All Blog Posts from Econwatch

This post by Jill Schlesinger originally appeared on CBS' MoneyWatch.com.

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I always get nervous when three or more people who don't study the economy or financial markets say exactly the same thing. This past weekend, it was a teacher, a lawyer and a doctor, all of whom proclaimed: "we're definitely headed for a double-dip recession!"


Every time someone says "double dip" I can't help think of a soft serve ice cream cone plunging into that delicious chocolate coating not once, but twice. That said, are fears of a double dip warranted?

One would have to be brain-dead to not consider the possibility of something bad - really bad, derailing the progress that has occurred since the beginning of this fiasco. Here's a just a few ideas to get you started: a commercial real estate collapse could make the residential market look like a walk in the park; unemployment could get much worse; a large multi-national bank bites the bullet; the Fed blows it; and the weekend favorite, this whole recovery is in your head.

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This post by James Picerno originally appeared on CBS MoneyWatch.com.

In February, President Obama signed the massive $787 billion stimulus bill into law with the idea of jump-starting the economy with spending on everything from tax cuts to new highways to programs to increase energy efficiency. The size and specifics of the package-and even whether it was necessary at all-were hotly debated, and the resulting bill was supported by only three Republicans in the Senate. Seven months later, what can be said about whether the stimulus package has worked or not?


The answer is that at least some of the spending has goosed the economy. But it's a tricky business to assign credit-if a start-up hires six people, was it the entrepreneur's vision or the government grant that was responsible? And the jury's still out on all the stimulus money that hasn't even been spent yet.

In many ways, the Cash for Clunkers program, which offered rebates of up to $4,500 to consumers for upgrading to new, more fuel-efficient cars, exemplifies the debate over the effectiveness of stimulus spending. The program disbursed $2.9 billion in rebates, spurring the purchase of close to 700,000 new cars and giving a much-needed boost to the faltering auto industry. Critics accurately point out that many of those purchases would have been made anyway in the future, without taxpayer subsidies. But one of the primary goals of stimulus spending is to get people spending money now, while the economy is hurting, and Cash for Clunkers certainly did that. (See our earlier story, "Did Cash for Clunkers Really Work?")

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The wait is over: the Senate Finance Committee's formal health care bill has finally arrived! Chairman Max Baucus unveiled the Senate version, "America's Healthy Future Act of 2009," which sounds eerily like a breakfast cereal. The 10-year $856 billion Senate plan is a $44 billion savings from the number President Obama quoted last week in his prime time health reform speech.

Here's my first impression of what you need to know about the new bill:

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It's just so predictable: use the anniversary of Lehman's bankruptcy to talk about regulatory reform. President Obama's Financial Rescue and Reform speech today at Federal Hall (a beautiful building downtown, that's worth a visit if you are in the neighborhood) was laden with some harsh words: "there are some in the financial industry who are misreading this moment. Instead of learning the lessons of Lehman and the crisis from which we are still recovering, they are choosing to ignore them."


As my mother likes to say, talk is cheap. There are three distinct trends that belie the President's "tough" stance on financial reform:

1. President Obama has made health care the number one priority, eclipsing financial reform

2. The economic and stock market recovery makes people lazy. This is especially true for lawmakers, who all of the sudden remembered how much money financial firms pour into their coffers.

3. Inter-regulatory turf battles are downright ugly, although who among us does not want to see Sheila Bair take down Tim Geithner?

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It’s no wonder that Americans are struggling to understand health care reform: the stuff is complicated and dense. I learned my lesson on The Early Show this morning, when trying to succinctly describe who will pay for the plan.

I got off the air and was scolded for not providing viewers with a better means for understanding the issue at hand. As penance, I’m going to try to lay it out here.

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This weekend, the President announced a handful of new initiatives designed to make it easier for American workers to save more for retirement. The initiatives supposedly make use of research from behavioral economics, the arm of the dismal science that incorporates the way people really act into the design of retirement plans. That’s has proven effective in the past..except this time the Administration loses its nerve.

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According to the CBO, the US budget deficit is expected to rise by something close to a gazillion dollars. OK, the White House expects the ten-year budget deficit to reach $9 trillion, up from the original estimate of $7.1 trillion. Given that there are few plans to cut anything out of the budget, the alternative is to raise taxes.

What the President won’t say about health care reform is the following: there are not enough rich people to float the country’s needs right now. This is not a political statement, it’s a fact. This chart from last week’s Wall Street Journal demonstrates the point that to close the budget gap over the next ten years, tax rates on the rich would need to rise to nearly 69%. Even if you think that would be a good idea, it just isn’t going to happen.

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If you want to make yourself a little nuts, read about America’s Bailout Barons. The Institute of Policy Studies released its annual report on compensation and the results are staggering. Here’s one of the more disturbing sentences: “From 2006 through 2008, the top five executives at the 20 banks that have accepted the most federal bailout dollars since the meltdown averaged $32 million each in personal compensation.” Yes, that was through 2008.


I never expected that the government could really address this issue, even with the appointment of Kenneth Feinberg as “Pay Czar”. Despite the clamor earlier in the year after the AIG bonuses were awarded, there were too many other issues for the Obama administration to tackle. Wall Street banks soon realized that the easiest way to escape the Pay Czar would be to repay TARP funds and a bunch have done so. For the rest, I have a sneaking suspicion that financial innovation will be alive and well.

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By reappointing Federal Reserve Chairman Ben Bernanke to another term, President Obama has chosen to dance with the devil he knows–that’s a good idea. The economy is just starting to show signs of stabilization and changing course would be unsettling.

I was not a fan of Bernanke when he assumed his position. I thought of him as a Greenspan acolyte who far too often turned to easy monetary policy to solve problems. He didn’t earn the name “Helicopter Ben” for nothing! In fact, I was critical of Bernanke until we were well into the eye of the storm. I thought that he and other officials waited too long to adjust monetary policy amid the gathering storm.

But after the barn door blew wide open, I warmed up to Big Ben. He went beyond the ordinary tools at the Fed’s disposal and brought creativity to the crisis. I also like that he makes himself easily understood, a stark contrast to his predecessor.

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I've talked to health care economists, health care providers, insurance and pharmaceutical industry insiders and Americans of all income levels to discuss the current debate about health care reform. The consensus is clear: we need reform, but I/we don't want to bear too much of the burden.

This morning on The Early Show, Maggie Rodriguez and I examined the impact on three types of people to illustrate how, depending on individual circumstances, health care reform may impact different segments of the population. The general categories were: the uninsured, the small business owner and the high income earner.






You can see how everyone agrees that action is necessary, but getting there involves a number of moving pieces. That's why President Obama plans to deliver a prime time press conference tonight to address health care reform. He's going to have his hands full selling the plan.

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