Tune in to my weekly radio show, Alternative Visions, today (wed. 2pm est and archived) for my discussion of US GDP numbers for 4th quarter 2012 showing a negative -0.1% drop, and my analysis of prospects for GDP in the 1st and 2nd Quarter 2013 in the US. Is a double dip recession in the works? The show is available on the progressive radio network, PRN.FM, called Alternative Visions, at this url: http://prn.fm/shows/political-shows/alternative-visions/#axzz2K5w5xy34
Archive for the ‘Uncategorized’ Category
US GDP–2012 and 2013
Posted in Uncategorized, tagged double dip recessions, US economy, US GDP on February 6, 2013| Leave a Comment »
US GDP–On the Road to Double Dip?
Posted in Uncategorized, tagged Brazil, China, Double Dip Recession, Europe, India, Japan, UK, US GDP on January 30, 2013| 3 Comments »
US GDP data released on January 30, 2013 for the fourth quarter 2012 showed a decline in GDP of -0.1% for the last three months of 2012, thus raising the specter of the US economy, facing still further deficit spending cuts in 2013 amidst declining consumer confidence, may be on track for a possible double dip recession in 2013 or 2014 along with other economies in Europe, the UK, and Japan.
In the fourth quarter GDP numbers, government and business inventory spending led the decline. To the extent consumer spending played a positive role at all in the 4th quarter, it was largely driven by auto sales—stimulated by auto dealers offering buyers deep price discounts, virtually free credit with near 0% auto loan interest rates, as well new auto purchases in the northeast as a result of Hurricane Sandy’s destruction of existing auto stock. 2012 Holiday season retail sales data, in contrast, were otherwise not particularly notable and would have been much worse without the auto sales exception. How much longer auto companies can continue the deep price discounts and free credit remains a question going forward. Net export sales continued to sag in the last quarter, as the slowdown in world manufacturing and trade continued. And, as others have noted, an important source of past consumer spending and GDP growth—i.e. health care services—began to slow ominously at the end of 2012 as well, promising to continue that trend into 2013.
This weak scenario in the fourth quarter 2012, and the virtual absolute stop to US economic growth, was predicted on this writer’s and other public blogs in a piece entitled “US 3rd Quarter GDP: Short Term Myopia vs. Long Term Realities” last October 2012 (see jackrasmus.com, as well as in this writer’s April 2012 book, ‘Obama’s Economy: Recovery for the Few’).
Last October 2012, it was noted that the 3% growth rate in the preceding 3rd quarter, July-September 2012, period was artificially produced by record levels of one-quarter federal defense spending accounting for more than one third of total GDP growth in the quarter. That government spending surge was preceded by more than two years of federal government spending reductions, and thus the third quarter defense-government spending acceleration represented previously held back government spending, to be released right before the November 2012 elections. It was predicted in the above blog commentary on GDP 3rd quarter results that government spending therefore would decline sharply in the following fourth quarter—which it did. It was further noted business inventory spending was on a track to decline as well in the fourth quarter, and that US net exports, having turned negative in the third quarter, would continue to decline in the fourth quarter—all of which also occurred in the latest GDP report. The true US GDP growth trend for July-September was therefore not the 3% reported, but only around 1-1.5% for the third quarter when the appropriate adjustments are made. And that 1.5% or so been the average GDP rate for more than two years. Then the bottomed dropped out in the fourth quarter, as GDP collapsed to -0.1%.
So what’s going on? Is the fourth quarter GDP an aberration? A temporary one time event? Or a harbinger of a still further slowing US economy, moving more in line with global economic trends indicating a slow but steady further slowdown?
In the first quarter 2013, a number of negative developments in the fourth quarter will likely continue, along with new negative developments, together suggesting the first quarter 2013 GDP will at best look much like the fourth quarter—and could even prove worse.
