Fiscal stimulus package up for judgment

In the wake of highest GDP contraction in seven years, several economic experts offered their take on the recent crisis and weighed in on the costs and benefits of a fiscal stimulus package during a Joint Economic Committee hearing in the Dirksen Senate Office Building.

“This is likely to be the most severe recession the United States has experienced in a number of decades,” said Nouriel Roubini, professor of economics at New York University’s Stern School of Business.

“This is going to be much longer, more severe, more protracted than the average U.S. recession.”

Roubini recommended an aggressive fiscal stimulus package priced anywhere between $300 billion and $400 billion, and warned that it should be passed soon.

“We cannot wait until the next congress in February because three months from now, the collapse of spending, consumption, and investments is going to be so sharp that the economic contractions could become even more severe.”

Roubini said that the next package should focus on direct government spending for goods and services since the private sector has decreased its overall consumption.

Richard Vedder, Professor of Economics at Ohio University and visiting scholar at the American Enterprise Institute, said he was “dubious” of a fiscal stimulus package. Vedder said that fiscal stimulus does little to aid the economy, and pointed out the last stimulus package was followed by a decrease in GDP and a rise in unemployment rates. However, if fiscal stimulus is unavoidable, Vedder stated that it should take a different form. “If you’re going to have a stimulus package, certainly a tax cut is preferable to a spending increase...a tax cut would have some more positive long run incentive effects.”

When asked if the Troubled Asset Relief Program, or the bailout bill, was a good idea, Roubini answered it was the right step as long as it was used to inject banks with public capitol. This was a notion agreed upon by Simon Johnson, Ronald Kurtz Professor
of Entrepreneurship at MIT.

“The original design of TARP to buy distressed assets was a bad idea and remains a bad idea. Using those funds to recapitalize the bank system and the insurance industry, and other financial institutions that may need recapitalization as we head into serious recession is a very good, if not essential idea,” said Johnson.

Vedder said that he reluctantly supported the original proposal, but was neutral regarding the revisions.

White House Briefing

For weeks, the administration has been lowering expectations about the economy, saying the third quarter report on gross domestic product would be rough.

It was. It fell 0.3% between July and September, the weakest figure in seven years. And the White House outlook? Things are probably going to get worse.

"There's no question the economy has weakened significantly," admitted Eddie Lazear, chairman of the president's council of economic advisors. "We've got a few tough months ahead of us,"

Lazear said parts of the U.S. are undoubtedly in a recession, but declined to say if the entire country is. By definition, a recession occurs when the economy shrinks for two quarters in a row.

But Lazear said the administration's recent actions, notably the massive $700 billion Troubled Asset Relief Program, or TARP will help move the economy in the right direction.

Dividends

Meantime, White House press secretary Dana Perino was subjected to a barrage of questions about why banks dipping into the TARP trough for much needed capital continue to pay dividends to shareholders.

"You know, some people think only rich people get dividends. That's not true, she said." Perino pointed out that "mutual funds, schoolteachers" and others get dividends through investments they hold.

Where's Bush?

The silence is thunderous. President Bush is, perhaps not by choice, staying off the campaign trail and keeping quiet about the race to succeed him - a race now down to its final hundred hours. He'll spend the weekend at Camp David with the First Lady, but will return to the White House to watch returns on election night.

When will the president hold a news conference to comment on the election?

"I don't know," says Perino. "You'll probably hear from me first though, on Tuesday night."

The President did find a receptive audience today, though, attending graduation at the FBI academy, then visiting Marine Squadron One - home of Marine One, the presidential helicopter.

Mrs. Bush, for her part, visited New Orleans today, her 20th visit to the Gulf region since Hurricane Katrina. She visited an elementary school and announced a grant to help rebuild school libraries in the region. Perino said it would probably be Mrs. Bush's final visit to the region as first lady.

Giant multi-city regions dominate America’s economy says director of infrastructure program

Petra Todorovich, director of the America 2050 National Infrastructure Plan, spoke about “Smart Growth: Planning for America's Future Infrastructure, Economic Development, and Environmental Challenges” in a speech in a series of talks at the National Building Museum.

She said that a major shift in the structure of America is the rise of the megaregion. Megaregions are large areas of interconnected cities caused by overlapping communities, similar histories, and ecological unity. The Northeast megaregion, spanning from Washington, D.C. to Boston, is responsible for 20 percent of the nation’s GDP, 17 percent of the population, and only two percent of the land area. Todorovich said that as the megaregions grow and become the economic engines of America, they must be efficient and sustainable.

She said that Americans have the right to clean air, well-planned, walkable cities, and the choice of high-speed rail. The America 2050 program addresses the problems facing the aging population, including transportation, oil prices, and air quality, among others

White House Gaggle

Briefer: Tony Fratto

President’s Schedule

At 10.15 am President Bush makes remarks on the 57th National Day of Prayer in the East Room of the White House. This afternoon, at 2:50 pm he will also make remarks at the celebration of Asian Pacific American Heritage Month.
Deputy White House Press Secretary Tony Fratto will brief the press at 12.30 pm today.




Economy

Fratto was asked if the GDP numbers this week were better than the Administration expected, and Fratto said that they had anticipated that the quarter numbers were going to be relatively flat. We had modestly encouraging news about .6% GDP, where the economy slightly expanded when there was a lot of expectation that it would contracting.


US air strike on Somalia

When asked for a confirmation on a US air strike in Somalia that is believe to have killed the head of a terrorist organization, Fratto said that he was aware of the report but referred to the Pentagon for further information.


Resignation

Fratto was asked if there are any more resignations following that of General Services Administration Lurita Doan, and he responded that he was not aware of any.


