No government shutdown and no default, but still slow growth

Growth slowsdown in the third quarter

BEA released the advanced estimate for GDP growth in the third quarter, 1.5%, well below the 3.9% growth of the second quarter. One can see that the recent recovery is slow even when compared to the Clinton and Bush II recoveries.

So, nothing new, the slow recovery continues. If the budget deal gives some hope that at least we're not going to shutdown the government, and as a result avoid an even worse slowdown, there is very little reason to hope for the kind of fiscal stimulus we need.

Media watch: Unemployment benefits for a million workers being cut

Unemployment insurance ends today for several distressed unemployed workers (about 10% of the unemployed will loose benefits, as reported by the NYTimes; see graph below). This was part of the bi-partisan fiscal deal that avoided another government shutdown and the debt-ceiling crisis to continue. The cuts are deep and the consequences will be significant, as noted by the EPI.

These news in and of itself are terrible, but not surprising. However, reading the NYTimes piece one cannot but notice that the reference to the EPI is preceded by the qualification that it is "a left-of-center" think tank, while the subsequent quote from the chief economist at JP-Morgan/Chase is hyphen free. Yep, JP-Morgan that has just settled to pay $13 billion for their fraudulent selling of mortgage bonds. No, JP-Morgan, contrary to EPI, is an uninterested observer of markets, or at least that seems to be the implication suggested by the NYTimes.

The same could be said about the quote of what Rand Paul told Fox News [“If you extend it beyond that, you do a disservice to these workers. When you allow people to be on unemployment insurance for 99 weeks, you’re causing them to become part of this perpetual unemployed group in our economy;” yeah, because the problem is that those bums don't want to work and love handouts], i.e. no warning that Fox and Paul are part of the Lunatic Fringe right wing conservative movement. You either hyphenate everybody or you don't. But the NYTimes obviously thinks that workers and left of center groups are more dangerous. Oh well.

David Cay Johnston on Budget Deal That Helps Billionaires, Not the Poor

From the intro:

"A bipartisan budget deal to avert another government shutdown comes before the Senate this week. The vast majority of House members from both parties approved the two-year budget agreement last week in a 332-to-94 vote. It is being hailed as a breakthrough compromise for Democrats and Republicans. The bill eases across-the-board spending cuts, replacing them with new airline fees and cuts to federal pensions. In a concession by Democrats, it does not extend unemployment benefits for 1.3 million people, which are set to expire this month. To discuss the deal, we are joined by David Cay Johnston, an investigative reporter who won a Pulitzer Prize while at The New York Times. He is currently a columnist for Tax Analysts and Al Jazeera, as well as a contributing editor at Newsweek."

Open forum on the economic and political implications of the government shutdown and debt crisis.

If you are in the Lewisburg area, don't miss this event.

Open discussion on the economic and political implications of the government shutdown and debt crisis.

Discussion lead by:

Economic Professors Gregory Krohn and Matias Vernengo and Political Science Professors Chris Ellis and Scott Meinke

Thursday, Oct. 24, 11-12 PM
Bucknell University
Academic West Event Lounge
1st floor

Crooks, Liars, Idiots and Plutocrats: On the deep causes of the government shutdown

Economic historian Carlo Cipolla famously noted that human beings fall into four basic categories: the martyr who takes an action and suffers a loss while producing a gain to others; the genius or prodigy who takes an action by which he/she makes a gain while yielding a gain also to society; the crook (and liar too) who takes an action by which he/she makes a gain causing others a loss; and the stupid person who causes losses to others while deriving no personal gain and even possibly incurring losses. At first glance, the shutdown of the government and the looming debt-ceiling crisis seem to indicate that we are dealing with idiots, the likes of Michele Bachmann, Ted Cruz, Louie Gohmert, Steve King, and other Tea Party Republicans.

See more at Triple Crisis Blog.

Whose cut is it anyway? Not defense, that's for sure

 Graph above shows what agencies where hit the hardest by the shutdown (source here). Defense is almost untouched when compared to Education.

Government jobs since the crisis

The figure above shows all employees, not just the federal ones. The spike in 2010 is related to the census. And yes we are below the levels we had at the beginning of the crisis. Shutdown will not help.

Government Shutdown: It's the Poor Who Lose

The U.S. government has begun a partial shutdown of government programs, following a failure across the House and Senate to agree on a stop-gap budget proposal before its midnight deadline.