First, more than $100 billion has been taken out of the economy with the end of the payroll tax cut last January 1. Second, consumer sentiment and spending is showing a definite sharp decline in the early months of 2013. Deficit cutting will intensify with a deal on the ‘sequestered’ $1.2 trillion agreement that will occur in March in Congress. Defense spending cuts projected will be reduced, but non-defense spending will occur and perhaps even rise. Consumer spending on autos, which has been a plus in 2012, cannot continue at the prior pace. Health care spending will likely continue to slow, as health insurance premiums of 10-20% continue to be imposed in the new year by price gouging health insurance companies looking to maximize their returns in 2013 in anticipation of Obamacare taking effect in 2014. Business spending that occurred in the fourth quarter to take advantage of tax laws will almost certainly slow in the first quarter. Industrial production and manufacturing will add little, if anything, to the economy and housing will contribute to growth through apartment construction. In short, the scenario is one of continued very slow growth.
It is not the deficit that faces a ‘cliff’; it is the US economy. As this writer has repeatedly written since last November, the ‘fiscal cliff’ was mostly an economic farce. Real forces were further slowing the real US economy. Those real forces are once again reasserting themselves. However, should Congress proceed with continued deep spending cuts in 2013, should the Euro economies, UK, and Japan continue to weaken, and should China-India-Brazil not succeed in reversing their economic slowdowns significantly—then the odds of a double dip in the US will rise still further in 2013-14, as this writer has repeatedly predicted.
The strategic question is ‘Why is the US economy so fragile and weak? Why has it been unable to generate a sustained economic recovery from ‘Epic’ recession since 2009? Why now, after five years since the onset of recession in late 2007, has the US economy stagnating and collapsed to virtually zero growth, once again? ‘
The answers to this are not all that difficult to understand. First, despite $13 trillion in free, no interest money given to banks, investors, and speculators by the US federal reserve for five years now, the banks still continue to dribble out lending to small-medium US businesses. No loans mean no investment mean no hiring mean no income growth for consumption, which is 70% of the economy. Similarly, large non-bank corporations continue to sit on more than $2 trillion in cash. Like the banks, they too refuse largely to invest in the US to create jobs, preferring hold the cash, or use it to buyback stock and pay shareholders more dividends, to invest it offshore, or to invest it in speculating with financial instruments like derivatives, foreign exchange, commodities futures, and the like.
At the same time, the bottom 80% of households, more than 110 million, are confronted with 5 years now of continuing real disposable income stagnation or decline. This income stagnation and decline translates into insufficient income to stimulate consumption spending, which makes up 71% of the US economy. What spending exists is fundamentally credit driven, not income driven. Thus car loans, student loans, credit cards, and installment loans rise and with it household ‘debt’.
The problem with the US economy therefore is fundamentally twofold: not only insufficient income but growing household debt. Together they result in consumption becoming increasingly ‘fragile’ (an income to debt ratio term), and therefore unable to play its historic role of generating a sustained economic recovery. Together, fiscal-monetary policies are rendered increasingly ‘inelastic’ in generating recovery as ‘multipliers’ collapse—to use economic jargon. The outcome of all this is ‘stop go’ recoveries, bumping along the bottom, or what this writer has called an ‘epic’ recession.
by Dr. Jack Rasmus, copyright 2013
The Collapse of the Retirement System in America
Posted in Uncategorized, tagged Alternative, ALTERNATIVE VISIONS on January 30, 2013| 1 Comment »
Readers of this blog are invited to listen to the archive of my radio show, ALTERNATIVE VISIONS, today, Wednesday, January 30, on the progressive radio network, online at http://prn.fm/shows/political-shows/alternative-visions/#axzz2JUEKrJbp.
The show addresses the deteriorating condition of the 6 elements of income for retirement: defined benefit pensions, 401ks, personal savings, retiree health benefits, social security and medicare. Here’s the announcement of the show with more detail:
The discussion will look at the 6 elements of the retirement system in the US: Private defined benefit pensions, 401k plans, personal savings, retiree health benefits, social security, and medicare. The retirement system in America set up in the late 1940s-early 1950s originally called for a ‘3-legged stool’ of incomes, composed of one-third retirement income from defined benefit pensions, one third from personal savings, and one third from social security. The first two of those legs have already collapsed. And now Congress is about to begin breaking the last leg, social security and medicare, with its upcoming deficit cuts. This will intensify as Congress restores defense spending cuts previously scheduled, and enacts big corporate tax cuts later in the year. The consequences of collapsing retirement incomes affecting 70 million people will be significant, Dr. Rasmus argues, and will hold back anyk sustained economic recovery in the US in 2013-14 and beyond, as GDP data for the fourth quarter 2012 just issued today show the US economy may have already entered the ‘double dip’ recession Dr. Rasmus has been predicting for more than a year.”
Fiscal Cliff: Obama & Senate vs. House Radicals–Another Step Closer to Deal
Posted in Uncategorized, tagged Fiscal Cliff on December 29, 2012| 2 Comments »
Late Friday afternoon, December 28, President Obama held a press conference reporting on the status of negotiations on the so-called ‘Fiscal Cliff’. Having met with House and Senate Democrat and Republican leaders earlier the same day, in his press conference Obama reported both sides had made progress during the day toward an eventual deal. Senate leaders Reid and McConnell were in fact working on an agreement as he spoke, Obama noted.
Whatever Senate leaders Reid and McConnell may work out will almost certainly come to a Senate vote by December 31st. Less certain is whether the House of Representatives will allow a vote on the same Senate package to be taken by then as well. An ominous indication of what the details of the Senate version might be were hinted by Obama during his press conference, as he indicated the deal would require “the wealthiest to pay a little more” and that spending would be cut “in a responsible way”. Watch for an emphasis on ‘little’ with regard to taxes, and on ‘responsible’ meaning major spending cuts.
Should the House balk at voting on the forthcoming Senate proposal, Obama noted he was prepared to have Senate Democrat leader, Harry Reid, introduce a second bill, the outlines of which he, Obama, suggested before the Xmas holidays. That alternative bill would reintroduce the tax cuts for the 98% earning less than $250k a year, pass an extension of unemployment insurance, as well as other unspecified economic growth measures.
The first package being developed this weekend in the Senate by Reid-McConnell will not come up for a vote in the Senate until Monday, December 31. The House will then either vote it up as well or refuse to vote. If the latter, then the Obama-Reid backup proposal will likely come up for a vote on it on January 2 or 3. At that point, the Bush tax cuts will have expired officially. That means the vote on the tax cuts for the 98% will be a vote to reintroduce and pass the 98% tax cuts. House radicals who might refuse to vote on the Senate’s initial December 31 proposal—in which tax cuts for the wealthiest 2% aren’t extended—might then find themselves in the difficult position of NOT voting for reintroducing tax cuts for the 98%. This possibility will almost certainly force the House radicals to vote for the Senate’s first version on the 31st, especially if that Senate version includes major cuts in spending for social security, Medicare, Medicaid and the like, and ‘smoke and mirrors’ tax revenue hikes on the 2%. In short, the House radicals now find themselves ‘boxed in’, as Obama doubles down on them.
Metaphorically, they have jumped out of Boehner’s ‘Plan B’ frying pan proposal of last week, onto the hot stove of Obama’s double down proposal announced today. Watching them ‘hot step it’ to an eventual deal may prove entertaining.
As this writer has predicted since November, a deal will be concluded between the two wings of the ruling party of Corporate America. That deal will come in three stages: the first a partial settlement to get through the January 1, 2013 artificial deadline to show the ‘markets’ (e.g. Investors, speculators and corporate America) that a deal is being hammered out, albeit in stages. The second stage negotiations will commence immediately after next week on additional items, continuing through February to March 2013. And a final third stage will come later this year, involving a major revision of the US tax code that will result in big corporate tax rate cuts.
AN ALTERNATIVE ‘ONE TAX’ SOLUTION
While this ‘dance’ of negotiations plays out over the next week, readers should consider that the entire ‘Fiscal Cliff’ charade could be resolved with one program, one proposal involving taxation on the wealthiest 1% of US households—i.e. those whose average annual income is about $1.5 million and whose effective and actual income tax rate today is not the nominal 35% but in fact only about 22.5%.
The very wealthy 1% actual income tax rate has never been the 35% top rate. In 1980 that top rate was 70% but the actual effective rate they paid was only 45%. Similarly, today the reported top rate is 35% but the actual rate on average 22.5%. Some hedge fund managers making billions a year actually pay less than 10%.
University of California professor, Emmanual Saez, and his colleagues, Thomas Picketty and Stefanie Stantcheva, a few months in the third quarter 2012 issue of ‘Tax Justice Focus’, estimated that by simply making the wealthiest 1% pay the same effective, actual tax rate they paid in 1980 (45%) it would raise an additional $405 billion a year in tax revenue. Over a decade, that’s more than $4 trillion—which is coincidentally the amount identified as necessary to reduce the deficit over the coming decade by all the parties, Democrat and Republican, as the deficit cutting target amount. Since the Simpson-Bowles report of November 2010, the target has always been $4 trillion.
Thus, one simply tax measure would solve the entire fiscal cliff issue, generate the $4 trillion in deficit reduction, allow all the other tax cuts in question to continue, and require no cuts whatsoever in social security, Medicare, Medicaid or anything else.
Professors Saez and others estimated this $405 billion on an assumption of a GDP of $15 trillion in 2011. Today’s $16.5 trillion GDP means this one tax measure would now raise more than $450 billion a year. The 45% tax on the richest 1% amounts to a 2.7% increase in government tax revenue as a percent of GDP. If you think that is too much, consider that federal tax revenues as a percent of GDP was 20.6% in 2000 before George W. Bush began his investor-corporate tax cuts in 2001. That 20% had been the average for a number of years. But after Bush’s two recessions, his $3.4 trillion in tax cuts, his wars, runaway health care costs, and the historic weak recovery of the US economy under Obama since 2008, federal tax revenue as a percent of GDP had fallen to 14.4% from the 20.6% of only a decade or so ago. So taxing the 1% at the 1980 effective rate raises tax revenue as a share of GDP by 2.7%, to about 17%. Taxes can and should be raised on Corporate America as well, to get back to the 20%.
But don’t count on the latter, since Obama has promised throughout the election campaign to cut corporate tax rates from the current 35% to 28%. And don’t be surprised by the major spending reductions that will come out of current fiscal cliff negotiations, in the next few days and continuing throughout this year. Fiscal Cliff is only a cover phrase for what amounts to ‘Austerity American Style’.
The problem with the US deficit and debt is not a spending program problem. It has always been overwhelmingly a tax cut for the rich and corporations problem. And it can be resolved with one program and proposal to ‘make the millionaires pay 45%’. It’s that simple.
Jack Rasmus
Jack is the author of the 2012 book, “Obama’s Economy: Recovery for the Few” , and host of the weekly radio show, Alternative Visions, on the Progressive Radio Network, PRN.FM. His website is http://www.kyklosproductions.com, his blog, jackrasmus.com, and twitter handle #drjackrasmus.
BOEHNER’S BUNGLED ‘PLAN B’ BARGAIN: WHY IT BLEW UP
Posted in Uncategorized, tagged Fiscal Cliff on December 26, 2012| Leave a Comment »
COMMENTARY: WITH THE FIRST PHASE OF ‘FISCAL CLIFF’ BARGAINING HAVING ENDED WITH THE IMPLOSION OF HOUSE SPEAKER, BOEHNER’S, SO-CALLED ‘PLAN B’, THE NEXT IS ABOUT TO BEGIN ON THE THREE-STAGE APPROACH TO FISCAL CLIFF THAT I HAD PREDICTED WOULD OCCUR LAST NOVEMBER 20. THE FOLLOWING IS AN APPRAISAL OF WHY BOEHN’ERS PLAN B BLEW UP IN HIS FACE.
Yours truly having negotiated scores of contracts in various venues over the years, it is easy to recognize that House Speaker, John Boehner, really bungled as a bargainer in his recent failed attempt to push his ