Relevant and even prescient commentary on news, politics and the economy.

Jobs in Ohio

The number of lost jobs in Ohio (265,000 jobs) is about 90,000 more than Bush’s margin of victory in 2000 (176,000 votes). I’d say that makes Ohio very likely to swing Democratic in 2004. And as GOP strategist Scott Reed recently pointed out, “No Republican has ever been elected president without carrying Ohio.”

Here’s the job picture in Ohio. The details are at The American Street, along with a quick look at Minnesota (likely to go Democratic again in 2004, based on the jobs situation.)


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More Context on the Size of the US Government

While I’m at it, here’s another picture providing some more context.

Apparently, the US and France also disagree quite a bit about the appropriate size of the government. Rush Limbaugh can add that to the list of reasons why France is evil. This evidence comes not a moment too soon, because Americans’ public opinion about France is apparently improving.


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A Picture Worth 1,000 Words

Sure, many of you have already seen this picture, or something very much like it. But since I was preparing it for a class anyway, I had it handy and thought you might enjoy seeing it one more time. Plus, long-run context is almost always helpful.

Do any features in the graph stand out to you?


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Roach on Sustainability

Stephen Roach of Morgan Stanley is still worried about the sustainability of the recovery:

This global rebound is unlike any experienced in the past — it has been unusually dependent on policy stimulus. Can this nascent recovery in the world economy wean itself from these life-support measures and make the all-important transition to a self-sustaining upturn?

…Global policy levers are now fully engaged. The forces of private demand are not. To the extent that job creation in the developed world remains much tougher to come by in an increasingly integrated global economy, the conversion of policy stimulus into self-sustaining private consumption could continue to be impaired. Not only does that impede the standard “multiplier” effects that lie at the heart of enduring recoveries, but it leads to a build-up of ever-greater imbalances that ultimately pose the most serious threats of all. You’d never know that from the recent euphoria in world financial markets. That’s just the problem.

Since monetary and fiscal stimulus have both pretty much run their course by now, we’ll find out if he’s right within about 6-12 months.


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Is the Current Account Deficit Bad?

A commenter over the weekend posed this important question, so I thought I’d take a stab at answering it. The Current Account (CA) deficit represents the total borrowing that a country is doing from other countries. As with individuals, if a country as a whole is consuming more than it is producing, then it needs to borrow from another country to make up the difference. The way a country borrows from abroad is by importing more than it exports. It pays for those imports by either increasing its debts to the rest of the world or by selling off its assets. Either way, the country’s “net worth” goes down by the amount of the current account deficit every year.

This sounds bad – but it’s not, necessarily. It can be either good or bad, just as it can be good or bad when individuals or firms borrow money. When individuals borrow to buy a car or a house it’s often a good thing. When firms borrow money to expand a profitable business it’s often a good thing. But of course, individuals and businesses can also borrow for frivolous purposes, which we would consider “bad” borrowing. In the same way, a current account deficit is good or bad depending on how it’s spent. The crucial criterion is whether the things being purchased with the borrowed money will make it easier to repay the loan in the future. Wisely spent borrowed money should increase the borrower’s ability to repay debts.

So what’s the US spending its borrowed money on? That’s actually changed significantly over recent years. It’s useful to break down the sources of borrowing into two categories: the private sector and the government sector. The private sector borrows if it spends more than it earns – that is, if the spending done by consumers and businesses is more or less than their income. The government sector borrows if it runs budget deficits. The current account deficit – national borrowing – is the sum of the two.

The following chart shows the US’s current account balance split into these two components. The green line shows the private sector balance. The most prominent feature is the huge private sector deficit in the late 1990s, which was due to a combination of extremely high business spending on capital investment and extremely low saving by households. In recent years this imbalance has been nearly eliminated, as businesses have cut back sharply on their spending (though households still aren’t saving much).

The red line shows the government sector balance, including federal, state, and local levels of government. The remarkable feature about that series is the dramatic move from surplus to deficit in the past 3 years. The blue line is the sum of the two other lines – i.e. the CA balance. The graph illustrates that in the 1990s, the US was spending its borrowed funds on much higher business investment spending and somewhat higher consumption. By contrast, today the US is spending its borrowed money on government spending and higher consumer spending enabled by the tax cuts.

