2015 or 2016.
It is also worth noting that the same level of official unemployment implies a considerably worse labor market situation today than in the early 1980s. This is due to changes in the age composition of the labor force and also a declining coverage rate for the labor force survey used to measure unemployment.
The change in the age composition is fairly straightforward. In the 1981-82 recession, the huge baby boom cohort was mostly in its 20s or early 30s. The youngest were still teenagers. Workers at these ages have few financial and family commitments and therefore tend to change jobs more frequently. As a result, we expect to see higher rates of unemployment among younger workers. By contrast, the baby boomers are now mostly in their late 40s or 50s, ages at which workers very infrequently change jobs. Therefore we should expect a lower unemployment rate at present compared with 30 years ago.
If we look at unemployment by age group, it turns out that for every age cohort the unemployment rate is higher at present than it was at the peak unemployment rates of the 1981-82 recession. This means that on an age-adjusted basis the unemployment rate in this recession has already been much worse than during the recession that had prior claim to being the worst in the post-World War II era.
The aging of the population is not the only issue that affects the measure of unemployment. The coverage rate of the Current Population Survey (CPS), the labor force survey used to measure the unemployment rate, has fallen sharply over the last three decades. In the early 80s more than 95 percent of the population was covered by the survey. In recent years, the coverage rate has slipped to 88 percent. This decline in coverage would not matter if the people who are excluded from the survey are similar to the people who are covered.
However, we have good reason for believing this is not the case. The groups that face the highest unemployment rates (e.g. young African-American men) also have the lowest coverage rate. Using a comparison with Census data from the 2000 Census, my colleague John Schmitt concluded that the fall in coverage rates is likely to lead to an understatement of the unemployment rate of approximately 0.2 percentage points. This means that if we adjust for both age composition and declining coverage rates, the current unemployment rate would be comparable to an 11 percent measured unemployment rate in 1981-82.
Europe: From unemployment to partial employment
While the downturn has led to high and prolonged unemployment in the US, it has not had quite the same effect in Europe. Although the overall unemployment rates are very similar at present, the European average is inflated by the 20 percent unemployment figure for Spain, which adds more than a full percentage point to the EU average. It is also important to remember that the EU started the downturn with an unemployment rate that was two percentage points higher than in the US. This means that the recession led to a much sharper rise in unemployment in the US than in Europe. This is in spite of the fact that Europe has actually seen a sharper decline in GDP than the US.
One of the main reasons for the difference is that several European countries, most notably Germany and the Netherlands, have adopted a policy of work sharing to limit unemployment. The basic logic of work sharing is very simple. Under a standard system of unemployment insurance, workers are paid out benefits only if they are completely unemployed. In effect, the government is paying workers for being unemployed.
Under work-sharing schemes, instead of just paying workers for being completely unemployed, the government pays workers for being partly unemployed. In the standard model used in Germany, if a firm cuts workers hours by 20 percent, then the government covers 60 percent of the lost wages or 12 percent of the total wage. The employer is expected to pick up another 20 percent of the lost wages or four percent of the total wage. The worker is then left with four percent less pay but is working 20 percent less time. Since this likely corresponds to working a four-day week rather than a five-day week, savings on commuting and other work-related expenses may come close to offsetting the cut in pay.
Germany has been able to use this system to keep its unemployment rate from rising at all in the recession. In fact, its unemployment rate is slightly lower today than it was at the start of the recession. The Netherlands, which has also aggressively pursued a work-sharing policy, has seen a modest rise in unemployment, but its unemployment rate was still just 4.1 percent in the most recent data.
The success of Germany and the Netherlands thus far in protecting their workers from unemployment in such a steep downturn is a remarkable step forward in macroeconomic policy. It would be best of course to avoid recessions altogether, but if their impact on employment can be offset to the extent accomplished by these two countries, then it would be an enormous accomplishment.
In the US workers are seeing near double-digit unemployment with the implied loss of income and benefits, as well as the loss of self-esteem and social status that is associated with long-term unemployment. By contrast, workers in Germany and the Netherlands are adjusting to the falloff in demand with shorter workweeks and longer vacations. This is a great model and with luck it will quickly be adopted throughout the EU.
It may take a bit longer to see work sharing catch on in the US. While 15 million are unemployed, none of the people responsible for the recession are in that category. Economic policymakers are not given their jobs based on performance nor do they lose them as a result of bad performance. Therefore, we are likely to see far more suffering in this recession in the US than in Europe as the unemployment rate remains high for several more years.
Monday, July 19, 2010
Sunday, July 18, 2010
Netanyahu admits on video he deceived US to destroy Oslo accord
07-18-2010 | Source: The National
vidlink
NAZARETH // The contents of a secretly recorded video threaten to gravely embarrass not only Benjamin Netanyahu, the Israeli prime minister but also the US administration of Barack Obama.
The film was shot, apparently without Mr Netanyahu’s knowledge, nine years ago, when the government of Ariel Sharon had started reinvading the main cities of the West Bank to crush Palestinian resistance in the early stages of the second intifada.
At the time Mr Netanyahu had taken a short break from politics but was soon to join Mr Sharon’s government as finance minister.
On a visit to a home in the settlement of Ofra in the West Bank to pay condolences to the family of a man killed in a Palestinian shooting attack, he makes a series of unguarded admissions about his first period as prime minister, from 1996 to 1999.
English translation below:
vidlink
NAZARETH // The contents of a secretly recorded video threaten to gravely embarrass not only Benjamin Netanyahu, the Israeli prime minister but also the US administration of Barack Obama.
The film was shot, apparently without Mr Netanyahu’s knowledge, nine years ago, when the government of Ariel Sharon had started reinvading the main cities of the West Bank to crush Palestinian resistance in the early stages of the second intifada.
At the time Mr Netanyahu had taken a short break from politics but was soon to join Mr Sharon’s government as finance minister.
On a visit to a home in the settlement of Ofra in the West Bank to pay condolences to the family of a man killed in a Palestinian shooting attack, he makes a series of unguarded admissions about his first period as prime minister, from 1996 to 1999.
English translation below:
Bibi:...The Arabs are currently focusing on a war of terror and they think it will break us. The main thing, first of all, is to hit them. Not just one blow, but blows that are so painful that the price will be too heavy to be borne. The price is not too heavy to be borne, now. A broad attack on the Palestinian Authority. To bring them to the point of being afraid that everything is collapsing...
Woman: Wait a moment, but then the world will say "how come you're conquering again?"
Netanyahu: the world won't say a thing. The world will say we're defending.
Woman: Aren't you afraid of the world, Bibi?
Netanyahu: Especially today, with America. I know what America is. America is something that can easily be moved. Moved to the right direction.
Child: They say they're for us, but, it's like...
Netanyahu: They won't get in our way. They won't get in our way.
Child: On the other hand, if we do some something, then they...
Netanyahu: So let's say they say something. So they said it! They said it! 80% of the Americans support us. It's absurd. We have that kind of support and we say "what will we do with the..." Look. That administration [Clinton] was extremely pro-Palestinian. I wasn't afraid to maneuver there. I was not afraid to clash with Clinton. I was not afraid to clash with the United Nations. I was paying the price anyway, I preferred to receive the value. Value for the price.
In the following segment, Bibi boasts about how he emptied the Oslo Accords of meaning by an interpretation that made a mockery of them:
Woman: The Oslo Accords are a disaster.
Netanyahu: Yes. You know that and I knew that...The people [nation] has to know...
What were the Oslo Accords? The Oslo Accords, which the Knesset signed, I was asked, before the elections: "Will you act according to them?" and I answered: "yes, subject to mutuality and limiting the retreats." "But how do you intend to limit the retreats?" "I'll give such interpretation to the Accords that will make it possible for me to stop this galloping to the '67 [armistice] lines. How did we do it?
Narrator: The Oslo Accords stated at the time that Israel would gradually hand over territories to the Palestinians in three different pulses, unless the territories in question had settlements or military sites. This is where Netanyahu found a loophole.
Netanyahu: No one said what defined military sites. Defined military sites, I said, were security zones. As far as I'm concerned, the Jordan Valley is a defined military site.
Woman: Right [laughs]...The Beit She'an Valley.
Netanyahu: How can you tell. How can you tell? But then the question came up of just who would define what Defined Military Sites were. I received a letter -- to me and to Arafat, at the same time -- which said that Israel, and only Israel, would be the one to define what those are, the location of those military sites and their size. Now, they did not want to give me that letter, so I did not give the Hebron Agreement. I stopped the government meeting, I said: "I'm not signing." Only when the letter came, in the course of the meeting, to me and to Arafat, only then did I sign the Hebron Agreement. Or rather, ratify it, it had already been signed. Why does this matter? Because at that moment I actually stopped the Oslo Accord.
Woman: And despite that, one of our own people, excuse me, who knew it was a swindle, and that we were going to commit suicide with the Oslo Accord, gives them -- for example -- Hebron...
Netanyahu: Indeed, Hebron hurts. It hurts. It's the thing that hurts. One of the famous rabbis, whom I very much respect, a rabbi of Eretz Yisrael, he said to me: "What would your father say?" I went to my father. Do you know a little about my father's position?
...He's not exactly a lily-white dove, as they say. So my father heard the question and said: "Tell the rabbi that your grandfather, Rabbi Natan Milikowski, was a smart Jew. Tell him it would be better to give two percent than to give a hundred percent. And that's the choice here. You gave two percent and in that way you stopped the withdrawal. Instead of a hundred percent." The trick is not to be there and be broken. The trick is to be there and pay a minimal price."
At a point in the middle of the video Netanayhu asks the camera man to stop taping, but he continues...
Netanyahu says what he really thinks for the first time:
He brags about how easy is to manipulate the USA and he proudly explains how he sabotaged the Oslo processhttp://www.haaretz.com/print-edition/...
Dangerous Allies: Big Business and Big Government
by RonPaul on July 18, 2010
Last week ended with some promising news on finally stopping the oil spill in the Gulf of Mexico. Unfortunately the administration still seems to believe that shutting down working oil wells is a higher priority than effectively dealing with the broken one. They are again issuing a moratorium on offshore drilling while maintaining a de facto ban on new permits even for shallow water drilling which they previously stated would not be affected. The courts have twice declared this unconstitutional, over 70% of the people see this as unreasonable, yet the administration seems determined to simply end offshore drilling, at least for those producers that cannot afford to sit idle for any unknown period of time until the ban is lifted.
Whether or not this latest effort will hold up in court is yet to be seen. Sadly, many smaller oil producers in the Gulf see the writing on the wall and instead of waiting around and risking their livelihoods on the whims of American politicians and judges, they are leaving for friendlier business climates. What is happening to this country when the Republic of the Congo is better for business than the United States?
One big factor is regime uncertainty. Regime uncertainty is the opposite of the rule of law. It is the rule of the whims of the people who are in charge and what mood they are in on any particular day. It is usually associated with third world dictatorships and plays a major role in why some countries remain poor. When a business cannot predict whether a government will issue a permit, confiscate or nationalize their capital investments, tax them into bankruptcy or arbitrarily stall their operations, they tend to do business elsewhere. This type of government hostility is not conducive to wealth creation and it is tragic to see it chasing away businesses here when wee need the jobs and productivity more than ever.
When the rule of law is respected it provides business with some measure of predictability so they can plan and operate smoothly. When it is not respected there are just too many variables, too much risk of loss or waste. Of course disregard of the rule of law creates other problems, too. For the larger and better connected businesses it creates the opportunity of regulatory capture. If the government becomes too unpredictable, one business survival strategy is to become so involved in government and regulatory bodies that they effectively gain control over the very entities that are supposed to keep them in line. In other words, if you can’t beat the government, become the government.
A business that achieves regulatory capture is also able to write and implement laws and regulations that they can deal with but its competitors cannot. The eventual outcome is that companies use regulation to drive everyone else out of business until a monopoly is achieved, putting consumers at its mercy. Meanwhile, the people develop a false sense of security, assuming that the many regulatory bodies in place are protecting them. Without respect for the rule of law, however, those bodies and their regulations are more likely protecting and enabling big business at the expense of small business and the consumer. We see this not only with big oil, but big banking, big defense contractors, you name it. That is why especially in a crisis we should uphold the Constitution. It is the ultimate consumer protection from crony corporatism.
Insurers Push Plans That Limit Choice of Doctor
(Seems like even under the new health care bill, things will be pretty much the same. Too many loopholes that let the health insurance corporations have it their way, anyway. A wasted opportunity.--jef)
***
July 17, 2010 By REED ABELSON
As the Obama administration begins to enact the new national health care law, the country’s biggest insurers are promoting affordable plans with reduced premiums that require participants to use a narrower selection of doctors or hospitals.
The plans, being tested in places like San Diego, New York and Chicago, are likely to appeal especially to small businesses that already provide insurance to their employees, but are concerned about the ever-spiraling cost of coverage.
But large employers, as well, are starting to show some interest, and insurers and consultants expect that, over time, businesses of all sizes will gravitate toward these plans in an effort to cut costs.
