If you believe in the invisible hand of capitalism, then markets should respond to unmet demand by investing in the capital needed to produce the supply to meet the demand. Some supply-side believers would even say that investing in the capital will grow the economy because it will produce the demand.
We have persistent unmet demand. The supply-side model is clearly disproved to even the most casual observer. It should be obvious to anyone who took Econ 101 that the competitive markets model does not apply either.
I spent most of my career working in an industry that had multiple large competing companies. Barriers to entry were high, but so was the competition for market share. I came to believe that imperfect information was a major factor in the failure of the market model; I just thought that the firm was terrible at estimating how much to invest to meet demand. I even theorized that capitalism requires a growing economy to hide the fact that predicting the future is hard. (In a growing economy next quarter’s increase in demand can make up for last quarter’s bad predictions.)
Recent exchanges with Run have redirected my cynicism. I interpret his comments to say that as firms work to maximize profits, long term goals such as increasing market share simply do not overcome short term thinking.
Capitalism is broken. Economists (or engineers) who understand market failures could design government interventions to help. Too bad that successful rent seeking is so much more effective than effective problem solving.
On the engineering side, I do wonder if a capitalist economy with less rent seeking would still be handicapped by having a reduced rate of expansion of workers. Women coming into the workplace is a plausible reason for the difference between growth from 1950-1980 and from 1980-today. When the percentage of households with two incomes stopped increasing, demand growth slowed.
Since demand through excess population is a problem, an engineering solution based on ever growing demand is not a real solution.
I think about my family’s cars and all 3 of them are of an age and mileage that probably none of their equivalents when I grew up would have any value at this time. Is it demand destruction that we last bought a new “new” vehicle 4/25/11 compared with my dad who likely would have had bought a couple more over a similar period? It is sill pretty easy to justify fairly expensive repairs on 10 year old vehicles compared with my dad’s thinking about 4 year old vehicles back in 1970 say.
We both bought used. The 2013 Ford Escape has 122,000 on it and the 2015 VW Passat has 64,000. Both are efficient and maintained. They are clean and have no rust. Why would I get rid of them? We are older and it makes no sense to buy new. The Passat has a warranty on it which for all intents and purpose would replace the car. My wife has a limited warranty on her Escape. Both are paid off. It makes no sense to buy new.
The female German Shepard like to ride in the Escape. We take her with us at times. Otherwise, she sulks.
To your point, I have torn down a Chrysler New Yorker. Replaced the rear brakes, did the right strut, replaced a head gasket on the 2.6 litre engine. Just marked all the hoses so I got them back in the right place again. It ran for my daughter for a long time and then we junked it. The same for a 91 Cavalier for the boys. Had a good neighborhood mechanic too. Someone rear ended it at a light.
We have bought new and kept them forever because we knew what we got. Maintained them and they last forever. We do not drive far anymore or go to work on a daily basis. No need for new . . .
Hmm. Run got mentioned because of a comment on rent seeking, but moving the term to sharpen the last sentence dulled the previous paragraph and therefore the importance of the contribution his comment had on my thinking.
Ron (RC) Weakley (A.K.A., Darryl For A While At EV) says:
My takeaway is “Too bad that successful rent seeking is so much more effective than effective problem solving,” at least with respect to accumulating more wealth for the wealthy, if not so much for providing fair compensation to labor or high quality goods and services for consumers.
Greed is not necessarily a good thing. There has to be a symbiotic relationship between the economy and the people it serves. We have experienced two business cycles (2008 and now) where business took advantage of the economy to rent take during and economic downturn. There is not mistaking the failure to plan this time around as there might have been in 2008. It is greed taking advantage of a scenario. There are no Schooner Tunas who roll back prices during bad times. They upped their prices because they could. They failed to plan for a catastrophe.
“Greed is good” is a dramatic way of saying the profit motive can be useful. I think market worshipers think that a symbiotic relationship automatically exists. But profit can buy power and power needs checks and balances.
Although capitalism has worked for me, I worry that we are losing the checks and balances. Nor just during downturns.
“Greed is good” is a dramatic way of saying the profit motive can be useful.
The problem of the statement at hand is it reflects an accumulation of income and subsequent wealth to a minority of people who typically already have more income and wealth than most people. Unless of course you believe in the trickle-down theory of some of the income will come to us and we accumulate subsequent wealth as a resort.
run,
You have a way of agreeing with me that sounds like you disagree. It pushes my argue button. So, I will note that the question at hand is whether we can intervene in the market to limit problems such as excess accumulation of wealth.
Capitalism checked by competition has been a good basis for most of our economy. Household improvements from refrigerators and washing machine to music delivery systems have benefited from capitalism. Giving in to argumentation, there has even been a trickle down component as the wealth of early adopters have been a factor in that success.
Capitalism has also given us leaded gasoline and flavored cigarettes, so non-competitive behaviors are not the only problem with capitalism needing checks and balances.
Some industries do not benefit from capitalism. Competition in power and water does not make sense. Healthcare is tricky; rewarding doctors for spending more is often backwards.
As long as there were many independent actors, capitalism was or could be good. Of course, there were a few who sold us on the health of cigarette smoking and the advantage of leaded gasoline reducing wear and tear on auto engines and better mileage.The downfalls of lead were overlooked due to the necessity of it. What was not know or just plan not done was measure the economic cost of it’s usage as played against the environmental damage and the healthcare impact. Would either have matter if it costs 25 cents more per gallon in the sixties?
The same holds true for cigarettes even though they were killing many people from cancer. Doctors purported sanctioned smpking.
Coporate powers in each case. Greed is good and acts in the best interests with regard to people. Or does it?
During the pandemic, corporations were jacking up prices because they could and not because their costs increased. No Schooner Tunas amongst them.
my take on this is that newer cars are better and last longer. no thanks to the planned obsolescence of Detroit thinking, but to the better built Japanese and German cars that came on market.
Ford, at least, has compensated by using plastic for “non essential” parts that break and cost a hundred bucks to fix, and by insane all pupose switches that cost a great deal more than that to fix, where a ten dollar single-purpose switch would have solved the problem on the old cars’
and completely unnecessary gatgets that make the new car owner able to unlock his doors from fifty feet away with a key that costs 200 dollars, , or windows that roll down with the push of a button, but can’t roll down when the button doesn’t work.
the usual economists call this an increase in standard of living and therefore not “inflation” that has to be compensated for in, say, social security benefits. but all i need is a car that gets me to work (or even across the country….and you can’t buy one like that anymore.
… as another group of Republicans resists raising the debt ceiling, Speaker Kevin McCarthy has presented a list of spending demands that he hopes to push through the House along party lines as soon as Wednesday. But this time, in a bow to political reality and economic necessity, it is a substantial retreat from what hard-right Republicans once sought, and it carries a kinder, gentler catchphrase to match: the Limit, Save, Grow Act.
Mr. McCarthy and his team were still scrounging on Tuesday for the votes to pass the legislation, which would be dead on arrival in the Democratic-led Senate and at the White House, as President Biden’s advisers said on Tuesday that he would veto it. Mr. Biden has been calling on Republicans for months to raise the debt ceiling without conditions to avoid a catastrophic default that could come as soon as this summer. …
The speaker was facing internal pushback on his plan from some conservatives who were demanding that the legislation contain stricter work requirements for government assistance programs, a change that could alienate politically vulnerable lawmakers in Democratic-leaning districts. And new obstacles emerged as a bloc of Midwestern lawmakers raised concerns about a measure in the bill that would repeal ethanol tax credits.
Mr. McCarthy, the California Republican, has expressed confidence that he will ultimately be able to push through the bill despite the party divides and his slim majority.
Still, the vast gulf between their debt limit slogan of a dozen years ago and the current G.O.P. mantra reflects how House Republicans have scaled back their fiscal ambitions and tried to put a softer, more appealing face on their demands.
Wary of subjecting their members from politically competitive areas to accusations of draconian cuts and cognizant of the economic perils of defaulting on the nation’s debt, Republicans have abandoned some of their most extreme proposals, including balancing the budget within 10 years, and repackaged the others as modest trims.
These days, Republicans have all but excised the phrase “spending cuts” from their lexicon. When Mr. McCarthy took to the House floor last week to announce the bill, he did not utter the term. Asked last week on CNBC where House Republicans planned to cut spending, Mr. McCarthy replied: “I don’t call them cuts because I call them savings.” …
House Republicans narrowly passed a bill to raise the debt ceiling while cutting spending by nearly 14 percent over a decade. President Biden has vowed to veto the measure.
The House on Wednesday narrowly passed Republicans’ bill to raise the debt ceiling while cutting spending and unraveling major elements of President Biden’s domestic agenda, in a G.O.P. bid to force Mr. Biden to negotiate over spending reductions or risk a catastrophic debt default.
Facing his most significant challenge since being elected to his post, Speaker Kevin McCarthy barely cobbled together the votes to pass the bill, which was approved 217 to 215 along party lines.
The legislation would raise the debt ceiling into next year in exchange for freezing spending at last year’s levels for a decade — a nearly 14 percent cut — as well as rolling back parts of Mr. Biden’s landmark health, climate and tax law, imposing work requirements on social programs, and expanding mining and fossil fuel production.
Even Republicans conceded that their legislation was headed nowhere; Mr. Biden has threatened to veto it, and the measure is dead on arrival in the Democratic-led Senate. Without action by Congress to raise the debt limit, which is projected to be reached as early as this summer, the U.S. government faces a potentially catastrophic default. …
… Republican leaders received political cover from an unusual wing — influential conservatives, including Representative Chip Roy of Texas, who stood on Wednesday in a closed-door meeting of lawmakers to urge his colleagues to vote for the bill.
Top officials were able to break through what would have been a fatal bloc of opposition to the bill after a late-night flurry of negotiating to nail down the votes, agreeing to jettison a provision rolling back tax credits that the Biden administration put in place for ethanol and moving up by a year, to 2024, the imposition of work requirements for Medicaid and food stamp recipients.
In the end, only four right-wing Republicans voted against the legislation, the most Mr. McCarthy could afford to lose and still have it pass. They were Representatives Andy Biggs of Arizona and Matt Gaetz of Florida, two of Mr. McCarthy’s chief antagonists in his prolonged fight to be elected speaker, as well as Ken Buck of Colorado and Tim Burchett of Tennessee. …
they don’t call it cuts they call it savings. not also that their reason for not calling for some cuts is that it might cost them votes. absolutely no concern that it might hurt some people badly.
all they can think in terms of is money* and politics. that’s where Arne’s “problem solving went..at that’s the government. so why would you expect anything better from “the market” which has long been not “free” but price and wage controlled by “combinations in restraint of trade.”
*this means they can save (or fix) Social Security by keping the name but cutting benefits so the balance sheet looks good. never mind that they have destroyed social “security” by saving it.
and of course now that “the left” thinks only about money (stealing from the rich and giving to the poor, with a cut, of course, for the parasites that ride on every “benefit for the poor” that ride on “political” solutions.
I read that the current GOP proposal does not specify where the ‘savings’ is to come from. The House Appropriations committee would work that out at some future date.
Well, I heard that they were going to cut food stamps and medicaid for people who can’t find jobs. But that’s okay because they are not going to reverse the Trump tax cut which has made us all so prosperous, if only we weren’t too lazy to find a job. and of course they are going to restore the ethanol subsidy, because without the subsidy gas would be too expensive for us to keep heating up the planet.
Joe Biden has, to nobody’s surprise, formally announced that he is seeking re-election. And I, for one, am dreading the year and a half of political crystal ball gazing that lies ahead of us — a discussion to which I will have little if anything to add.
One thing I may be able to contribute to, however, is the way we talk about the Biden economy. Much political discussion, it seems to me, is informed by a sense that the economy will be a major liability for Democrats — a sense that is strongly affected by out-of-date or questionable data.
Of course, a lot can change between now and November 2024. We could have a recession, maybe as the delayed effect of monetary tightening by the Federal Reserve. We might all too easily face a financial crisis this summer when, as seems likely, Republicans refuse to raise the debt ceiling — and nobody knows how that will play out politically.
Right now, however, the economy is in better shape than I suspect most pundits or even generally well-informed readers may realize.
The basic story of the Biden economy is that America has experienced a remarkably fast and essentially complete job market recovery. This recovery was initially accompanied by distressingly high inflation; but inflation, while still high by the standards of the past few decades, has subsided substantially. The overall situation is, well, not so bad. …
About jobs: Unless you’ve been getting your news from Tucker Carlson or Truth Social, you’re probably aware that the unemployment rate is hovering near historic lows. However, I keep hearing assertions that this number is misleading, because millions of Americans have dropped out of the labor force — which was true a year ago.
But it’s not true anymore. There are multiple ways to make this point, but one way is to compare where we are now with projections made just before Covid struck. In January 2020 the Congressional Budget Office projected that by the first quarter of 2023 nonfarm employment would be 154.8 million; the actual number for March was 155.6 million. As a recent report from the Council of Economic Advisers points out, labor force participation — the percentage of adults either working or actively looking for work — is also right back in line with pre-Covid projections.
In short, we really are back at full employment.
Inflation isn’t as happy a picture. If we measure inflation by the annual rate of change in consumer prices over the past six months — my current preference for trying to extract the signal from the noise — inflation was almost 10 percent in June 2022. But it’s now down to just 3.5 percent.
That’s still above the Fed’s target of 2 percent, and there’s intense debate among economists about how hard it will be to get inflation all the way down (intense because nobody really knows the answer). But maybe some perspective is in order. The current inflation rate is lower than it was at the end of Ronald Reagan’s second term. …
About jobs: Unless you’ve been getting your news from Tucker Carlson or Truth Social, you’re probably aware that the unemployment rate is hovering near historic lows. However, I keep hearing assertions that this number is misleading, because millions of Americans have dropped out of the labor force — which was true a year ago.
But it’s not true anymore. There are multiple ways to make this point, but one way is to compare where we are now with projections made just before Covid struck. In January 2020 the Congressional Budget Office projected that by the first quarter of 2023 nonfarm employment would be 154.8 million; the actual number for March was 155.6 million. As a recent report from the Council of Economic Advisers points out, labor force participation — the percentage of adults either working or actively looking for work — is also right back in line with pre-Covid projections.
In short, we really are back at full employment.
Inflation isn’t as happy a picture. If we measure inflation by the annual rate of change in consumer prices over the past six months — my current preference for trying to extract the signal from the noise — inflation was almost 10 percent in June 2022. But it’s now down to just 3.5 percent.
That’s still above the Fed’s target of 2 percent, and there’s intense debate among economists about how hard it will be to get inflation all the way down (intense because nobody really knows the answer). But maybe some perspective is in order. The current inflation rate is lower than it was at the end of Ronald Reagan’s second term. …
Are we gaming a system which was taken as realistic previously? Is Participation Rate of 62.8% in 2019 or 63.0% in the Januarys of 2019 or 2020 where we should be or not? Are we saying the nation lacks the productivity to employ the numbers of people we have in the Civilian Non-Institutional Population?
As far as the Fed? Their Fed Rate is playing out with banks who have been “gambling” again. No thanks to the loosening up on the Dodd-Frank requirements for inspections and reserves. Special call out to Congressional Repubs and Dems.
A 2010 law signed by then-President Barack Obama, widely known as Dodd-Frank, had created stricter regulations for banks with at least $50 billion in assets. These banks, which were deemed “systemically important” to the financial system, were required to undergo an annual Federal Reserve “stress test,” to maintain certain levels of capital (to be able to absorb losses) and liquidity (to be able to quickly meet cash obligations), and to file a “living will” plan for their quick and orderly dissolution if they were to fail.
The 2018 rollback got rid of the $50 billion threshold, which many banks had argued was needlessly encumbering them. Instead, among many other changes, the rollback law made the enhanced regulations standard only for banks with at least $250 billion in assets – only about a dozen banks at the time.
Why is Labor responsible for these phenomena? It is the smallest portion of manufacturing costs and other costs for that matter. Corporate shell game and where is the pea.
… The bank received a temporary $30 billion lifeline last month from the nation’s biggest banks to help shore up its business. Those banks, however, can withdraw their deposits as soon as July. In the first quarter, First Republic also borrowed $92 billion, mostly from the Federal Reserve and government-backed lending groups, essentially replacing its deposits with loans.
First Republic is considered the most vulnerable regional bank after the banking crisis in March. What happens to it could also affect investors’ confidence in other regional banks and the financial system more broadly. …
… The bank’s options to save itself absent a government seizure or intervention are limited and challenging. No buyer has emerged for the bank in its entirety. Any bank or investor group interested in taking over the bank would have to take on First Republic’s loan portfolio, which could saddle the buyer with billions of dollars in losses based on the recent interest rate moves. The bank is also difficult to sell off in pieces because its customers use many different services like checking accounts, mortgages and wealth management. …
The Federal Reserve is set to release a highly anticipated report on Friday examining what went wrong with its oversight of Silicon Valley Bank, which collapsed in mid-March, in the largest bank failure since the 2008 financial crisis.
The post-mortem comes as the aftershocks of Silicon Valley Bank’s collapse continue to shake the American financial system: First Republic, which required a cash infusion from other large banks as nervous customers pulled their deposits and fled, remains imperiled. …
The Federal Reserve released hundreds of pages documenting how bank supervision and regulation failed to prevent the lender’s collapse. The F.D.I.C. released a separate report on Signature Bank.
The Federal Reserve on Friday faulted itself for failing to “take forceful enough action” to address growing risks at Silicon Valley Bank ahead of the lender’s March 10 collapse, which raised turmoil across the global banking industry.
A sweeping — and highly critical — review conducted by Michael S. Barr, the Fed’s vice chair for supervision, identified lax oversight of the bank and said its collapse demonstrated “weaknesses in regulation and supervision that must be addressed.”
“Regulatory standards for SVB were too low, the supervision of SVB did not work with sufficient force and urgency, and contagion from the firm’s failure posed systemic consequences not contemplated by the Federal Reserve’s tailoring framework,” Mr. Barr wrote in a letter accompanying the report. …
The review spanned hundreds of pages and painted a picture of a bank that grew rapidly in size and risk with limited intervention from supervisors who missed obvious problems and moved slowly to address the ones they did recognize. And it outlined a range of potential changes to bank oversight and regulation — from stronger rules for midsize banks to possible tweaks to how deposits over the $250,000 federal insurance limit are treated — that the Fed will consider in response to the disaster.
The post-mortem is a rare instance of overt self-criticism from the Fed, and it comes as the aftershocks of Silicon Valley Bank’s collapse continue to shake the American financial system. First Republic Bank, a regional lender that required a cash infusion from other large banks as nervous customers pulled their deposits and fled, remains imperiled. …
If you believe in the invisible hand of capitalism, then markets should respond to unmet demand by investing in the capital needed to produce the supply to meet the demand. Some supply-side believers would even say that investing in the capital will grow the economy because it will produce the demand.
We have persistent unmet demand. The supply-side model is clearly disproved to even the most casual observer. It should be obvious to anyone who took Econ 101 that the competitive markets model does not apply either.
I spent most of my career working in an industry that had multiple large competing companies. Barriers to entry were high, but so was the competition for market share. I came to believe that imperfect information was a major factor in the failure of the market model; I just thought that the firm was terrible at estimating how much to invest to meet demand. I even theorized that capitalism requires a growing economy to hide the fact that predicting the future is hard. (In a growing economy next quarter’s increase in demand can make up for last quarter’s bad predictions.)
Recent exchanges with Run have redirected my cynicism. I interpret his comments to say that as firms work to maximize profits, long term goals such as increasing market share simply do not overcome short term thinking.
Capitalism is broken. Economists (or engineers) who understand market failures could design government interventions to help. Too bad that successful rent seeking is so much more effective than effective problem solving.
On the engineering side, I do wonder if a capitalist economy with less rent seeking would still be handicapped by having a reduced rate of expansion of workers. Women coming into the workplace is a plausible reason for the difference between growth from 1950-1980 and from 1980-today. When the percentage of households with two incomes stopped increasing, demand growth slowed.
Since demand through excess population is a problem, an engineering solution based on ever growing demand is not a real solution.
I think about my family’s cars and all 3 of them are of an age and mileage that probably none of their equivalents when I grew up would have any value at this time. Is it demand destruction that we last bought a new “new” vehicle 4/25/11 compared with my dad who likely would have had bought a couple more over a similar period? It is sill pretty easy to justify fairly expensive repairs on 10 year old vehicles compared with my dad’s thinking about 4 year old vehicles back in 1970 say.
Eric:
We both bought used. The 2013 Ford Escape has 122,000 on it and the 2015 VW Passat has 64,000. Both are efficient and maintained. They are clean and have no rust. Why would I get rid of them? We are older and it makes no sense to buy new. The Passat has a warranty on it which for all intents and purpose would replace the car. My wife has a limited warranty on her Escape. Both are paid off. It makes no sense to buy new.
The female German Shepard like to ride in the Escape. We take her with us at times. Otherwise, she sulks.
To your point, I have torn down a Chrysler New Yorker. Replaced the rear brakes, did the right strut, replaced a head gasket on the 2.6 litre engine. Just marked all the hoses so I got them back in the right place again. It ran for my daughter for a long time and then we junked it. The same for a 91 Cavalier for the boys. Had a good neighborhood mechanic too. Someone rear ended it at a light.
We have bought new and kept them forever because we knew what we got. Maintained them and they last forever. We do not drive far anymore or go to work on a daily basis. No need for new . . .
Hmm. Run got mentioned because of a comment on rent seeking, but moving the term to sharpen the last sentence dulled the previous paragraph and therefore the importance of the contribution his comment had on my thinking.
My takeaway is “Too bad that successful rent seeking is so much more effective than effective problem solving,” at least with respect to accumulating more wealth for the wealthy, if not so much for providing fair compensation to labor or high quality goods and services for consumers.
Arne:
Greed is not necessarily a good thing. There has to be a symbiotic relationship between the economy and the people it serves. We have experienced two business cycles (2008 and now) where business took advantage of the economy to rent take during and economic downturn. There is not mistaking the failure to plan this time around as there might have been in 2008. It is greed taking advantage of a scenario. There are no Schooner Tunas who roll back prices during bad times. They upped their prices because they could. They failed to plan for a catastrophe.
“Greed is good” is a dramatic way of saying the profit motive can be useful. I think market worshipers think that a symbiotic relationship automatically exists. But profit can buy power and power needs checks and balances.
Although capitalism has worked for me, I worry that we are losing the checks and balances. Nor just during downturns.
“Greed is good” is a dramatic way of saying the profit motive can be useful.
The problem of the statement at hand is it reflects an accumulation of income and subsequent wealth to a minority of people who typically already have more income and wealth than most people. Unless of course you believe in the trickle-down theory of some of the income will come to us and we accumulate subsequent wealth as a resort.
run,
You have a way of agreeing with me that sounds like you disagree. It pushes my argue button. So, I will note that the question at hand is whether we can intervene in the market to limit problems such as excess accumulation of wealth.
Capitalism checked by competition has been a good basis for most of our economy. Household improvements from refrigerators and washing machine to music delivery systems have benefited from capitalism. Giving in to argumentation, there has even been a trickle down component as the wealth of early adopters have been a factor in that success.
Capitalism has also given us leaded gasoline and flavored cigarettes, so non-competitive behaviors are not the only problem with capitalism needing checks and balances.
Some industries do not benefit from capitalism. Competition in power and water does not make sense. Healthcare is tricky; rewarding doctors for spending more is often backwards.
Arne:
As long as there were many independent actors, capitalism was or could be good. Of course, there were a few who sold us on the health of cigarette smoking and the advantage of leaded gasoline reducing wear and tear on auto engines and better mileage.The downfalls of lead were overlooked due to the necessity of it. What was not know or just plan not done was measure the economic cost of it’s usage as played against the environmental damage and the healthcare impact. Would either have matter if it costs 25 cents more per gallon in the sixties?
The same holds true for cigarettes even though they were killing many people from cancer. Doctors purported sanctioned smpking.
Coporate powers in each case. Greed is good and acts in the best interests with regard to people. Or does it?
During the pandemic, corporations were jacking up prices because they could and not because their costs increased. No Schooner Tunas amongst them.
Eric
my take on this is that newer cars are better and last longer. no thanks to the planned obsolescence of Detroit thinking, but to the better built Japanese and German cars that came on market.
Ford, at least, has compensated by using plastic for “non essential” parts that break and cost a hundred bucks to fix, and by insane all pupose switches that cost a great deal more than that to fix, where a ten dollar single-purpose switch would have solved the problem on the old cars’
and completely unnecessary gatgets that make the new car owner able to unlock his doors from fifty feet away with a key that costs 200 dollars, , or windows that roll down with the push of a button, but can’t roll down when the button doesn’t work.
the usual economists call this an increase in standard of living and therefore not “inflation” that has to be compensated for in, say, social security benefits. but all i need is a car that gets me to work (or even across the country….and you can’t buy one like that anymore.
Arne: Fascinating and important comments.
Arne: Would you please continue your thoughts on this important matter when possible?
Don’t Call It a ‘Cut’: GOP Tries to Rebrand Its Plan to Reduce Spending
NY Times – April 25
… as another group of Republicans resists raising the debt ceiling, Speaker Kevin McCarthy has presented a list of spending demands that he hopes to push through the House along party lines as soon as Wednesday. But this time, in a bow to political reality and economic necessity, it is a substantial retreat from what hard-right Republicans once sought, and it carries a kinder, gentler catchphrase to match: the Limit, Save, Grow Act.
Mr. McCarthy and his team were still scrounging on Tuesday for the votes to pass the legislation, which would be dead on arrival in the Democratic-led Senate and at the White House, as President Biden’s advisers said on Tuesday that he would veto it. Mr. Biden has been calling on Republicans for months to raise the debt ceiling without conditions to avoid a catastrophic default that could come as soon as this summer. …
The speaker was facing internal pushback on his plan from some conservatives who were demanding that the legislation contain stricter work requirements for government assistance programs, a change that could alienate politically vulnerable lawmakers in Democratic-leaning districts. And new obstacles emerged as a bloc of Midwestern lawmakers raised concerns about a measure in the bill that would repeal ethanol tax credits.
Mr. McCarthy, the California Republican, has expressed confidence that he will ultimately be able to push through the bill despite the party divides and his slim majority.
Still, the vast gulf between their debt limit slogan of a dozen years ago and the current G.O.P. mantra reflects how House Republicans have scaled back their fiscal ambitions and tried to put a softer, more appealing face on their demands.
Wary of subjecting their members from politically competitive areas to accusations of draconian cuts and cognizant of the economic perils of defaulting on the nation’s debt, Republicans have abandoned some of their most extreme proposals, including balancing the budget within 10 years, and repackaged the others as modest trims.
These days, Republicans have all but excised the phrase “spending cuts” from their lexicon. When Mr. McCarthy took to the House floor last week to announce the bill, he did not utter the term. Asked last week on CNBC where House Republicans planned to cut spending, Mr. McCarthy replied: “I don’t call them cuts because I call them savings.” …
House GOP Passes Debt Limit Bill, Paving the Way for a Clash With Biden
NY Times – April 26
House Republicans narrowly passed a bill to raise the debt ceiling while cutting spending by nearly 14 percent over a decade. President Biden has vowed to veto the measure.
The House on Wednesday narrowly passed Republicans’ bill to raise the debt ceiling while cutting spending and unraveling major elements of President Biden’s domestic agenda, in a G.O.P. bid to force Mr. Biden to negotiate over spending reductions or risk a catastrophic debt default.
Facing his most significant challenge since being elected to his post, Speaker Kevin McCarthy barely cobbled together the votes to pass the bill, which was approved 217 to 215 along party lines.
The legislation would raise the debt ceiling into next year in exchange for freezing spending at last year’s levels for a decade — a nearly 14 percent cut — as well as rolling back parts of Mr. Biden’s landmark health, climate and tax law, imposing work requirements on social programs, and expanding mining and fossil fuel production.
Even Republicans conceded that their legislation was headed nowhere; Mr. Biden has threatened to veto it, and the measure is dead on arrival in the Democratic-led Senate. Without action by Congress to raise the debt limit, which is projected to be reached as early as this summer, the U.S. government faces a potentially catastrophic default. …
… Republican leaders received political cover from an unusual wing — influential conservatives, including Representative Chip Roy of Texas, who stood on Wednesday in a closed-door meeting of lawmakers to urge his colleagues to vote for the bill.
Top officials were able to break through what would have been a fatal bloc of opposition to the bill after a late-night flurry of negotiating to nail down the votes, agreeing to jettison a provision rolling back tax credits that the Biden administration put in place for ethanol and moving up by a year, to 2024, the imposition of work requirements for Medicaid and food stamp recipients.
In the end, only four right-wing Republicans voted against the legislation, the most Mr. McCarthy could afford to lose and still have it pass. They were Representatives Andy Biggs of Arizona and Matt Gaetz of Florida, two of Mr. McCarthy’s chief antagonists in his prolonged fight to be elected speaker, as well as Ken Buck of Colorado and Tim Burchett of Tennessee. …
note
they don’t call it cuts they call it savings. not also that their reason for not calling for some cuts is that it might cost them votes. absolutely no concern that it might hurt some people badly.
all they can think in terms of is money* and politics. that’s where Arne’s “problem solving went..at that’s the government. so why would you expect anything better from “the market” which has long been not “free” but price and wage controlled by “combinations in restraint of trade.”
*this means they can save (or fix) Social Security by keping the name but cutting benefits so the balance sheet looks good. never mind that they have destroyed social “security” by saving it.
and of course now that “the left” thinks only about money (stealing from the rich and giving to the poor, with a cut, of course, for the parasites that ride on every “benefit for the poor” that ride on “political” solutions.
I read that the current GOP proposal does not specify where the ‘savings’ is to come from. The House Appropriations committee would work that out at some future date.
Well, I heard that they were going to cut food stamps and medicaid for people who can’t find jobs. But that’s okay because they are not going to reverse the Trump tax cut which has made us all so prosperous, if only we weren’t too lazy to find a job. and of course they are going to restore the ethanol subsidy, because without the subsidy gas would be too expensive for us to keep heating up the planet.
Joe Biden and the Not-So-Bad Economy
NY Times – Paul Krugman – April 27
Joe Biden has, to nobody’s surprise, formally announced that he is seeking re-election. And I, for one, am dreading the year and a half of political crystal ball gazing that lies ahead of us — a discussion to which I will have little if anything to add.
One thing I may be able to contribute to, however, is the way we talk about the Biden economy. Much political discussion, it seems to me, is informed by a sense that the economy will be a major liability for Democrats — a sense that is strongly affected by out-of-date or questionable data.
Of course, a lot can change between now and November 2024. We could have a recession, maybe as the delayed effect of monetary tightening by the Federal Reserve. We might all too easily face a financial crisis this summer when, as seems likely, Republicans refuse to raise the debt ceiling — and nobody knows how that will play out politically.
Right now, however, the economy is in better shape than I suspect most pundits or even generally well-informed readers may realize.
The basic story of the Biden economy is that America has experienced a remarkably fast and essentially complete job market recovery. This recovery was initially accompanied by distressingly high inflation; but inflation, while still high by the standards of the past few decades, has subsided substantially. The overall situation is, well, not so bad. …
About jobs: Unless you’ve been getting your news from Tucker Carlson or Truth Social, you’re probably aware that the unemployment rate is hovering near historic lows. However, I keep hearing assertions that this number is misleading, because millions of Americans have dropped out of the labor force — which was true a year ago.
But it’s not true anymore. There are multiple ways to make this point, but one way is to compare where we are now with projections made just before Covid struck. In January 2020 the Congressional Budget Office projected that by the first quarter of 2023 nonfarm employment would be 154.8 million; the actual number for March was 155.6 million. As a recent report from the Council of Economic Advisers points out, labor force participation — the percentage of adults either working or actively looking for work — is also right back in line with pre-Covid projections.
In short, we really are back at full employment.
Inflation isn’t as happy a picture. If we measure inflation by the annual rate of change in consumer prices over the past six months — my current preference for trying to extract the signal from the noise — inflation was almost 10 percent in June 2022. But it’s now down to just 3.5 percent.
That’s still above the Fed’s target of 2 percent, and there’s intense debate among economists about how hard it will be to get inflation all the way down (intense because nobody really knows the answer). But maybe some perspective is in order. The current inflation rate is lower than it was at the end of Ronald Reagan’s second term. …
About jobs: Unless you’ve been getting your news from Tucker Carlson or Truth Social, you’re probably aware that the unemployment rate is hovering near historic lows. However, I keep hearing assertions that this number is misleading, because millions of Americans have dropped out of the labor force — which was true a year ago.
But it’s not true anymore. There are multiple ways to make this point, but one way is to compare where we are now with projections made just before Covid struck. In January 2020 the Congressional Budget Office projected that by the first quarter of 2023 nonfarm employment would be 154.8 million; the actual number for March was 155.6 million. As a recent report from the Council of Economic Advisers points out, labor force participation — the percentage of adults either working or actively looking for work — is also right back in line with pre-Covid projections.
In short, we really are back at full employment.
Inflation isn’t as happy a picture. If we measure inflation by the annual rate of change in consumer prices over the past six months — my current preference for trying to extract the signal from the noise — inflation was almost 10 percent in June 2022. But it’s now down to just 3.5 percent.
That’s still above the Fed’s target of 2 percent, and there’s intense debate among economists about how hard it will be to get inflation all the way down (intense because nobody really knows the answer). But maybe some perspective is in order. The current inflation rate is lower than it was at the end of Ronald Reagan’s second term. …
Fred:
Are we gaming a system which was taken as realistic previously? Is Participation Rate of 62.8% in 2019 or 63.0% in the Januarys of 2019 or 2020 where we should be or not? Are we saying the nation lacks the productivity to employ the numbers of people we have in the Civilian Non-Institutional Population?
As far as the Fed? Their Fed Rate is playing out with banks who have been “gambling” again. No thanks to the loosening up on the Dodd-Frank requirements for inspections and reserves. Special call out to Congressional Repubs and Dems.
What did the 2018 law do?
Damn thieves. Another Ground Hog Day scenario minus Bill Murray.
Why is Labor responsible for these phenomena? It is the smallest portion of manufacturing costs and other costs for that matter. Corporate shell game and where is the pea.
“Déjà vu all over again?”
First Republic Bank Enters New Free Fall as Concerns Mount
NY Times – April 25
… The bank received a temporary $30 billion lifeline last month from the nation’s biggest banks to help shore up its business. Those banks, however, can withdraw their deposits as soon as July. In the first quarter, First Republic also borrowed $92 billion, mostly from the Federal Reserve and government-backed lending groups, essentially replacing its deposits with loans.
First Republic is considered the most vulnerable regional bank after the banking crisis in March. What happens to it could also affect investors’ confidence in other regional banks and the financial system more broadly. …
… The bank’s options to save itself absent a government seizure or intervention are limited and challenging. No buyer has emerged for the bank in its entirety. Any bank or investor group interested in taking over the bank would have to take on First Republic’s loan portfolio, which could saddle the buyer with billions of dollars in losses based on the recent interest rate moves. The bank is also difficult to sell off in pieces because its customers use many different services like checking accounts, mortgages and wealth management. …
What to Watch as the Fed Releases Its Look Into Silicon Valley Bank
NY Times – April 28
The Federal Reserve is set to release a highly anticipated report on Friday examining what went wrong with its oversight of Silicon Valley Bank, which collapsed in mid-March, in the largest bank failure since the 2008 financial crisis.
The post-mortem comes as the aftershocks of Silicon Valley Bank’s collapse continue to shake the American financial system: First Republic, which required a cash infusion from other large banks as nervous customers pulled their deposits and fled, remains imperiled. …
Fed Slams Its Own Oversight of Silicon Valley Bank in Post-Mortem
NY Times – April 28
The Federal Reserve released hundreds of pages documenting how bank supervision and regulation failed to prevent the lender’s collapse. The F.D.I.C. released a separate report on Signature Bank.
The Federal Reserve on Friday faulted itself for failing to “take forceful enough action” to address growing risks at Silicon Valley Bank ahead of the lender’s March 10 collapse, which raised turmoil across the global banking industry.
A sweeping — and highly critical — review conducted by Michael S. Barr, the Fed’s vice chair for supervision, identified lax oversight of the bank and said its collapse demonstrated “weaknesses in regulation and supervision that must be addressed.”
“Regulatory standards for SVB were too low, the supervision of SVB did not work with sufficient force and urgency, and contagion from the firm’s failure posed systemic consequences not contemplated by the Federal Reserve’s tailoring framework,” Mr. Barr wrote in a letter accompanying the report. …
The review spanned hundreds of pages and painted a picture of a bank that grew rapidly in size and risk with limited intervention from supervisors who missed obvious problems and moved slowly to address the ones they did recognize. And it outlined a range of potential changes to bank oversight and regulation — from stronger rules for midsize banks to possible tweaks to how deposits over the $250,000 federal insurance limit are treated — that the Fed will consider in response to the disaster.
The post-mortem is a rare instance of overt self-criticism from the Fed, and it comes as the aftershocks of Silicon Valley Bank’s collapse continue to shake the American financial system. First Republic Bank, a regional lender that required a cash infusion from other large banks as nervous customers pulled their deposits and fled, remains imperiled. …