Whales

When asked for a comment on Rep. Harry Waxman’s concerns about a report that came out yesterday looking at White House involvement on protecting the whales. Fratto said that they were in the middle of the rule making process and he said that, “It is a robust and thorough process and we are going to listen to all the voices involves and come to a decision that is in the best interest of everybody involved… and making sure that we are protecting this very endangered species.” Every office is involved in review of decisions, which is why it is not at all unusual for the Vice President’s office to be involved, Fratto said.



Russia and Georgia

When asked if the President has spoken to Russian President Putin in the last 24 hours, Fratto said no. When asked about developments regarding Georgia and NATO involvement, Fratto said that they were concerned about reports coming out of the region and the US State Department is expressing their concerns through their appropriate channels. Fratto had nothing else specific to tell in terms of specific contact between Russia and Georgia. When asked who President Bush would call, Mr. Medvedev or Mr. Putin, Fratto replied that President Putin is the head of state of Russia.



Mission Accomplished

Fratto was asked if there will be any public notice of the anniversary of the “Mission Accomplished”, and he stated, “We know that all of you have it, since you have been asking about it for three days. We have been through this a number of times, and I don’t think I have anything to add.”



Food prices

Referring to the discussion on food prices on Capitol Hill, Fratto was asked if it was too early to push the panic button for ethanol, and he said that they take a strong look at how all of these policies affect food prices in the country. In regards to biofuels, there might “have been too much attention to bio fuel and not enough attention to all the other factors that affect food prices, especially in this county where it is a tiny slice of the increased prices for food in the United States,” Fratto said. Two years ago the price increased by 3.3% and last year by 4.5 %. “A very small portion of that price increase is attributed to biofuels, and there are lots of other factors; energy prices and the cost of transporting food, that has had a greater impact on that price increase than biofuel.”

Super Tuesday in a drowning nation

By Ellen Ratner

Twenty-four hour campaigning, 7,000 person rallies, political ads filling every TV and radio spot, political pundits spewing their latest guesstimates … overall, there is a lot of noise and promises, but no one is dealing with two of the biggest issues facing America – debt and health care crises.

In fairness, Ron Paul has attempted to elevate the debt crisis to the national scene, but he has been sidelined. And yes, the Democrats are talking about health care for all, and even Mitt Romney is touting his Massachusetts health care plan, but neither party is taking a hard look at the facts with debt or health care.

According to Demos and the Center for Responsible Lending, credit card debt has almost tripled since 1989 and risen 31 percent in the last three years. Many people are using credit cards as safety nets instead of relying on savings. Low and middle-income households have an average $8,650 in credit-card debt. Most people with this amount of debt have carried it for more than one year. Almost half of all card debtors have used their credit cards to pay for automobile repair. Not just paying the minimums, most people in this study paid $700 last month and are making a median payment of $300 per month. This kind of debt for so many Americans is clearly unsustainable.

On the health care front, the issue has been focused on the ability of people to purchase health insurance policies. Mitt Romney worked with the Democrats in his state to fine people who did not buy health insurance policies and to underwrite part of the costs for people who could not afford it. Hillary Clinton and Barack Obama each have plans to get the majority of Americans to be able to purchase health insurance. None of the candidates are discussing the real problem – the cost of health care, whether it is paid by insurance or the government, is going to rise astronomically. Insurance is not going to pay these rising costs because they will go broke doing so. Health care is now almost 17 percent of our GDP, up from 13 percent in 2000, and it is rising about a percentage point a year.

You do not have to be a Nobel laureate in economics to know that these numbers are unsustainable – health care will not be affordable to individuals or taxpayers as it takes a larger and larger chunk out of our overall economy.
Even though the candidates don't want to address these problems, there are solutions. First, on the credit crisis, we can provide real incentives for people to save by providing some kind of matching program in the same way that we are giving out treasury checks in the stimulus program. Congress can support legislation that would provide a tax break to those who save. Second, start making some deals with the credit card companies in the form of tax savings if they stop handing out easy credit and start reducing the monthly interest rates for people with high debt.

In addition, Demos and the Center for Responsible Lending recommend that credit card companies be required to disclose the overall cost of minimum payments and require meaningful underwriting standards so that credit card limits are not pushed beyond what they know can be paid for by the consumer.
With health care taking such a bite out of our GDP, the only solution is to turn the rising health technology costs into a plus on our national balance sheet. Other countries recognize our expertise. Johns Hopkins and the Cleveland Clinic are going to be managing hospitals in the United Arab Emirates. With our advances in equipment and other technology, there is no reason why we can't pay for our increasing health care bill by supporting research and exporting it. We have given tax breaks to tobacco companies to export their products, why not the same for health care innovators and providers?

The above are just a few solutions to major economic problems but nary a word from the major presidential hopefuls. You have to dig deep on their websites to find any in-depth thinking and forget about policy specifics. They are convinced that the American people don't want to hear anything but sound bites. If you don't believe that, watch one of the debates. They simply respond to one generality with another unless it's about "who" said or did "what" "when," and then the exchange becomes so sophomoric, as it did with Sen. McCain attacking Romney last week, that the other candidates have to redirect the focus to real issues when moderator Anderson Cooper lost control.

President Bush is no different than the candidates. He prefers to fly in the stratosphere on issues versus rolling up his sleeves and addressing root causes. He signed an executive order to put together a panel on increasing financial literacy for the greater population; that is great, but it hardly helps people caught in the vise now. Americans aren't dumb; they want real talk about real solutions. Too bad Super Tuesday won't move the candidates to enter into the discussion.