The tradeoff, they say, is that more Americans will be asked to pay higher prices for the privilege of choosing or keeping their own doctors if they are outside the new networks. That could come as a surprise to many who remember the repeated assurances from President Obama and other officials that consumers would retain a variety of health-care choices.
But companies may be able to reduce their premiums by as much as 15 percent, the insurers say, by offering the more limited plans.
“What we’re seeing is a definite uptick in interest because, quite frankly, affordability is the most pressing agenda item,” said Dr. Sam Ho, the chief medical officer for UnitedHealth’s health-care plans.
Many insurers also expect the plans to be popular with individuals and small businesses who will purchase coverage in the insurance exchanges, or marketplaces that are mandated under the new health care law and scheduled to take effect in 2014.
Tens of millions of everyday Americans will buy their coverage through those exchanges, a vast pool of new customers, including many of the previously uninsured, whom insurers expect will be willing to accept restrictions to get a better deal.
“What this does is eliminate the Gucci doctors,” said Peter Skoda, the controller of the Haro Bicycle Corporation, a Vista, Calif., business that employs 30 people. Facing a possible 35 percent increase in its rates, Haro switched to an Aetna plan that prevents employees from seeing doctors at two medical groups affiliated with the Scripps Health system in San Diego. If employees go to one of the excluded doctors, they are responsible for paying the whole bill.
“There wasn’t any pushback,” Mr. Skoda said. Haro’s employees are generally young and healthy, he said, and they rarely go to the doctor. Instead, they want to make sure they have adequate coverage if they go to the emergency room.
The company’s premiums average $433 a month, Mr. Skoda said, with employees paying one-fourth of the expense. A few employees opted for more traditional coverage, enabling them to go where they please. But they are paying significantly higher deductibles and out-of-pocket costs that could add thousands of dollars to their medical bills.
The last time health insurers and employers sought to sharply limit patients’ choice was back in the early 1990s, when insurers tried to reinvent themselves by embracing managed care. Instead of just paying doctor and hospital bills, insurers also assumed a greater role in their customers’ medical care by restricting what specialists they could see or which hospitals they could go to.
“Back in the H.M.O. days, it was tight networks, and it did save money,” said Ken Goulet, an executive vice president at WellPoint, one of the nation’s largest private health insurers, which is experimenting with re-introducing the idea in California.
The concept was largely abandoned after the consumer backlash persuaded both employers and health plans that Americans were simply not willing to sacrifice choice. Prominent officials like Mr. Obama and Hillary Rodham Clinton learned to utter the word “choice” at every turn as advocates of overhauling the system.
But choice — or at least choice that will not cost you — is likely to be increasingly scarce as health insurers and employers scramble to find ways of keep premiums from becoming unaffordable. Aetna, Cigna, the UnitedHealth Group and WellPoint are all trying out plans with limited networks.
The size of these networks is typically much smaller than traditional plans. In New York, for example, Aetna offers a narrow-network plan that has about half the doctors and two-thirds of the hospitals the insurer typically offers. People enrolled in this plan are covered only if they go to a doctor or hospital within the network, but insurers are also experimenting with plans that allow a patient to see someone outside the network but pay much more than they would in a traditional plan offering out-of-network benefits.
The insurers are betting these plans will have widespread appeal in the insurance exchanges as individuals gravitate toward the least expensive options. “We think it’s going to grow to be quite a hit over the next few years,” said Mr. Goulet of WellPoint.
The new health care law offers some protection against plans offering overly restrictive networks, said Nancy-Ann DeParle, head of the office of health reform for the White House. Any plan sold in the exchanges will have to meet standards developed to make sure patients have enough choice of doctors and hospitals, she said.
Ms. DeParle said the goal of health reform was to make sure people retained a choice of doctors and hospitals, but also to create an environment where insurers would offer coverage that was both high quality and affordable. “What the Congress and the president tried to accomplish through reform is to transform the marketplace by building on the existing system,” she said.
But most of these efforts have been limited to a small number of markets. How widespread these plans will become is anybody’s guess, and some benefits consultants wonder if these plans represent any real solution to high medical costs. The narrow network, if it is based on the insurers’ ability to demand low prices, may be “just another short-term fix,” warned Barry Schilmeister, a consultant at Mercer.
What’s more, no one is predicting a wholesale return of the classic H.M.O. as an employee’s only option of health plan. “We went through the choice battle with the managed care wars,” said Andrew Webber, the chief executive of the National Business Coalition on Health, which represents employer groups that purchase health care.
A lot has also changed in the last 15 years. The average premium for family coverage is now more than $13,000 a year, and many businesses have already asked their employees to pay a much greater share of their premiums and more of their overall medical bills.
UnitedHealth is experimenting with a more limited plan in California and Chicago and plans to expand to four or five other markets next year. Patients are allowed to see a doctor who is not in the network the insurer established, but they pay much higher out-of-pocket costs than they would in a traditional plan offering out-of-network benefits.
UnitedHealth is also starting a new plan in San Diego, which was developed for a collection of school districts, representing some 80,000 people. The plan creates tiers of doctors, and employees who use physicians deemed to offer high-quality care at low price will pay the least for their medical care.
Even large employers, worried that the new law will result in higher prices for care as government programs pay less, are reconsidering their earlier stance.
When Cigna informally asked some of its clients about their interest in these plans before the legislation passed, very few were receptive. But that has changed, said David Guilmette, a senior executive for the insurer.
One way insurers say they hope to prevent another consumer backlash is by emphasizing that they are not choosing doctors on price alone. The insurers say they look to see how quickly a doctor’s patients recover from surgery, for example. But how much the insurers emphasize quality remains to be seen.
But many insurers say they are still figuring out how to persuade people to choose these plans rather than force them to enroll. “What’s not changed are the old techniques of black-belt managed care,” said Mark T. Bertolini, Aetna’s president. “We have to create the same kind of model without the ‘Mother, may I.’ What we want is the ‘Mother, should I.’ ”
Administration Now Defends Health Insurance Mandate as a Tax
Changing its Stance
By ROBERT PEAR
WASHINGTON — When Congress required most Americans to obtain health insurance or pay a penalty, Democrats denied that they were creating a new tax. But in court, the Obama administration and its allies now defend the requirement as an exercise of the government’s “power to lay and collect taxes.”
And that power, they say, is even more sweeping than the federal power to regulate interstate commerce.
Administration officials say the tax argument is a linchpin of their legal case in defense of the health care overhaul and its individual mandate, now being challenged in court by more than 20 states and several private organizations.
Under the legislation signed by President Obama in March, most Americans will have to maintain “minimum essential coverage” starting in 2014. Many people will be eligible for federal subsidies to help them pay premiums.
In a brief defending the law, the Justice Department says the requirement for people to carry insurance or pay the penalty is “a valid exercise” of Congress’s power to impose taxes.
Congress can use its taxing power “even for purposes that would exceed its powers under other provisions” of the Constitution, the department said. For more than a century, it added, the Supreme Court has held that Congress can tax activities that it could not reach by using its power to regulate commerce.
While Congress was working on the health care legislation, Mr. Obama refused to accept the argument that a mandate to buy insurance, enforced by financial penalties, was equivalent to a tax.
“For us to say that you’ve got to take a responsibility to get health insurance is absolutely not a tax increase,” the president said last September, in a spirited exchange with George Stephanopoulos on the ABC News program “This Week.”
When Mr. Stephanopoulos said the penalty appeared to fit the dictionary definition of a tax, Mr. Obama replied, “I absolutely reject that notion.”
Congress anticipated a constitutional challenge to the individual mandate. Accordingly, the law includes 10 detailed findings meant to show that the mandate regulates commercial activity important to the nation’s economy. Nowhere does Congress cite its taxing power as a source of authority.
Under the Constitution, Congress can exercise its taxing power to provide for the “general welfare.” It is for Congress, not courts, to decide which taxes are “conducive to the general welfare,” the Supreme Court said 73 years ago in upholding the Social Security Act.
Dan Pfeiffer, the White House communications director, described the tax power as an alternative source of authority.
“The Commerce Clause supplies sufficient authority for the shared-responsibility requirements in the new health reform law,” Mr. Pfeiffer said. “To the extent that there is any question of additional authority — and we don’t believe there is — it would be available through the General Welfare Clause.”
The law describes the levy on the uninsured as a “penalty” rather than a tax. The Justice Department brushes aside the distinction, saying “the statutory label” does not matter. The constitutionality of a tax law depends on “its practical operation,” not the precise form of words used to describe it, the department says, citing a long line of Supreme Court cases.
Moreover, the department says the penalty is a tax because it will raise substantial revenue: $4 billion a year by 2017, according to the Congressional Budget Office.
In addition, the department notes, the penalty is imposed and collected under the Internal Revenue Code, and people must report it on their tax returns “as an addition to income tax liability.”
Because the penalty is a tax, the department says, no one can challenge it in court before paying it and seeking a refund.
Jack M. Balkin, a professor at Yale Law School who supports the new law, said, “The tax argument is the strongest argument for upholding” the individual-coverage requirement.
Mr. Obama “has not been honest with the American people about the nature of this bill,” Mr. Balkin said last month at a meeting of the American Constitution Society, a progressive legal organization. “This bill is a tax. Because it’s a tax, it’s completely constitutional.”
Mr. Balkin and other law professors pressed that argument in a friend-of-the-court brief filed in one of the pending cases.
Opponents contend that the “minimum coverage provision” is unconstitutional because it exceeds Congress’s power to regulate commerce.
“This is the first time that Congress has ever ordered Americans to use their own money to purchase a particular good or service,” said Senator Orrin G. Hatch, Republican of Utah.
In their lawsuit, Florida and other states say: “Congress is attempting to regulate and penalize Americans for choosing not to engage in economic activity. If Congress can do this much, there will be virtually no sphere of private decision-making beyond the reach of federal power.”
In reply, the administration and its allies say that a person who goes without insurance is simply choosing to pay for health care out of pocket at a later date. In the aggregate, they say, these decisions have a substantial effect on the interstate market for health care and health insurance.
In its legal briefs, the Obama administration points to a famous New Deal case, Wickard v. Filburn, in which the Supreme Court upheld a penalty imposed on an Ohio farmer who had grown a small amount of wheat, in excess of his production quota, purely for his own use.
The wheat grown by Roscoe Filburn “may be trivial by itself,” the court said, but when combined with the output of other small farmers, it significantly affected interstate commerce and could therefore be regulated by the government as part of a broad scheme regulating interstate commerce.
By ROBERT PEAR
WASHINGTON — When Congress required most Americans to obtain health insurance or pay a penalty, Democrats denied that they were creating a new tax. But in court, the Obama administration and its allies now defend the requirement as an exercise of the government’s “power to lay and collect taxes.”
And that power, they say, is even more sweeping than the federal power to regulate interstate commerce.
Administration officials say the tax argument is a linchpin of their legal case in defense of the health care overhaul and its individual mandate, now being challenged in court by more than 20 states and several private organizations.
Under the legislation signed by President Obama in March, most Americans will have to maintain “minimum essential coverage” starting in 2014. Many people will be eligible for federal subsidies to help them pay premiums.
In a brief defending the law, the Justice Department says the requirement for people to carry insurance or pay the penalty is “a valid exercise” of Congress’s power to impose taxes.
Congress can use its taxing power “even for purposes that would exceed its powers under other provisions” of the Constitution, the department said. For more than a century, it added, the Supreme Court has held that Congress can tax activities that it could not reach by using its power to regulate commerce.
While Congress was working on the health care legislation, Mr. Obama refused to accept the argument that a mandate to buy insurance, enforced by financial penalties, was equivalent to a tax.
“For us to say that you’ve got to take a responsibility to get health insurance is absolutely not a tax increase,” the president said last September, in a spirited exchange with George Stephanopoulos on the ABC News program “This Week.”
When Mr. Stephanopoulos said the penalty appeared to fit the dictionary definition of a tax, Mr. Obama replied, “I absolutely reject that notion.”
Congress anticipated a constitutional challenge to the individual mandate. Accordingly, the law includes 10 detailed findings meant to show that the mandate regulates commercial activity important to the nation’s economy. Nowhere does Congress cite its taxing power as a source of authority.
Under the Constitution, Congress can exercise its taxing power to provide for the “general welfare.” It is for Congress, not courts, to decide which taxes are “conducive to the general welfare,” the Supreme Court said 73 years ago in upholding the Social Security Act.
Dan Pfeiffer, the White House communications director, described the tax power as an alternative source of authority.
“The Commerce Clause supplies sufficient authority for the shared-responsibility requirements in the new health reform law,” Mr. Pfeiffer said. “To the extent that there is any question of additional authority — and we don’t believe there is — it would be available through the General Welfare Clause.”
The law describes the levy on the uninsured as a “penalty” rather than a tax. The Justice Department brushes aside the distinction, saying “the statutory label” does not matter. The constitutionality of a tax law depends on “its practical operation,” not the precise form of words used to describe it, the department says, citing a long line of Supreme Court cases.