As Imara Jones at Colorlines points out, "the parts of the government affected by the shutdown disproportionately impact economic opportunity programs for the working poor." Here is a brief overview of the likely unsavory effects as a result of egregious congressional chicanery:

Health needs delayed: The 110 million Americans already in Medicare—the government health program for the elderly—and Medicaid—the federal and state partnership to provide health insurance to the working poor and their children—will continue to receive the services and treatment that they need. However new applications to these programs will be delayed until the government reopens.

Impaired ability to fight disease: The Centers for Disease Control will scale back the monitoring of the spread of infectious diseases and the National Institutes of Health will do the same for critical research into life-saving treatments until the lights come back on.

More people hungry: The Supplemental Nutrition Assistance Program (SNAP), commonly referred to as food stamps, will continue to provide its $33 of weekly assistance to the 48 million Americans who currently receive it. However, the Women Infants and Children Program (WIC)—which covers seven million children and infants, and their mothers—will temporarily end. The program will restart once the government reopens.

Poor kids set back: Funds for the one million children in Head Start will technically expire today, but only a smattering of locations will be forced to immediately close their doors. However, more programs will run out of money and come under pressure the longer this goes on. The same is true for Title I education grants, which provide badly needed assistance to 20 million children in the nation’s poorest school districts. Also, review of new student loan and federal grant applications will be delayed.

Housing at risk: The Federal Housing Administration, which underwrites four out of every 10 mortgages in the United States and is crucial for working families entering the housing market, will not process new home loans during an extended shutdown. Housing vouchers for the working poor and the homeless will also be at risk the longer this goes on.

More immigration delays: Border patrols and enforcement will continue during the shutdown, but new visa and citizenship applications will be stalled until the government is back to work.

Read rest here.

Government shutdown and the debt-ceiling again

 So it's happening, even though it seemed unlikely at some point. The government is shutting down, and around 400,000 federal workers will go immediately without pay (see here). Many of the comparisons are with the previous shutting down in November 1995, during the Clinton administration. Yet, back then the economy was in the middle of a boom, predicated on a bubble, but a boom nonetheless. And also, as revenues were increasing, the economy was back then on its way to fiscal surpluses, and lower debt levels. So no debt-ceiling catastrophe loomed in the horizon. Now a debt-ceiling limit may lead to cuts in spending of the order of around US$ 600 billion dollars. So a weal recovery may turn into a recession. Long live austerity!

Austerity, Not Uncertainty, Is the Scary Part of Fiscal Shutdowns

There is a general consensus that annual fiscal policy fights hurt the economy’s recovery. Many people, however, get the story quite wrong. It has nothing to do with 'uncertainty'; rather, it's the unfortunate fact that the brouhaha, in the final instance, leads to smaller budget deficits, i.e. 'austerity', significantly diminishing the level of effective demand.

It’s austerity that is reliably damaging to recover efforts, not uncertainty. And each year’s fiscal drama has tended to produce another dose of austerity. The very large reduction in the budget deficit between 2009 and 2012, combined with the extraordinarily slow pace of recovery over this same time period is not a coincidence. This should be a lesson to evidence-based policymakers: You should be much more worried about accepting more austerity as the price of ending the fiscal drama than any damage caused by the drama itself.

See rest here .

How stimulative has fiscal policy been?

Not much. Particularly after the initial stimulus spending came to a halt, as you can see in the figure below.

In part this is the result of GOP obstructionism, but also follows Obama's early move to emphasize a balanced approach to the deficit and debt 'problem,' meaning higher taxes and lower spending. Now, it seems, the consensus is that the shutdown will fail, but that does NOT mean that there is more stimulus in the pipeline. So we'll move to the next menace soon, the debt ceiling. Again.

Stop greed and idiocy!

Pending a miracle tomorrow there will be a government shutdown. Marx was right, history repeats itself, first as tragedy than as farce. The reasons are not difficult to understand. Carlo Cipolla, in his fantastic Allegro ma non troppo, explained that there are four kinds of people, the helpless, the intelligent, the idiot and the bandit. For us, the ones that matter are the idiots, that is, the “person who causes losses to another person or to a group of persons while himself deriving no gain and even possibly incurring losses.”

The Laws of Human Stupidity imply that non-stupid people underestimate the damaging effects of idiots. In particular, if there is an increasing number of bandits within the elite of the country (e.g. Republicans and his plutocratic friends) that want to plunder the budget, cutting taxes for the rich and cutting spending for the poor and the elderly, and a large number of idiots (e.g. the Tea Party), with only helpless people (e.g. the Democratic leadership) to avoid catastrophe, then as Cipolla suggested society is sure to go to Hell!