So, back to the question of whether the CA deficit is bad. My own opinion is that in the 1990s the CA deficit was not necessarily harmful – the money that businesses borrowed in the 1990s was spent on investments that are the crucial ingredient to today’s rapidly increasing productivity, which is essential to sustainable income growth. I’m not sure the same could be said about the higher consumer and government spending that is the cause of today’s CA deficit. Will the higher defense spending, new cars, and renovated kitchens that the US has bought with its borrowed funds over recent years help future income growth? Perhaps, but I’m skeptical.

One last point about the CA deficit: notice that it is a reflection of national borrowing and saving, and thus is not the result of “excessive” or “unfair” trade. If the US were somehow magically able to reduce its imports from China by $100bn, the US’s CA deficit would remain unchanged. Why? Because the US would still be demanding more products than it produces, so US imports from other sources would have to increase by $100bn to make up that gap. If the US were magically able to reduce its overall imports by $100bn, then the US’s CA deficit would still be unchanged, because as imports fall so would exports; in order to satisfy its excessive demand with fewer imports, the US would have to consume more of what it used to export.

The only way that the US economy can improve its current account balance is if it produces more but doesn’t spend more. In other words, private and government saving needs to improve. There’s absolutely no other way.


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Lockbox Unlocked

After visiting Pew’s site, I wandered over to the CBO where I found the latest Monthly Budget Review. It contains the current CBO (-$477b) and OMB ($-527b) deficit projections. One suprising element is that the administration’s forecast (the OMB number) is $50b higher than the basically non-partisan CBO’s estimate.

More interesting is this table:


(Billions of dollars)


Receipts 1,817   1,791  
Outlays 2,294   2,319  
Deficit -477   -527  
  On-budget deficit -631   -682  
  Off-budget surplus 154   154  

Sources: Office of Management and Budget; CBO.

What is the $154b “off-budget surplus” number? That’s money for the Social Security trust fund. In other words, the progressive income, capital gains, dividend, and corporate taxes are bringing in between $630 and $690 billion less than the government is spending. Only when the money raised by the regressive payroll tax is included does the deficit fall to a mere one-half trillion dollars.


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Bush Favorables Plummet; Unfavorables Soar

I wandered over to Pew and found their latest survey of registered voters. It’s unambiguously good news for Democrats and bad news for Republicans. Here’s some good news for Democrats:

Two-thirds (67%) of those familiar enough with Sen. John Kerry to rate him have a favorable view of him; Sen John Edwards’ favorable rating is nearly as high (63%), though fewer people are familiar with him than they are with Kerry.

Here’s a bushel of bad news for Bush; perhaps the only consolation is that his favorable number is still over 50%, but given that he’s an incumbent “war president” that should be cold comfort:

For more detailed analysis of the bad new for Bush found in a variety of polls, see Ruy T. here and here.


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I’m not entirely sure what Trackback is or does, but Angry Bear has it now. I think it tracks blogs that link to posts here, but only if the linking bloggers tell it to, somehow.


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Whither the WMD?

One often-heard explanation for why no WMD have been found is that “we were all wrong,” followed by a list of other countries that purportedly agreed with the assessment of some parts of the US intelligence community on the dire nature of the Saddam threat. (The other countries generally make the list by virtue of deceptive dating of statements or intentional conflation of all WMD, including chemical weapons like mustard gas, with nuclear WMD.)

David Kay, former chief US weapons inspector, popularized this line of defense when he told Congress in January, “We were almost all wrong … It turns out that we were all wrong.” By which he did not mean “we were almost completely wrong,” but rather “almost everyone was wrong.”

Upon inspection, this claim is simply all wrong and all who believe it are wrong: many authoritive people (e.g., Colin Powell) and agencies (e.g., IAEA) said, before the war, that Iraq either lacked WMD or that whatever WMD it had were not a threat. In a lengthy and important post, Slacktivist has the definitive dissection and evisceration of the “all were wrong” sophistry.


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