Moreover, the department says the penalty is a tax because it will raise substantial revenue: $4 billion a year by 2017, according to the Congressional Budget Office.
In addition, the department notes, the penalty is imposed and collected under the Internal Revenue Code, and people must report it on their tax returns “as an addition to income tax liability.”
Because the penalty is a tax, the department says, no one can challenge it in court before paying it and seeking a refund.
Jack M. Balkin, a professor at Yale Law School who supports the new law, said, “The tax argument is the strongest argument for upholding” the individual-coverage requirement.
Mr. Obama “has not been honest with the American people about the nature of this bill,” Mr. Balkin said last month at a meeting of the American Constitution Society, a progressive legal organization. “This bill is a tax. Because it’s a tax, it’s completely constitutional.”
Mr. Balkin and other law professors pressed that argument in a friend-of-the-court brief filed in one of the pending cases.
Opponents contend that the “minimum coverage provision” is unconstitutional because it exceeds Congress’s power to regulate commerce.
“This is the first time that Congress has ever ordered Americans to use their own money to purchase a particular good or service,” said Senator Orrin G. Hatch, Republican of Utah.
In their lawsuit, Florida and other states say: “Congress is attempting to regulate and penalize Americans for choosing not to engage in economic activity. If Congress can do this much, there will be virtually no sphere of private decision-making beyond the reach of federal power.”
In reply, the administration and its allies say that a person who goes without insurance is simply choosing to pay for health care out of pocket at a later date. In the aggregate, they say, these decisions have a substantial effect on the interstate market for health care and health insurance.
In its legal briefs, the Obama administration points to a famous New Deal case, Wickard v. Filburn, in which the Supreme Court upheld a penalty imposed on an Ohio farmer who had grown a small amount of wheat, in excess of his production quota, purely for his own use.
The wheat grown by Roscoe Filburn “may be trivial by itself,” the court said, but when combined with the output of other small farmers, it significantly affected interstate commerce and could therefore be regulated by the government as part of a broad scheme regulating interstate commerce.
Judge Rules CIA Can Suppress Information About Torture Tapes and Memos
Ruling Allows CIA to Conceal Evidence of Its Own Illegal Conduct, Says ACLU
Rachel Myers (212) 549-2689 or 2666; media@aclu.org; July 15, 2010
NEW YORK - July 15 - A federal judge today ruled that the government can withhold information from the public about intelligence sources and methods, even if those sources and methods were illegal. The ruling came in response to Freedom of Information Act (FOIA) litigation filed by the American Civil Liberties Union for Justice Department memos that authorized torture, and for records relating to the contents of destroyed videotapes depicting the brutal interrogation of detainees at CIA black sites.
The government continues to withhold key information, such as the names of detainees who were subjected to the abusive interrogation methods as well as information about the application of the interrogation techniques. Judge Alvin K. Hellerstein of the U.S. District Court for the Southern District of New York today ruled that the government can continue to suppress evidence of its illegal program.
The following can be attributed to Jameel Jaffer, Deputy Legal Director of the ACLU:
More information about the ACLU's FOIA litigation is available online at: www.aclu.org/accountability/
Rachel Myers (212) 549-2689 or 2666; media@aclu.org; July 15, 2010
NEW YORK - July 15 - A federal judge today ruled that the government can withhold information from the public about intelligence sources and methods, even if those sources and methods were illegal. The ruling came in response to Freedom of Information Act (FOIA) litigation filed by the American Civil Liberties Union for Justice Department memos that authorized torture, and for records relating to the contents of destroyed videotapes depicting the brutal interrogation of detainees at CIA black sites.
The government continues to withhold key information, such as the names of detainees who were subjected to the abusive interrogation methods as well as information about the application of the interrogation techniques. Judge Alvin K. Hellerstein of the U.S. District Court for the Southern District of New York today ruled that the government can continue to suppress evidence of its illegal program.
The following can be attributed to Jameel Jaffer, Deputy Legal Director of the ACLU:
"We are very dismayed by today's ruling, which invests the CIA with sweeping authority to conceal evidence of its own illegal conduct. There is no question that the CIA has authority under the law to withhold information relating to ‘intelligence sources and methods.' But while this authority is broad, it is not unlimited, and it certainly should not be converted into a license to suppress evidence of criminal activity. Unfortunately, that is precisely what today's ruling threatens to do. The CIA should not be permitted to unilaterally determine whether evidence of its own criminal conduct can be hidden from the public."Judge Hellerstein's ruling is available online at: www.aclu.org/national-security/aclu-v-dod-district-court-order-allowing-suppression-information-about-intelligenc
More information about the ACLU's FOIA litigation is available online at: www.aclu.org/accountability/
Israel to get $2.775 billion military handout from the US
Sun, 18 Jul 2010
The United States plans to provide Israel with its most extensive military aid package in history, reports say.
The US Assistant Secretary of State, Andrew J. Shapiro claims that the increased US military assistance should help Tel Aviv reach tough decisions in peace talks with the Palestinians.
He said that there is "hope that the administration's expanded commitment to Israel's security will advance the process by helping the Israeli people seize this opportunity and take the tough decisions necessary for a comprehensive peace," Haaretz reported.
Speaking at the Brookings Institution's Saban Center for Middle East Policy in Washington, D.C., Shapiro said that the US plans to bolster Israel's security by providing funding for the Iron Dome anti-missile systems.
Washington also plans to sell Israel's new fighter jets.
Shapiro said that since Israel is facing some of the toughest challenges in its history, US President Barack Obama administration has asked Congress for nearly $2.775 billion in security assistance funding "specifically for Israel" in 2010.
"It is the largest such request in US history," he added.
The United States plans to provide Israel with its most extensive military aid package in history, reports say.
The US Assistant Secretary of State, Andrew J. Shapiro claims that the increased US military assistance should help Tel Aviv reach tough decisions in peace talks with the Palestinians.
He said that there is "hope that the administration's expanded commitment to Israel's security will advance the process by helping the Israeli people seize this opportunity and take the tough decisions necessary for a comprehensive peace," Haaretz reported.
Speaking at the Brookings Institution's Saban Center for Middle East Policy in Washington, D.C., Shapiro said that the US plans to bolster Israel's security by providing funding for the Iron Dome anti-missile systems.
Washington also plans to sell Israel's new fighter jets.
Shapiro said that since Israel is facing some of the toughest challenges in its history, US President Barack Obama administration has asked Congress for nearly $2.775 billion in security assistance funding "specifically for Israel" in 2010.
"It is the largest such request in US history," he added.
EU Authorities: Implementation of Net Surveillance Directive Is Unlawful
Commentary by Katitza Rodriguez | JULY 15TH, 2010
In a landmark announcement issued today, the data protection officials across the European Union found that the way that EU Member States have implemented the data retention obligations in the 2006 EU Data Retention Directive is unlawful. The highly controversial 2006 EU Data Retention Directive compels all ISPs and telecommunications service providers operating in Europe to retain telecom and internet traffic data about all of their customers' communications for a period of at least 6 months and up to 2 years.
European privacy officials from the Article 29 Data Protection Working Party have been reviewing how the EU Member States have implemented these obligations in their national laws.
Among the most important findings of the Article 29 Working Party’s report are:
The timing of the Article 29 Working Party’s opinion is particularly sensitive because the European Commission is currently conducting an evaluation of the impact of the Data Retention Directive on economic operators and citizens in Europe. One of the possible outcomes of this evaluation is a recommendation that the Data Retention Directive should be amended or repealed in its entirety. The Article 29 Working Party has submitted its report to the European Commission to provide the Commission with vital empirical evidence for its evaluation of whether to recommend the amendment or repeal the Directive.
Once completed, the Commission’s evaluation will be sent to the European Parliament and the Council of Ministers. Reflecting the far-reaching impact and sensitive policy issues involved in the Data Retention Directive, three Commissioners are likely to be engaged in its review. The EU Commissioner for Home Affairs, Commissioner Malmström leads the evaluation process, but it is expected that Vice President of the Commission and EU Commissioner for Justice, Fundamental Rights and Citizenship, Commissoner Reding and the Commissioner for the Digital Agenda, Commissioner Kroes will also participate actively in the review process.
EFF, AK Vorrat and a coalition of over 100 organizations across Europe recently called for an end to mandatory data retention of telecom and Internet traffic data. In a joint letter sent last month to European Commissioners Malmström, Reding, and Kroes, the coalition urged the Commissioners to "propose the repeal of the EU requirements regarding data retention in favor of a system of expedited preservation and targeted collection of traffic data as agreed in the Council of Europe's Convention on Cybercrime."
In her July 7 reply to the coalition letter, Commissioner Reding stated that, "the review of the EU Data Retention directive provides the European Commission, but also the 27 EU Member States and the European Parliament, with an opportunity to assess the effectiveness and proportionality of the measures included in the Directive. I will in this context ask for a particular focus on the considerable impact data retention may have on fundamental rights of all European citizens, especially with regard to their privacy."
With the recent adoption of the Lisbon Treaty and the entry into force of the Charter of Fundamental Rights, privacy and data protection has been strengthened in the European Union, including in the sensitive areas of law enforcement and crime prevention.
We must now see whether the European Commission will be faithful to the Charter of Fundamental Rights, and recommend the repeal of the overbroad 2006 Data Retention Directive.
In a landmark announcement issued today, the data protection officials across the European Union found that the way that EU Member States have implemented the data retention obligations in the 2006 EU Data Retention Directive is unlawful. The highly controversial 2006 EU Data Retention Directive compels all ISPs and telecommunications service providers operating in Europe to retain telecom and internet traffic data about all of their customers' communications for a period of at least 6 months and up to 2 years.
European privacy officials from the Article 29 Data Protection Working Party have been reviewing how the EU Member States have implemented these obligations in their national laws.
Among the most important findings of the Article 29 Working Party’s report are:
- "Service providers were found to retain and hand over data in ways contrary to the provisions of the [data retention] directive."
- "There are significant discrepancies regarding the retention periods, which vary from six months to up to ten years, which largely exceeds the allowed maximum of 24 months."
- "More data are being retained than is allowed. The data retention directive provides a limited list of data to be retained, all relating to traffic data. The retention of data relating to the content of communication is explicitly prohibited. However, it appears from the inquiry that some of these data are nevertheless retained."
- Regarding Internet traffic data: "Several service providers were found to retain URLs of websites, headers of e-mail messages as well as recipients of e-mail messages in "CC"- mode at the destination mail server.
- Regarding phone traffic data: "it was established that not only the location of the caller is retained at the start of the call, but that his location is being monitored continuously."
- "Member states have scarcely provided statistics on the use of data retained under the Directive, which limits the possibilities to verify the usefulness of data retention."
- "The provisions of the data retention directive are not respected and the lack of available sensible statistics hinders the assessment of whether the directive has achieved its objectives."
The timing of the Article 29 Working Party’s opinion is particularly sensitive because the European Commission is currently conducting an evaluation of the impact of the Data Retention Directive on economic operators and citizens in Europe. One of the possible outcomes of this evaluation is a recommendation that the Data Retention Directive should be amended or repealed in its entirety. The Article 29 Working Party has submitted its report to the European Commission to provide the Commission with vital empirical evidence for its evaluation of whether to recommend the amendment or repeal the Directive.
Once completed, the Commission’s evaluation will be sent to the European Parliament and the Council of Ministers. Reflecting the far-reaching impact and sensitive policy issues involved in the Data Retention Directive, three Commissioners are likely to be engaged in its review. The EU Commissioner for Home Affairs, Commissioner Malmström leads the evaluation process, but it is expected that Vice President of the Commission and EU Commissioner for Justice, Fundamental Rights and Citizenship, Commissoner Reding and the Commissioner for the Digital Agenda, Commissioner Kroes will also participate actively in the review process.
EFF, AK Vorrat and a coalition of over 100 organizations across Europe recently called for an end to mandatory data retention of telecom and Internet traffic data. In a joint letter sent last month to European Commissioners Malmström, Reding, and Kroes, the coalition urged the Commissioners to "propose the repeal of the EU requirements regarding data retention in favor of a system of expedited preservation and targeted collection of traffic data as agreed in the Council of Europe's Convention on Cybercrime."
In her July 7 reply to the coalition letter, Commissioner Reding stated that, "the review of the EU Data Retention directive provides the European Commission, but also the 27 EU Member States and the European Parliament, with an opportunity to assess the effectiveness and proportionality of the measures included in the Directive. I will in this context ask for a particular focus on the considerable impact data retention may have on fundamental rights of all European citizens, especially with regard to their privacy."
With the recent adoption of the Lisbon Treaty and the entry into force of the Charter of Fundamental Rights, privacy and data protection has been strengthened in the European Union, including in the sensitive areas of law enforcement and crime prevention.
We must now see whether the European Commission will be faithful to the Charter of Fundamental Rights, and recommend the repeal of the overbroad 2006 Data Retention Directive.
Greenspan Calls to Let Bush Tax Cuts Expire
(Greenspan--whose policies helped put us where we are: teetering on depression--finally awakens from his ether dream?--jef)
July 16, 2010, 12:02 AM EDT
July 16 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan, whose backing of George W. Bush’s 2001 tax cuts helped persuade Congress to pass them, said lawmakers should allow the reductions to expire at the end of this year.
"They should follow the law and let them lapse," Greenspan said in an interview on Bloomberg Television’s "Conversations with Judy Woodruff," citing a need for the tax revenue to reduce the federal budget deficit.
The former U.S. central bank chairman also said the economy is in "a temporary slump" and would emerge with a "sluggish" 3 percent growth rate in the second half of the year. He said banks’ lending will remain constrained because financial markets are pressing them to maintain higher capital levels and predicted the Wall Street regulatory measure the Senate passed yesterday will reduce credit available for low- income consumers.
Greenspan’s comments on taxes, to be broadcast today and over the weekend, place him in the middle of an election-year struggle over extending Bush’s trillions of dollars of tax cuts.
President Barack Obama campaigned for election in 2008 on a promise of extending the Bush tax reductions for families earning up to $250,000 while eliminating the cuts for higher- income Americans, a position also embraced by most congressional Democrats. Republicans have pressed for continuing the cuts for higher-income families, arguing that a weak economy is no time for a tax increase.
House Majority Leader Steny Hoyer, a Maryland Democrat, stoked the debate with comments on June 22 that permanent extension of the middle-class tax cuts may no longer be affordable because of the growing U.S. debt burden.
Across the Board
Greenspan, in a telephone conversation after his Bloomberg TV interview was taped, said his position is that all the expiring Bush tax cuts should end, for middle-class and high- income families alike.
Ending the cuts "probably will" slow growth, Greenspan, 84, said in the TV interview. The risk posed by inaction on the deficit is greater, he said.
"Unless we start to come to grips with this long-term outlook, we are going to have major problems," said Greenspan, who led the U.S. central bank from 1987 to 2006. "I think we misunderstand the momentum of this deficit going forward."
Deficit Difficulty
Greenspan said reducing the deficit is "going to be far more difficult than anybody imagines" after "a decade of major increases in federal spending and major tax cuts."
The economic recovery recently has shown signs of slowing with June growth in private payrolls below forecasts at 83,000, and retail sales declining for the second straight month. Federal Reserve officials trimmed their forecast for economic growth during a June meeting, according to minutes released yesterday.
The White House budget office projects the federal deficit this year will exceed $1.5 trillion, or 10.6 percent of gross domestic product, and anticipates the deficit in five years will remain as high as $751 billion, or 3.9 percent of GDP.
Greenspan has warned for months that the rising federal debt and deficits projected in future years together risk driving up long-term interest rates and choking off capital investment. In a March 26 Bloomberg TV interview, he said an increase in long-term interest rates was a "canary in the mine."
Yields on 10-year Treasury notes have since fallen from 3.85 percent to 2.99 percent at 6:35 p.m. in New York.
Middle-Class Cuts
Bush tax cuts that passed in 2001 and 2003 gave middle- income earners a 10 percent rate on couples’ first $14,000 in income; subsidies for college expenses, a higher child-care credit and relief from the marriage penalty. Keeping those and other reductions for the 130 million households earning less than $250,000 would cost about $300 billion a year, according to the congressional Joint Committee on Taxation.
In addition to those benefits, high-income households got reduced top marginal rates, elimination of phase-outs for some deductions and personal exemptions, and benefited the most from lower rates on dividends and capital gains. The cost of continuing the tax cuts for the most prosperous Americans would be about $55 billion for one year.
In his 2007 memoir, "The Age of Turbulence," Greenspan attacked Bush for abandoning Republican principles on spending and deficits and expressed regret for his 2001 congressional testimony favoring the tax cuts, recounting how former Treasury Secretary Robert Rubin and Democratic Senator Kent Conrad of North Dakota asked him to hold off on an endorsement.
"It turned out that Conrad and Rubin were right," Greenspan wrote in the memoir.
Typical Pause
Addressing current economic conditions in the Bloomberg Television interview, Greenspan said the U.S. is in the midst of "the typical pause usually associated with recovery." When GDP growth for the second quarter is reported, it will likely be at a 2.5 percent rate, he said.
"There is no evidence that there is a big pickup coming," Greenspan said. "We should be in the area maybe of 3 percent growth for the rest of this year.
Banks are likely to maintain tight lending policies until their capital levels rise "a couple of percentage points more than it is at least.
"The market right now is requiring more than they actually have," Greenspan said. "Right now our financial institutions are undercapitalized.
He criticized the financial regulatory overhaul the Senate passed, saying banks would cut back on consumer lending in response to new rules.
"There are a lot of loans made currently by the banking system which are marginal," Greenspan said. "These loans will be eliminated and those marginal loans are largely the lower credit risks, lower income groups, and people who before would be going to pawnbrokers. I do not think that is necessarily a good trend."
July 16, 2010, 12:02 AM EDT
July 16 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan, whose backing of George W. Bush’s 2001 tax cuts helped persuade Congress to pass them, said lawmakers should allow the reductions to expire at the end of this year.
"They should follow the law and let them lapse," Greenspan said in an interview on Bloomberg Television’s "Conversations with Judy Woodruff," citing a need for the tax revenue to reduce the federal budget deficit.
The former U.S. central bank chairman also said the economy is in "a temporary slump" and would emerge with a "sluggish" 3 percent growth rate in the second half of the year. He said banks’ lending will remain constrained because financial markets are pressing them to maintain higher capital levels and predicted the Wall Street regulatory measure the Senate passed yesterday will reduce credit available for low- income consumers.
Greenspan’s comments on taxes, to be broadcast today and over the weekend, place him in the middle of an election-year struggle over extending Bush’s trillions of dollars of tax cuts.
President Barack Obama campaigned for election in 2008 on a promise of extending the Bush tax reductions for families earning up to $250,000 while eliminating the cuts for higher- income Americans, a position also embraced by most congressional Democrats. Republicans have pressed for continuing the cuts for higher-income families, arguing that a weak economy is no time for a tax increase.
House Majority Leader Steny Hoyer, a Maryland Democrat, stoked the debate with comments on June 22 that permanent extension of the middle-class tax cuts may no longer be affordable because of the growing U.S. debt burden.
Across the Board
Greenspan, in a telephone conversation after his Bloomberg TV interview was taped, said his position is that all the expiring Bush tax cuts should end, for middle-class and high- income families alike.
Ending the cuts "probably will" slow growth, Greenspan, 84, said in the TV interview. The risk posed by inaction on the deficit is greater, he said.
"Unless we start to come to grips with this long-term outlook, we are going to have major problems," said Greenspan, who led the U.S. central bank from 1987 to 2006. "I think we misunderstand the momentum of this deficit going forward."
Deficit Difficulty
Greenspan said reducing the deficit is "going to be far more difficult than anybody imagines" after "a decade of major increases in federal spending and major tax cuts."
The economic recovery recently has shown signs of slowing with June growth in private payrolls below forecasts at 83,000, and retail sales declining for the second straight month. Federal Reserve officials trimmed their forecast for economic growth during a June meeting, according to minutes released yesterday.
The White House budget office projects the federal deficit this year will exceed $1.5 trillion, or 10.6 percent of gross domestic product, and anticipates the deficit in five years will remain as high as $751 billion, or 3.9 percent of GDP.
Greenspan has warned for months that the rising federal debt and deficits projected in future years together risk driving up long-term interest rates and choking off capital investment. In a March 26 Bloomberg TV interview, he said an increase in long-term interest rates was a "canary in the mine."
Yields on 10-year Treasury notes have since fallen from 3.85 percent to 2.99 percent at 6:35 p.m. in New York.
Middle-Class Cuts
Bush tax cuts that passed in 2001 and 2003 gave middle- income earners a 10 percent rate on couples’ first $14,000 in income; subsidies for college expenses, a higher child-care credit and relief from the marriage penalty. Keeping those and other reductions for the 130 million households earning less than $250,000 would cost about $300 billion a year, according to the congressional Joint Committee on Taxation.
In addition to those benefits, high-income households got reduced top marginal rates, elimination of phase-outs for some deductions and personal exemptions, and benefited the most from lower rates on dividends and capital gains. The cost of continuing the tax cuts for the most prosperous Americans would be about $55 billion for one year.
In his 2007 memoir, "The Age of Turbulence," Greenspan attacked Bush for abandoning Republican principles on spending and deficits and expressed regret for his 2001 congressional testimony favoring the tax cuts, recounting how former Treasury Secretary Robert Rubin and Democratic Senator Kent Conrad of North Dakota asked him to hold off on an endorsement.
"It turned out that Conrad and Rubin were right," Greenspan wrote in the memoir.
Typical Pause
Addressing current economic conditions in the Bloomberg Television interview, Greenspan said the U.S. is in the midst of "the typical pause usually associated with recovery." When GDP growth for the second quarter is reported, it will likely be at a 2.5 percent rate, he said.
"There is no evidence that there is a big pickup coming," Greenspan said. "We should be in the area maybe of 3 percent growth for the rest of this year.
Banks are likely to maintain tight lending policies until their capital levels rise "a couple of percentage points more than it is at least.
"The market right now is requiring more than they actually have," Greenspan said. "Right now our financial institutions are undercapitalized.
He criticized the financial regulatory overhaul the Senate passed, saying banks would cut back on consumer lending in response to new rules.
"There are a lot of loans made currently by the banking system which are marginal," Greenspan said. "These loans will be eliminated and those marginal loans are largely the lower credit risks, lower income groups, and people who before would be going to pawnbrokers. I do not think that is necessarily a good trend."
Wealthy Reduce Buying in a Blow to the Recovery
Cut taxes or else!
By MOTOKO RICH | July 16, 2010
The economic recovery has been helped in large part by the spending of the most affluent. Now, even the rich appear to be tightening their belts.
Late last year, the highest-income households started spending more confidently, while other consumers held back. But their confidence has since ebbed, according to retail sales reports and some economic analysis.
“One of the reasons that the recovery has lost momentum is that high-end consumers have become more jittery and more cautious,” said Mark Zandi, chief economist for Moody’s Analytics.
That cautious attitude stems in part from concerns about global instability, especially in Europe, and in part from the volatility of the stock market in recent months. Major stock indexes fell sharply on Friday, after several big companies announced disappointing earnings. Bank stocks were the biggest losers as investors wrestled with the twin issues of lower trading profits from Citibank and Bank of America and the prospect that new financial regulation would further crimp their businesses.
Though stock performance has a bigger psychological and financial impact on high-income households, consumers of all income levels are fretting more about their financial future, perhaps bracing for the possibility of another economic contraction. Consumer confidence slumped in July to its lowest point since August 2009 in the Thomson Reuters/University of Michigan index released on Friday.
The Dow Jones industrial average slipped 261.41 points to 10,097.9 on Friday, for a loss of 2.52 percent. For the year, broad-based stock indexes in the United States all show losses of more than 3 percent.
Even Federal Reserve policy makers have acknowledged that the recovery is losing steam and suggested that should conditions worsen further, additional stimulus may be needed, according to minutes of their last meeting, released on Wednesday.
Especially at this stage of a recovery, businesses and economists want to see people of all incomes spending more, because the demand for goods and services would in turn encourage companies to hire workers. The American consumer accounts for an estimated 60 percent of the country’s economic activity.
But the Top 5 percent in income earners — those households earning $210,000 or more — account for about one-third of consumer outlays, including spending on goods and services, interest payments on consumer debt and cash gifts, according to an analysis of Federal Reserve data by Moody’s Analytics. That means the purchasing decisions of the rich have an outsize effect on economic data. According to Gallup, spending by upper-income consumers — defined as those earning $90,000 or more — surged to an average of $145 a day in May, up 33 percent from a year earlier.
Then in June, that daily average slid to $119. “I think a lot of that feeling that the worst was over has sort of abated,” said Dennis J. Jacobe, Gallup’s chief economist.
Although real estate brokers in Manhattan and the Hamptons report that buyers at the high end have returned, and Mercedes sales in the United States are up 26 percent this year, other indicators suggest a slowdown.
At the high end, luxury hotel chains like the Four Seasons and Ritz Carlton said bookings were much stronger earlier this year but had recently slowed. And upscale retailers, including Saks and Neiman Marcus, said sales growth eased in June. Overall retail sales slid in June from May, the government said this week.
To the extent that the wariness of the affluent is driven mainly by nerves and sentiment, economists hope that it will be temporary. “If growth is actually solid, those fears will dissipate,” said Dean Maki, chief United States economist at Barclays Capital and a former senior economist at the Federal Reserve Board.
The worry, of course, is that consumers will stop spending because of their concerns about a slowdown, and that economic growth will slow because consumers have stopped spending.
After virtually shutting down during the financial collapse in late 2008, the wealthy began to open their wallets wider last year, in part because a stock market rally helped them feel better off financially.
By spring of last year, the savings rate — which represents the percentage of after-tax income not spent — of the top 5 percent of income earners had turned negative, according to the analysis by Moody’s Analytics. That meant the group was spending more than it made.
Less well-off consumers remained more frugal, most likely constrained by unemployment, declines in home values and the disappearance of easy credit. So the savings rate actually rose last year for those in middle-income brackets as they cut spending.
Job losses have disproportionately hit those at the lower end of the wage scale. According to the Labor Department, the unemployment rate among people in management, business or financial occupations was 4.8 percent in June, compared to 9.5 percent over all, 18.2 percent in construction and 12.1 percent in production.
As a result, the affluent generally maintained their spending power at a time when others were losing it. “High-income households drove the economy out of recession into recovery and powered the recovery through its first year,” Mr. Zandi concluded. He added that although the incomes of the richest people might have been affected by swings in dividend payments or bonuses, the change in their savings rate was most likely driven by increased spending.
Affluent spenders “began to come out of the bunker about this time last year,” Mr. Zandi said, “and part of it was related to the revival in the stock market.”
Other economists suggest that while Mr. Zandi’s conclusions make some sense, the data is hazy on the precise role that the rich have played in consumer spending. “We have tried to do other things like look at consumer expenditures on products mainly purchased by the rich and could never get anywhere,” said Barry P. Bosworth, a senior fellow at the Brookings Institution.
On the ground, those whose sales depend on affluent buyers have seen definite patterns. Last year and early this year, when the major stock gauges were rising, “everybody seemed to be a little bit more optimistic,” said Tom Hauswirth, general manager and partner of Moritz Cadillac, BMW and Mini in Arlington, Tex., near Dallas.
“Then I think everybody was affected when they saw the stock market go below 10,000,” he said. “Even though it may not affect their ability to buy or not, it affects their thinking.”
Mr. Hauswirth said that those who had recently bought new cars were sometimes fearful of being labeled as conspicuous consumers. A few, he said, insisted on buying new cars in the same color as their old models.
“They didn’t want their employees to know they bought a new car,” he said. “It doesn’t look good during a wage freeze or when they’re cutting people.”
Moritz laid off about 15 percent of its sales staff last year, and Mr. Hauswirth said that he did not yet feel comfortable hiring back until sales improved more.
Linda Dresner, the owner of a clothing boutique for women that carries designers like Dries van Noten and John Galliano in the upscale suburb of Birmingham, Mich., has reduced her inventory and says customers often say their husbands have asked them to rein in spending.
“They are wealthy people who live well,” Ms. Dresner said. “But their businesses have suffered some, and they are pulling back.”
Policy makers are divided on what may be needed to spur economic growth, with a current debate raging over whether to extend unemployment benefits, payments that are usually spent immediately. .
Sam Pizzigati, associate fellow at the Institute for Policy Studies, a left-leaning research center, cautions against simply boosting the spending power of the rich through tax cuts or other measures. “Otherwise, we find ourselves in an ‘Alice in Wonderland’ world,” he said, “and the solution to the hard times that the economy is going through is to help the people that are not going through hard times.”
For now, some affluent spenders are getting thrifty. Linda Stasiak, who sells high-end skin care products to retailers like Whole Foods, said that her biggest sales increase had been for a $15.95 tube wringer, made to get every last drop out of a bottle of lotion.
“During peak time, I don’t even really remember selling them,” Ms. Stasiak said.
By MOTOKO RICH | July 16, 2010
The economic recovery has been helped in large part by the spending of the most affluent. Now, even the rich appear to be tightening their belts.
Late last year, the highest-income households started spending more confidently, while other consumers held back. But their confidence has since ebbed, according to retail sales reports and some economic analysis.
“One of the reasons that the recovery has lost momentum is that high-end consumers have become more jittery and more cautious,” said Mark Zandi, chief economist for Moody’s Analytics.
That cautious attitude stems in part from concerns about global instability, especially in Europe, and in part from the volatility of the stock market in recent months. Major stock indexes fell sharply on Friday, after several big companies announced disappointing earnings. Bank stocks were the biggest losers as investors wrestled with the twin issues of lower trading profits from Citibank and Bank of America and the prospect that new financial regulation would further crimp their businesses.
Though stock performance has a bigger psychological and financial impact on high-income households, consumers of all income levels are fretting more about their financial future, perhaps bracing for the possibility of another economic contraction. Consumer confidence slumped in July to its lowest point since August 2009 in the Thomson Reuters/University of Michigan index released on Friday.
The Dow Jones industrial average slipped 261.41 points to 10,097.9 on Friday, for a loss of 2.52 percent. For the year, broad-based stock indexes in the United States all show losses of more than 3 percent.
Even Federal Reserve policy makers have acknowledged that the recovery is losing steam and suggested that should conditions worsen further, additional stimulus may be needed, according to minutes of their last meeting, released on Wednesday.
Especially at this stage of a recovery, businesses and economists want to see people of all incomes spending more, because the demand for goods and services would in turn encourage companies to hire workers. The American consumer accounts for an estimated 60 percent of the country’s economic activity.
But the Top 5 percent in income earners — those households earning $210,000 or more — account for about one-third of consumer outlays, including spending on goods and services, interest payments on consumer debt and cash gifts, according to an analysis of Federal Reserve data by Moody’s Analytics. That means the purchasing decisions of the rich have an outsize effect on economic data. According to Gallup, spending by upper-income consumers — defined as those earning $90,000 or more — surged to an average of $145 a day in May, up 33 percent from a year earlier.
Then in June, that daily average slid to $119. “I think a lot of that feeling that the worst was over has sort of abated,” said Dennis J. Jacobe, Gallup’s chief economist.
Although real estate brokers in Manhattan and the Hamptons report that buyers at the high end have returned, and Mercedes sales in the United States are up 26 percent this year, other indicators suggest a slowdown.
At the high end, luxury hotel chains like the Four Seasons and Ritz Carlton said bookings were much stronger earlier this year but had recently slowed. And upscale retailers, including Saks and Neiman Marcus, said sales growth eased in June. Overall retail sales slid in June from May, the government said this week.
To the extent that the wariness of the affluent is driven mainly by nerves and sentiment, economists hope that it will be temporary. “If growth is actually solid, those fears will dissipate,” said Dean Maki, chief United States economist at Barclays Capital and a former senior economist at the Federal Reserve Board.
The worry, of course, is that consumers will stop spending because of their concerns about a slowdown, and that economic growth will slow because consumers have stopped spending.
After virtually shutting down during the financial collapse in late 2008, the wealthy began to open their wallets wider last year, in part because a stock market rally helped them feel better off financially.
By spring of last year, the savings rate — which represents the percentage of after-tax income not spent — of the top 5 percent of income earners had turned negative, according to the analysis by Moody’s Analytics. That meant the group was spending more than it made.
Less well-off consumers remained more frugal, most likely constrained by unemployment, declines in home values and the disappearance of easy credit. So the savings rate actually rose last year for those in middle-income brackets as they cut spending.
Job losses have disproportionately hit those at the lower end of the wage scale. According to the Labor Department, the unemployment rate among people in management, business or financial occupations was 4.8 percent in June, compared to 9.5 percent over all, 18.2 percent in construction and 12.1 percent in production.
As a result, the affluent generally maintained their spending power at a time when others were losing it. “High-income households drove the economy out of recession into recovery and powered the recovery through its first year,” Mr. Zandi concluded. He added that although the incomes of the richest people might have been affected by swings in dividend payments or bonuses, the change in their savings rate was most likely driven by increased spending.
Affluent spenders “began to come out of the bunker about this time last year,” Mr. Zandi said, “and part of it was related to the revival in the stock market.”
Other economists suggest that while Mr. Zandi’s conclusions make some sense, the data is hazy on the precise role that the rich have played in consumer spending. “We have tried to do other things like look at consumer expenditures on products mainly purchased by the rich and could never get anywhere,” said Barry P. Bosworth, a senior fellow at the Brookings Institution.
On the ground, those whose sales depend on affluent buyers have seen definite patterns. Last year and early this year, when the major stock gauges were rising, “everybody seemed to be a little bit more optimistic,” said Tom Hauswirth, general manager and partner of Moritz Cadillac, BMW and Mini in Arlington, Tex., near Dallas.
“Then I think everybody was affected when they saw the stock market go below 10,000,” he said. “Even though it may not affect their ability to buy or not, it affects their thinking.”
Mr. Hauswirth said that those who had recently bought new cars were sometimes fearful of being labeled as conspicuous consumers. A few, he said, insisted on buying new cars in the same color as their old models.
“They didn’t want their employees to know they bought a new car,” he said. “It doesn’t look good during a wage freeze or when they’re cutting people.”
Moritz laid off about 15 percent of its sales staff last year, and Mr. Hauswirth said that he did not yet feel comfortable hiring back until sales improved more.
Linda Dresner, the owner of a clothing boutique for women that carries designers like Dries van Noten and John Galliano in the upscale suburb of Birmingham, Mich., has reduced her inventory and says customers often say their husbands have asked them to rein in spending.
“They are wealthy people who live well,” Ms. Dresner said. “But their businesses have suffered some, and they are pulling back.”
Policy makers are divided on what may be needed to spur economic growth, with a current debate raging over whether to extend unemployment benefits, payments that are usually spent immediately. .
Sam Pizzigati, associate fellow at the Institute for Policy Studies, a left-leaning research center, cautions against simply boosting the spending power of the rich through tax cuts or other measures. “Otherwise, we find ourselves in an ‘Alice in Wonderland’ world,” he said, “and the solution to the hard times that the economy is going through is to help the people that are not going through hard times.”
For now, some affluent spenders are getting thrifty. Linda Stasiak, who sells high-end skin care products to retailers like Whole Foods, said that her biggest sales increase had been for a $15.95 tube wringer, made to get every last drop out of a bottle of lotion.
“During peak time, I don’t even really remember selling them,” Ms. Stasiak said.
BP's Relief Wells Had Blowout Preventer Problems Just Like Deepwater Horizon
(Raise your hand if you're surprised by this at all.--jef)
***
Oil has been gushing into the Gulf of Mexico for almost 90 days because, in part, the well's blowout preventer didn't work. And as it turns out, the blowout preventers on the relief wells -- the relief wells that are the only way to permanently stop the oil from leaking -- were also found to have "performance problems."
Interior Secretary Ken Salazar noted this week that the relief wells' blowout preventers, or BOPs, had been recently checked out under new testing requirements and found to have problems themselves, which have since been repaired.
As ProPublica pointed out today, Salazar mentioned the problems in a memo on the new deepwater drilling moratorium, sent this week to the new director of the drilling regulatory agency:
It is clear that the apparent performance problem with the Deepwater Horizon's BOP is not an isolated incident. Performance problems have also been identified in recent weeks with the BOPs on the relief wells that BP is drilling. The problems have been uncovered during new testing requirements that were imposed on the relief wells after the BP Oil Spill, thus providing more evidence that prior testing requirements were inadequate. It is unlikely that these problems are unique to BP. The BOPs are manufactured by a very small number of companies, and BOPs used across the industry tend to employ standardized components.
The Interior Department says the problems with the relief wells' BOPs have been repaired.
In the memo, Salazar is arguing that drilling on rigs with the same kind of BOPs should be stopped until Nov. 30. One of his biggest reasons is that all BOPs, because they're made by a handful of companies to industry standards, could be facing the same problems that caused the current catastrophic leak.
But when the 29 other deepwater rigs were inspected between April 27 and May 4, only one was issued a citation relating to its blowout preventer. That rig -- which is now operating one of the relief wells -- was cited for not alternating between control stations while testing the BOP.
If you're interested, here are some of the specific problems that were found with the relief well BOPs, via the Interior Dept:
- During ROV hot stab testing, the Lower Marine Riser Package disconnect function was unsuccessful because of a leaking shuttle valve.
- A failed shuttle valve caused an unsuccessful test of the All Stabs Retract function.
- A failure of the deadman test because a shuttle valve was installed that should not have been.
- A broken solenoid connection on the blue pod that prevented that pod from closing the casing shear rams.
Report targets 20 possible cancer causes
Most are familiar names, such as chloroform and formaldehyde, but the list includes indium phosphide, a compound used in flat-screen TV.
By Maggie Fox | Reuters | July 15, 2010
The American Cancer Society and three federal agencies named 19 chemicals and shift work on Thursday as potential causes of cancer that deserve more investigation.
The group published a report with the backing of international experts who said the 20 potential causes they identified had fairly good evidence that they may be a danger and deserved more follow-up.
Most are familiar names, such as chloroform, formaldehyde and polychlorinated biphenyls or PCBs, but the list includes indium phosphide, a relatively new compound used in making flat-screen televisions.
All have been classified as possible carcinogens by the International Agency for Research on Cancer or IARC, the United Nations cancer agency.
"These particular ones were picked for two reasons. One is there is more of a hint in most cases that they might be involved with cancer," Elizabeth Ward of the American Cancer Society, who helped lead the work, said in a telephone interview.
But at the same time, she said, the studies that could make a definitive link are missing.
The second reason is that some of the potential agents or causes are very common. "We are focusing on things like formaldehyde, where there really has been widespread exposure in many industries," Ward said.
"Or in some cases the exposure is not widespread but is something that is increasing and there is insufficient data."
The National Institute for Occupational Safety and Health or NIOSH, National Institute of Environmental Health Sciences and the National Cancer Institute also helped sponsor the report, which names the following agents:
The study is published in the journal Environmental Health Perspectives and at http://monographs.iarc.fr/ENG/Publications/techrep42/index.php.
Ward said indium caught the group's attention because it is becoming increasingly common. Used to make microelectronics, animal data suggested it might cause lung damage and genetic changes when breathed in, she said.
"It is a particularly important component of the flat displays of TVs that have been so popular," she said. Workers in assembly plants and those recycling discarded televisions might be most at risk, she said.
"Some of this kind of work done is in developing countries," she noted. "They are broken apart and valuable components extracted. It is an example of a newly emerging hazard."
Cancer is the No. 2 killer of Americans and people in most industrialized countries, after heart disease.
In May the President's Cancer Panel said Americans are being "bombarded" with cancer-causing chemicals and radiation but many experts said it overplayed some causes for which there is very little evidence of a cancer-causing effect, such as cell phones.
By Maggie Fox | Reuters | July 15, 2010
The group published a report with the backing of international experts who said the 20 potential causes they identified had fairly good evidence that they may be a danger and deserved more follow-up.
Most are familiar names, such as chloroform, formaldehyde and polychlorinated biphenyls or PCBs, but the list includes indium phosphide, a relatively new compound used in making flat-screen televisions.
All have been classified as possible carcinogens by the International Agency for Research on Cancer or IARC, the United Nations cancer agency.
"These particular ones were picked for two reasons. One is there is more of a hint in most cases that they might be involved with cancer," Elizabeth Ward of the American Cancer Society, who helped lead the work, said in a telephone interview.
But at the same time, she said, the studies that could make a definitive link are missing.
The second reason is that some of the potential agents or causes are very common. "We are focusing on things like formaldehyde, where there really has been widespread exposure in many industries," Ward said.
"Or in some cases the exposure is not widespread but is something that is increasing and there is insufficient data."
The National Institute for Occupational Safety and Health or NIOSH, National Institute of Environmental Health Sciences and the National Cancer Institute also helped sponsor the report, which names the following agents:
- Lead and lead compounds
- Indium phosphide
- Cobalt with tungsten carbide
- Titanium dioxide
- Welding fumes
- Refractory ceramic fibers
- Diesel exhaust
- Carbon black
- Styrene7,8oxide and styrene
- Propylene oxide
- Formaldehyde
- Acetaldehyde
- Dichloromethane, methylene chloride (DCM)
- Trichloroethylene (TCE)
- Tetrachloroethylene (perc, tetra, PCE)
- Chloroform
- Polychlorinated biphenyls (PCBs)
- Di(2ethylhexyl) phthalate (DEHP)
- Atrazine
- Shift work
The study is published in the journal Environmental Health Perspectives and at http://monographs.iarc.fr/ENG/Publications/techrep42/index.php.
Ward said indium caught the group's attention because it is becoming increasingly common. Used to make microelectronics, animal data suggested it might cause lung damage and genetic changes when breathed in, she said.
"It is a particularly important component of the flat displays of TVs that have been so popular," she said. Workers in assembly plants and those recycling discarded televisions might be most at risk, she said.
"Some of this kind of work done is in developing countries," she noted. "They are broken apart and valuable components extracted. It is an example of a newly emerging hazard."
Cancer is the No. 2 killer of Americans and people in most industrialized countries, after heart disease.
In May the President's Cancer Panel said Americans are being "bombarded" with cancer-causing chemicals and radiation but many experts said it overplayed some causes for which there is very little evidence of a cancer-causing effect, such as cell phones.
BP Makes Me SickdotCom
http://bpmakesmesick.com/
For anyone who became ill while working to clean up the oil spill disaster.
For anyone who became ill while working to clean up the oil spill disaster.
All the other planets in our solar system nearly aligned perfectly this morning
I was out looking at the stars this morning and I noticed that currently (and for the next few weeks I guess) Jupiter is the brightest celestial object in the sky, after the moon and sun, of course. So, I came in and opened my favorite planetarium program, Stellarium, to see what else was out there, and I noticed that every planet in the solar system, plus the moon and sun were as close to perfect alignment as I've ever seen. Even some of the other objects in our solar system past Pluto were aligned (of course, Pluto was the planet farthest from alignment.) I took some screen shots:
And in this image, (l to r) you can see the Sun, Jupiter and Uranus right together, Neptune, and then there's Pluto off kilter to the far right. Click the image to make it larger. In this image, I'm zoomed about the same distance but with a wider field of vision to fit the Sun in the same image with this grouping of planets.
Anyway, it was something which doesn't happen very often that I thought was cool and I wanted to share. Since they aren't perfectly aligned, I guess that's why nothing has really been written about this--that I have seen. But that's pretty dang close to perfect alignment, if you ask me!
In this image, you can see (from l to r): the Moon, Saturn, Mars, Vesta (one of those objects past Pluto), Venus, Mercury, the Sun, and Juno (another object past Pluto, quite a bit off, but in the picture). Click the image to make it larger. The planetary orbits are the red lines. I'm zoomed quite a bit out to see the big picture.
Anyway, it was something which doesn't happen very often that I thought was cool and I wanted to share. Since they aren't perfectly aligned, I guess that's why nothing has really been written about this--that I have seen. But that's pretty dang close to perfect alignment, if you ask me!
Obama needs a wakeup call
As his opponents gain in strength, the president misses an opportunity in Michigan to attack GOP obstructionism
BY ANDREW LEONARD | THURSDAY, JUL 15, 2010 | Salon.com
If President Obama's speech in Holland, Mich., on jobs and the economy Thursday morning was an example of how he's going to rally the troops in the run-up to the midterm elections this November, then Democrats are in for a very tough slog.
Republicans are doing everything within their power to constrain the White House from spurring job growth or ameliorating the impact of high unemployment. The situation is tailor-made for an aggressive response, especially in a state like Michigan that has been absolutely pummeled by the recession. But Obama kept his gloves on. Except for one tepid reference to "those who would rather obstruct than lend a hand," the president barely referenced his opponents. The applause that greeted his remarks was lukewarm, and no wonder -- Obama didn't even try to get the audience riled up.
The president came to Holland to commemorate the groundbreaking of a new lithium-ion battery plant to be operated by LG Chem, a Korean chemical company. Obama had every reason to take credit for the 400 or so jobs that will be provided by the new plant, which is expected to be producing batteries for the Chevy Volt and Ford Focus by 2012. Without grants made available from the clean energy package in the American Reinvestment and Recovery Act, LG Chem might never have come to Holland. The groundbreaking neatly synthesized core parts of Obama's platform: clean energy and domestic jobs.
All that is fine. After all, without the Obama administration's aggressive rescue of General Motors, there might not even be a Chevy Volt ready to roll off the factory floor to make batteries for. Obama has delivered for Michigan, and he was correct to point out the vast difference in the state of the overall U.S. economy today compared to when he took office.
But we know this president knows how to inspire and to attack: We saw it in the fall of 2008. We didn't hear it this morning. I didn't hear him talk about how Republicans have blocked the extension of unemployment benefits, or refuse to allow new taxes on hedge fund managers. He didn't whisper a word about how ridiculous Republican anti-regulation rhetoric sounds in the wake of the biggest financial crisis since the 1930s.
Perhaps most disappointing, he didn't lay out any plan for future action. "We're not out of the woods yet" he said. But he didn't breathe a word about how we're going to get there, now that the Senate has made it clear that any further fiscal stimulus is a non-starter. Pointing out the benefits of the stimulus act that have already accrued for a town in Michigan certainly isn't out of bounds, but Democratic voters, right now, need a little bit more to get excited about than some hoary old legislation passed within a month of Obama's first taking office. What's the agenda now? How are Democrats going to take the fight to Republicans? If you were listening to Obama speak in Holland, Mich., Thursday morning, you didn't get any answers to those questions. That's got to change.
BY ANDREW LEONARD | THURSDAY, JUL 15, 2010 | Salon.com
If President Obama's speech in Holland, Mich., on jobs and the economy Thursday morning was an example of how he's going to rally the troops in the run-up to the midterm elections this November, then Democrats are in for a very tough slog.
Republicans are doing everything within their power to constrain the White House from spurring job growth or ameliorating the impact of high unemployment. The situation is tailor-made for an aggressive response, especially in a state like Michigan that has been absolutely pummeled by the recession. But Obama kept his gloves on. Except for one tepid reference to "those who would rather obstruct than lend a hand," the president barely referenced his opponents. The applause that greeted his remarks was lukewarm, and no wonder -- Obama didn't even try to get the audience riled up.
The president came to Holland to commemorate the groundbreaking of a new lithium-ion battery plant to be operated by LG Chem, a Korean chemical company. Obama had every reason to take credit for the 400 or so jobs that will be provided by the new plant, which is expected to be producing batteries for the Chevy Volt and Ford Focus by 2012. Without grants made available from the clean energy package in the American Reinvestment and Recovery Act, LG Chem might never have come to Holland. The groundbreaking neatly synthesized core parts of Obama's platform: clean energy and domestic jobs.
All that is fine. After all, without the Obama administration's aggressive rescue of General Motors, there might not even be a Chevy Volt ready to roll off the factory floor to make batteries for. Obama has delivered for Michigan, and he was correct to point out the vast difference in the state of the overall U.S. economy today compared to when he took office.
But we know this president knows how to inspire and to attack: We saw it in the fall of 2008. We didn't hear it this morning. I didn't hear him talk about how Republicans have blocked the extension of unemployment benefits, or refuse to allow new taxes on hedge fund managers. He didn't whisper a word about how ridiculous Republican anti-regulation rhetoric sounds in the wake of the biggest financial crisis since the 1930s.
Perhaps most disappointing, he didn't lay out any plan for future action. "We're not out of the woods yet" he said. But he didn't breathe a word about how we're going to get there, now that the Senate has made it clear that any further fiscal stimulus is a non-starter. Pointing out the benefits of the stimulus act that have already accrued for a town in Michigan certainly isn't out of bounds, but Democratic voters, right now, need a little bit more to get excited about than some hoary old legislation passed within a month of Obama's first taking office. What's the agenda now? How are Democrats going to take the fight to Republicans? If you were listening to Obama speak in Holland, Mich., Thursday morning, you didn't get any answers to those questions. That's got to change.
BP Continues Tests, but Can't Guarantee Cap Will Succeed
Washington - BP will proceed with its delicate testing of its containment cap that could continue to keep oil from spewing into the Gulf of Mexico from its failed well, but the team monitoring the testing isn't 100 percent confident the cap will be successful.
The team's government and industry experts remain uncertain about whether there's damage to the wellbore somewhere in the 18,000 feet between the ocean floor and the oil and gas reservoir that could mean oil and gas is escaping.
The team fears the new seal could force oil and gas to leak out of weak spots in the well, deep below the floor of the ocean, said Adm. Thad Allen, the national incident commander. So far, the pressure readings haven't caused the team to stop the testing, and nothing in the acoustic and seismic tests indicates a breach.
However, Allen said the team isn't completely sure and hasn't determined whether to keep the seal closed or resume collecting oil and gas from the well at the end of the 48-hour testing period.
"It's a very, very good thing that the well is shut in right now, there's no oil being released in the environment," Allen said. "But we're very, very mindful to do no harm, to do nothing that is irreversible in terms of damage to the wellbore."
Late Friday afternoon, the pressure during the test reached only 6,700 pounds per square inch, and it continued to build, at about 2 psi an hour. Engineers wanted to see a reading of at least 6,000 psi but would like to see a reading closer to 8,000 psi.
The team's greatest fear is that the lower pressure readings mean oil and gas is escaping and could cause problems with the relief wells that are only a few feet from the existing well — and are the only sure method of stopping the gush of oil permanently.
The team is also mindful that if they make a mistake, they could irrevocably harm a system that wasn't even designed to cap the well. Instead, it was developed to capture as much oil and gas as possible from the runaway well until a relief well is finished and they can shut down the blown-out well for good.
So far, extensive testing doesn't indicate any sort of breach in the well, said Kent Wells, a senior vice president at BP.
"At this point there's no evidence the well does not have integrity," he said Friday evening during a technical briefing. "And that's a good thing."
Yet there's so much uncertainty about the pressure readings that BP will be allowed to move forward with testing only after meeting certain conditions, Allen said.
They include enhanced monitoring on the sea floor and acoustic monitoring at the wellhead. The team also is testing the temperature at the wellhead. The oil hasn't heated up again since it stopped flowing — a good sign that there's no breach.
Scientists and engineers are also analyzing new seismic readings that will help them determine whether there are any anomalies in the earth surrounding the pipe. They're also using a government research vessel that can detect very small bubbles of methane gas, which would indicate leakage from well floor.
Some testing will help determine whether the low pressure readings might be caused by situations that don't threaten the well's integrity. They include the possibility that since the well blew out, so much oil and gas has escaped already that pressure in the well has dropped naturally. Wells said the pressure readings they're seeing are close to the models they developed for a depleted reservoir and a well with no breaches.
In a brief statement Friday morning, President Barack Obama called the progress "good news" before departing for a short vacation in Maine.
However, he cautioned "that we don't get ahead of ourselves here. You know, one of the problems with having this camera down there is that when the oil stops gushing, everybody feels like we're done, and we're not."
The 75-ton piece of equipment that's currently capping the well was designed to capture almost all of the oil flowing from the well and to send it to four processing ships on the surface of the ocean until the relief well was drilled.
Those vessels would have the capacity to capture as much as 80,000 barrels a day. The cap only would have been used to seal the well if a hurricane forced the ships away from the storm's path.
However, if the cap passes the pressure test, it could remain in place until relief wells permanently plug the original well.
Allen and BP are "twitchy" about the pressure readings for good reason, said Ian MacDonald, a professor of biological oceanography at Florida State University.
"They've know all along there's something wrong with the well bore, and they're seeing that there's something wrong because they're not getting up to the pressure that they want," he said.
The good news, though, is that they have a fully operational containment system that can keep oil out of the Gulf until the relief well is drilled, MacDonald said.
"They've got this cap on that's got a good, tight seal and they've got lots of hoses going up to the top that can recover oil," MacDonald said. "So barring a hurricane, they can just sit up there and recover the oil until they get the relief well drilled. And that's so much better than where we were."
Dr. Doom says: Double-Dip Days Are Here
Nouriel Roubini | 2010-07-16
NEW YORK – The global economy, artificially boosted since the recession of 2008-2009 by massive monetary and fiscal stimulus and financial bailouts, is headed towards a sharp slowdown this year as the effect of these measures wanes. Worse yet, the fundamental excesses that fueled the crisis – too much debt and leverage in the private sector (households, banks and other financial institutions, and even much of the corporate sector) – have not been addressed.
Private-sector deleveraging has barely begun. Moreover, there is now massive re-leveraging of the public sector in advanced economies, with huge budget deficits and public-debt accumulation driven by automatic stabilizers, counter-cyclical Keynesian fiscal stimulus, and the immense costs of socializing the financial system’s losses.
At best, we face a protracted period of anemic, below-trend growth in advanced economies as deleveraging by households, financial institutions, and governments starts to feed through to consumption and investment. At the global level, the countries that spent too much – the United States, the United Kingdom, Spain, Greece, and elsewhere – now need to deleverage and are spending, consuming, and importing less.
But countries that saved too much – China, emerging Asia, Germany, and Japan – are not spending more to compensate for the fall in spending by deleveraging countries. Thus, the recovery of global aggregate demand will be weak, pushing global growth much lower.
The global slowdown – already evident in second-quarter data for 2010 – will accelerate in the second half of the year. Fiscal stimulus will disappear as austerity programs take hold in most countries. Inventory adjustments, which boosted growth for a few quarters, will run their course. The effects of tax policies that stole demand from the future – such as incentives for buyers of cars and homes – will diminish as programs expire. Labor-market conditions remain weak, with little job creation and a spreading sense of malaise among consumers.
The likely scenario for advanced economies is a mediocre U-shaped recovery, even if we avoid a W-shaped double dip. In the US, annual growth was already below trend in the first half of 2010 (2.7% in the first quarter and estimated at a mediocre 2.2% in April-June). Growth is set to slow further, to 1.5% in the second half of this year and into 2011.
Whatever letter of the alphabet US economic performance ultimately resembles, what is coming will feel like a recession. Mediocre job creation and a further rise in unemployment, larger cyclical budget deficits, a fresh fall in home prices, larger losses by banks on mortgages, consumer credit, and other loans, and the risk that Congress will adopt protectionist measures against China will see to that.
In the eurozone, the outlook is worse. Growth may be close to zero by the end of this year, as fiscal austerity kicks in and stock markets fall. Sharp rises in sovereign, corporate, and interbank liquidity spreads will increase the cost of capital, and increases in risk aversion, volatility, and sovereign risk will undermine business, investor, and consumer confidence further. The weakening of the euro will help Europe’s external balance, but the benefits will be more than offset by the damage to export and growth prospects in the US, China, and emerging Asia.
Even China is showing signs of a slowdown, owing to the government’s attempts to control economic overheating. The slowdown in advanced economies, together with a weaker euro, will further dent Chinese growth, bringing its 11%-plus growth rate towards 7% by the end of this year. This is bad news for export growth in the rest of Asia and among commodity–rich countries, which increasingly rely on Chinese imports.
An important victim will be Japan, where anemic real income growth is depressing domestic demand and exports to China sustain what little growth there is. Japan also suffers from low potential growth, owing to a lack of structural reforms and weak and ineffective governments (four prime ministers in four years), a large stock of public debt, unfavorable demographic trends, and a strong yen that gets stronger during bouts of global risk aversion.
A scenario in which US growth slumps to 1.5%, the eurozone and Japan stagnate, and China’s growth slows below 8% may not imply a global contraction, but, as in the US, it will feel like one. And any additional shock could tip this unstable global economy back into full-fledged recession.
The potential sources of such a shock are legion. The eurozone’s sovereign-risk problems could worsen, leading to another round of asset-price corrections, global risk aversion, volatility, and financial contagion. A vicious cycle of asset-price correction and weaker growth, together with downside surprises that are not currently priced by markets, could lead to further asset-price declines and even weaker growth – a dynamic that drove the global economy into recession in the first place.
And one cannot exclude the possibility of an Israeli military strike on Iran in the next 12 months. If that happens, oil prices could rapidly spike and, as in the summer of 2008, trigger a global recession.
Finally, policymakers are running out of tools. Additional monetary quantitative easing will make little difference, there is little room for further fiscal stimulus in most advanced economies, and the ability to bail out financial institutions that are too big to fail – but also too big to be saved – will be sharply constrained.
So, as the optimists’ delusional hopes for a rapid V-shaped recovery evaporate, the advanced world will be at best in a long U-shaped recovery, which in some cases – the eurozone and Japan – may be long enough to stretch into an L-shaped near-depression. Avoiding double dip recession will be difficult.
In such a world, recovery in the stronger emerging markets – the great hope for the global economy – will suffer, because no country is an island economically. Indeed, growth in many emerging-market economies – starting with China – is highly dependent on retrenching advanced economies.
Fasten your seat belts for a very bumpy ride.
NEW YORK – The global economy, artificially boosted since the recession of 2008-2009 by massive monetary and fiscal stimulus and financial bailouts, is headed towards a sharp slowdown this year as the effect of these measures wanes. Worse yet, the fundamental excesses that fueled the crisis – too much debt and leverage in the private sector (households, banks and other financial institutions, and even much of the corporate sector) – have not been addressed.
Private-sector deleveraging has barely begun. Moreover, there is now massive re-leveraging of the public sector in advanced economies, with huge budget deficits and public-debt accumulation driven by automatic stabilizers, counter-cyclical Keynesian fiscal stimulus, and the immense costs of socializing the financial system’s losses.
At best, we face a protracted period of anemic, below-trend growth in advanced economies as deleveraging by households, financial institutions, and governments starts to feed through to consumption and investment. At the global level, the countries that spent too much – the United States, the United Kingdom, Spain, Greece, and elsewhere – now need to deleverage and are spending, consuming, and importing less.
But countries that saved too much – China, emerging Asia, Germany, and Japan – are not spending more to compensate for the fall in spending by deleveraging countries. Thus, the recovery of global aggregate demand will be weak, pushing global growth much lower.
The global slowdown – already evident in second-quarter data for 2010 – will accelerate in the second half of the year. Fiscal stimulus will disappear as austerity programs take hold in most countries. Inventory adjustments, which boosted growth for a few quarters, will run their course. The effects of tax policies that stole demand from the future – such as incentives for buyers of cars and homes – will diminish as programs expire. Labor-market conditions remain weak, with little job creation and a spreading sense of malaise among consumers.
The likely scenario for advanced economies is a mediocre U-shaped recovery, even if we avoid a W-shaped double dip. In the US, annual growth was already below trend in the first half of 2010 (2.7% in the first quarter and estimated at a mediocre 2.2% in April-June). Growth is set to slow further, to 1.5% in the second half of this year and into 2011.
Whatever letter of the alphabet US economic performance ultimately resembles, what is coming will feel like a recession. Mediocre job creation and a further rise in unemployment, larger cyclical budget deficits, a fresh fall in home prices, larger losses by banks on mortgages, consumer credit, and other loans, and the risk that Congress will adopt protectionist measures against China will see to that.
In the eurozone, the outlook is worse. Growth may be close to zero by the end of this year, as fiscal austerity kicks in and stock markets fall. Sharp rises in sovereign, corporate, and interbank liquidity spreads will increase the cost of capital, and increases in risk aversion, volatility, and sovereign risk will undermine business, investor, and consumer confidence further. The weakening of the euro will help Europe’s external balance, but the benefits will be more than offset by the damage to export and growth prospects in the US, China, and emerging Asia.
Even China is showing signs of a slowdown, owing to the government’s attempts to control economic overheating. The slowdown in advanced economies, together with a weaker euro, will further dent Chinese growth, bringing its 11%-plus growth rate towards 7% by the end of this year. This is bad news for export growth in the rest of Asia and among commodity–rich countries, which increasingly rely on Chinese imports.
An important victim will be Japan, where anemic real income growth is depressing domestic demand and exports to China sustain what little growth there is. Japan also suffers from low potential growth, owing to a lack of structural reforms and weak and ineffective governments (four prime ministers in four years), a large stock of public debt, unfavorable demographic trends, and a strong yen that gets stronger during bouts of global risk aversion.
A scenario in which US growth slumps to 1.5%, the eurozone and Japan stagnate, and China’s growth slows below 8% may not imply a global contraction, but, as in the US, it will feel like one. And any additional shock could tip this unstable global economy back into full-fledged recession.
The potential sources of such a shock are legion. The eurozone’s sovereign-risk problems could worsen, leading to another round of asset-price corrections, global risk aversion, volatility, and financial contagion. A vicious cycle of asset-price correction and weaker growth, together with downside surprises that are not currently priced by markets, could lead to further asset-price declines and even weaker growth – a dynamic that drove the global economy into recession in the first place.
And one cannot exclude the possibility of an Israeli military strike on Iran in the next 12 months. If that happens, oil prices could rapidly spike and, as in the summer of 2008, trigger a global recession.
Finally, policymakers are running out of tools. Additional monetary quantitative easing will make little difference, there is little room for further fiscal stimulus in most advanced economies, and the ability to bail out financial institutions that are too big to fail – but also too big to be saved – will be sharply constrained.
So, as the optimists’ delusional hopes for a rapid V-shaped recovery evaporate, the advanced world will be at best in a long U-shaped recovery, which in some cases – the eurozone and Japan – may be long enough to stretch into an L-shaped near-depression. Avoiding double dip recession will be difficult.
In such a world, recovery in the stronger emerging markets – the great hope for the global economy – will suffer, because no country is an island economically. Indeed, growth in many emerging-market economies – starting with China – is highly dependent on retrenching advanced economies.
Fasten your seat belts for a very bumpy ride.
AIG Settlement: Insurance Giant Agrees To Pay Investors $725 Million
JULIE CARR SMYTH | 07/16/10 09:00 PM |
COLUMBUS, Ohio — American International Group Inc. and some of its directors and officers have agreed to a $725 million settlement to resolve allegations of wide-ranging fraud laid out in a class action suit led by three Ohio pension funds.
Ohio Attorney General Richard Cordray said Friday the latest figure will combine with previous AIG settlements reached with secondary defendants to pay about $1 billion to shareholders, including pensions representing firefighters, police, teachers, librarians and others. He characterized it as the 10th largest securities litigation settlement in U.S. history.
The lawsuit alleged anti-competitive market division, accounting violations, and stock price manipulation by AIG between October 1999 and April 2005.
"The serious misconduct by AIG more than deserves today's large settlement," Cordray said.
AIG said in a statement it was glad to have the matter resolved.
"This settlement ends a long-standing lawsuit, allowing AIG to continue to focus its efforts on paying back taxpayers and restoring the value of our franchise for the benefit of all our stakeholders," it said.
The federal government bailed out New York-based AIG in September 2008 as the financial crisis spiraled out of control. The insurer has received aid packages with a total value of $182.5 billion from the government. In return for that financial support, the government received an 80 percent stake in AIG.
Cordray's office represented the Ohio Public Employees Retirement System, State Teachers Retirement System of Ohio, and the Ohio Police and Fire Pension Fund, who were lead plaintiffs in the lawsuit.
The settlement still requires court approval, after which an initial payment will be made of $175 million, Cordray said. AIG will fund the remaining $550 million through one or more offerings of common stock.
If the necessary amount can't be raised, plaintiffs will have three options: terminate the agreement, acquire shares of AIG stock worth $550 million, or grant an extension, he said.
The suit alleged that AIG:
COLUMBUS, Ohio — American International Group Inc. and some of its directors and officers have agreed to a $725 million settlement to resolve allegations of wide-ranging fraud laid out in a class action suit led by three Ohio pension funds.
Ohio Attorney General Richard Cordray said Friday the latest figure will combine with previous AIG settlements reached with secondary defendants to pay about $1 billion to shareholders, including pensions representing firefighters, police, teachers, librarians and others. He characterized it as the 10th largest securities litigation settlement in U.S. history.
The lawsuit alleged anti-competitive market division, accounting violations, and stock price manipulation by AIG between October 1999 and April 2005.
"The serious misconduct by AIG more than deserves today's large settlement," Cordray said.
AIG said in a statement it was glad to have the matter resolved.
"This settlement ends a long-standing lawsuit, allowing AIG to continue to focus its efforts on paying back taxpayers and restoring the value of our franchise for the benefit of all our stakeholders," it said.
The federal government bailed out New York-based AIG in September 2008 as the financial crisis spiraled out of control. The insurer has received aid packages with a total value of $182.5 billion from the government. In return for that financial support, the government received an 80 percent stake in AIG.
Cordray's office represented the Ohio Public Employees Retirement System, State Teachers Retirement System of Ohio, and the Ohio Police and Fire Pension Fund, who were lead plaintiffs in the lawsuit.
The settlement still requires court approval, after which an initial payment will be made of $175 million, Cordray said. AIG will fund the remaining $550 million through one or more offerings of common stock.
If the necessary amount can't be raised, plaintiffs will have three options: terminate the agreement, acquire shares of AIG stock worth $550 million, or grant an extension, he said.
The suit alleged that AIG:
- Committed accounting fraud that culminated in a $3.9 billion restatement in May 2005 that included an array of transactions through which the company artificially boosted its reported claims reserves. Those transactions included allegations relating to a $500 million no-risk fraudulent reinsurance transaction with General Reinsurance Corp. in relation to which one AIG executive and four General Reinsurance executives were found guilty of securities fraud.
- Divided the market for certain types of insurance by paying tens of millions of dollars in undisclosed contingent commissions to insurance brokers and through bid-rigging.
In addition to the $725 million announced Friday, the case against AIG also includes several earlier settlements: $72 million with General Reinsurance; $97.5 million with PricewaterhouseCoopers LLP, and $115 million with former AIG chairman and CEO Maurice "Hank" Greenberg and other AIG executives and related corporate entities.
- Engaged in stock price manipulation that Cordray called "straightforward," in which AIG executives ordered traders to inflate the company's stock price.
The Jobless Effect: the Real Unemployment Rate is 22%
By PALLAVI GOGOI | 07/16/10 Economy, Careers
Raghavan Mayur, president at TechnoMetrica Market Intelligence, follows unemployment data closely. So, when his survey for May revealed that 28% of the 1,000-odd households surveyed reported that at least one member was looking for a full-time job, he was flummoxed.
"Our numbers are always very accurate, so I was surprised at the discrepancy with the government's numbers," says Mayur, whose firm owns the TIPP polling unit, a polling partner for Investors' Business Daily and Christian Science Monitor. After all, the headline number shows the U.S. unemployment rate today is 9.5%, with a total of 14.6 million jobless people.
However, Mayur's polls continued to find much worse figures. The June poll turned up 27.8% of households with at least one member who's unemployed and looking for a job, while the latest poll conducted in the second week of July showed 28.6% in that situation. That translates to an unemployment rate of over 22%, says Mayur, who has started questioning the accuracy of the Labor Department's jobless numbers.
Even Austan Goolsbee Has Been Skeptical
Mayur isn't alone in harboring such doubts, nor is he the first to wonder about inaccuracies. For years, many economists have pointed to evidence that the government data undercounts the unemployed. Economist Helen Ginsburg, co-founder of advocacy group National Jobs For All Coalition, and John Williams of the newsletter Shadow Government Statistics have been questioning these numbers for years.
In fact, Austan Goolsbee, who is now part of the White House Council of Economic Advisers, wrote in a 2003 New York Times piece titled "The Unemployment Myth," that the government had "cooked the books" by not correctly counting all the people it should, thereby keeping the unemployment rate artificially low. At the time, Goolsbee was a professor at the University of Chicago. When asked whether Goolsbee still believes the government undercounts unemployment, a White House spokeswoman said Goolsbee wasn't available to comment.
Such undercounting of unemployment can be an enormously dangerous exercise today. It could lead to some lawmakers underestimate the gravity of the labor market's problems and base their policymaking on a far-less-grim picture than actually exists. Economically, and socially, that would make a bad situation much worse for America.
"The implications of such undercounting is that policymakers aren't going to be thinking as big as they should be," says Ginsburg, also a professor emeritus of economics at Brooklyn College. "It also means that [consumer] demand is not going to be there, because the income from people who are employed isn't going to be there."
Indeed, it will add additional stress to an already strained economy. Businesses that might start ramping up after seeing the jobless number drop could set themselves up for disappointment when customers don't appear or orders don't flow in.
College Grads Serving Fries
Plus, having a job today is quite different from what it was just a few years ago: Many Americans have had their hours cut and are working for less pay. A Pew Research survey found more than half of all adults in the labor force had either lost a job or suffered a reduction in income because of the recession.
Ginsburg says the biggest source of undercounting comes from people who can't find a full-time job that they're qualified to do, for instance recent college graduates who take part-time jobs at fast-food joints or retail stores. Today, the Labor Department estimates that 8.6 million people are in this category.
The federal government counts such people as employed. However, polls show that these folks actually consider themselves "unemployed" and "looking for a job," and probably accounted for a large chunk of TechnoMetrica's respondents.
Jobless Workers Who Disappear
Another major source of undercounting is the unemployed who've given up looking for jobs. The Bureau of Labor Statistics headline number counts as unemployed only people who have actively looked for a job in the previous four weeks. About 2.6 million people had pursued jobs in the past 12 months but, discouraged by the lack of opportunity, had stopped looking altogether.
"Isn't it interesting that if you stopped looking for a job, you evaporate as a jobless person and are just not counted," says Gerald Celente, director of Trends Research Institute in Kingston, N.Y. Celente believes this kind of undercounting has suited the government politically. "It's what government does: Downplay disasters and amplify success."
According to the Pew Research Center, a large number of people are out of jobs for a longer period during this economic downturn. The typical unemployed worker today has been out of work for nearly six months. That's almost double the previous post-World War II peak for this measure, which was 12.3 weeks in 1982-83.
Indeed, if all of the truly unemployed were counted, the rate would be significantly higher. The BLS, in a data point titled "U-6," says it counted the total unemployment rate in June at 16.5%.
Misreading Americans' Anxiety
However, John Williams, founder of Shadow Government Statistics, says when accounting for the long-term unemployed, the jobless rate runs up to as much as 22% currently. Williams's newsletter, which analyzes flaws in government economic data, points out that such a rate isn't that far from the 25% it hit during the Great Depression.
Both Celente and Ginsburg believe lawmakers' not-dire-enough view of unemployment is one reason why they didn't extend federal unemployment benefits. Of course, party politics is another deterrent. Ginsburg says the Administration's decision to tackle the health care reform over unemployment reflects its lack of priority.
By taking his eye off one of the most fundamental issues affecting the country, President Obama has seen his popularity sink. The most recent Public Policy Polling survey says 45% of voters approve of the job he's doing, while 52% disapprove -- the first time Obama's disapproval ratings have exceeded 50% in this survey.
It's obvious that Americans view unemployment more urgently than either lawmakers or the president. And if pollsters like Mayur or economists like Ginsburg and Williams are right, it will take longer to fix this hole because it's already bigger than Washington thinks.
(14.6 million plus 2.6 million plus 8.6 million equals 25.8 million people. Holy shit!--jef)
Raghavan Mayur, president at TechnoMetrica Market Intelligence, follows unemployment data closely. So, when his survey for May revealed that 28% of the 1,000-odd households surveyed reported that at least one member was looking for a full-time job, he was flummoxed.
"Our numbers are always very accurate, so I was surprised at the discrepancy with the government's numbers," says Mayur, whose firm owns the TIPP polling unit, a polling partner for Investors' Business Daily and Christian Science Monitor. After all, the headline number shows the U.S. unemployment rate today is 9.5%, with a total of 14.6 million jobless people.
However, Mayur's polls continued to find much worse figures. The June poll turned up 27.8% of households with at least one member who's unemployed and looking for a job, while the latest poll conducted in the second week of July showed 28.6% in that situation. That translates to an unemployment rate of over 22%, says Mayur, who has started questioning the accuracy of the Labor Department's jobless numbers.
Even Austan Goolsbee Has Been Skeptical
Mayur isn't alone in harboring such doubts, nor is he the first to wonder about inaccuracies. For years, many economists have pointed to evidence that the government data undercounts the unemployed. Economist Helen Ginsburg, co-founder of advocacy group National Jobs For All Coalition, and John Williams of the newsletter Shadow Government Statistics have been questioning these numbers for years.
In fact, Austan Goolsbee, who is now part of the White House Council of Economic Advisers, wrote in a 2003 New York Times piece titled "The Unemployment Myth," that the government had "cooked the books" by not correctly counting all the people it should, thereby keeping the unemployment rate artificially low. At the time, Goolsbee was a professor at the University of Chicago. When asked whether Goolsbee still believes the government undercounts unemployment, a White House spokeswoman said Goolsbee wasn't available to comment.
Such undercounting of unemployment can be an enormously dangerous exercise today. It could lead to some lawmakers underestimate the gravity of the labor market's problems and base their policymaking on a far-less-grim picture than actually exists. Economically, and socially, that would make a bad situation much worse for America.
"The implications of such undercounting is that policymakers aren't going to be thinking as big as they should be," says Ginsburg, also a professor emeritus of economics at Brooklyn College. "It also means that [consumer] demand is not going to be there, because the income from people who are employed isn't going to be there."
Indeed, it will add additional stress to an already strained economy. Businesses that might start ramping up after seeing the jobless number drop could set themselves up for disappointment when customers don't appear or orders don't flow in.
College Grads Serving Fries
Plus, having a job today is quite different from what it was just a few years ago: Many Americans have had their hours cut and are working for less pay. A Pew Research survey found more than half of all adults in the labor force had either lost a job or suffered a reduction in income because of the recession.
Ginsburg says the biggest source of undercounting comes from people who can't find a full-time job that they're qualified to do, for instance recent college graduates who take part-time jobs at fast-food joints or retail stores. Today, the Labor Department estimates that 8.6 million people are in this category.
The federal government counts such people as employed. However, polls show that these folks actually consider themselves "unemployed" and "looking for a job," and probably accounted for a large chunk of TechnoMetrica's respondents.
Jobless Workers Who Disappear
Another major source of undercounting is the unemployed who've given up looking for jobs. The Bureau of Labor Statistics headline number counts as unemployed only people who have actively looked for a job in the previous four weeks. About 2.6 million people had pursued jobs in the past 12 months but, discouraged by the lack of opportunity, had stopped looking altogether.
"Isn't it interesting that if you stopped looking for a job, you evaporate as a jobless person and are just not counted," says Gerald Celente, director of Trends Research Institute in Kingston, N.Y. Celente believes this kind of undercounting has suited the government politically. "It's what government does: Downplay disasters and amplify success."
According to the Pew Research Center, a large number of people are out of jobs for a longer period during this economic downturn. The typical unemployed worker today has been out of work for nearly six months. That's almost double the previous post-World War II peak for this measure, which was 12.3 weeks in 1982-83.
Indeed, if all of the truly unemployed were counted, the rate would be significantly higher. The BLS, in a data point titled "U-6," says it counted the total unemployment rate in June at 16.5%.
Misreading Americans' Anxiety
However, John Williams, founder of Shadow Government Statistics, says when accounting for the long-term unemployed, the jobless rate runs up to as much as 22% currently. Williams's newsletter, which analyzes flaws in government economic data, points out that such a rate isn't that far from the 25% it hit during the Great Depression.
Both Celente and Ginsburg believe lawmakers' not-dire-enough view of unemployment is one reason why they didn't extend federal unemployment benefits. Of course, party politics is another deterrent. Ginsburg says the Administration's decision to tackle the health care reform over unemployment reflects its lack of priority.
By taking his eye off one of the most fundamental issues affecting the country, President Obama has seen his popularity sink. The most recent Public Policy Polling survey says 45% of voters approve of the job he's doing, while 52% disapprove -- the first time Obama's disapproval ratings have exceeded 50% in this survey.
It's obvious that Americans view unemployment more urgently than either lawmakers or the president. And if pollsters like Mayur or economists like Ginsburg and Williams are right, it will take longer to fix this hole because it's already bigger than Washington thinks.
***
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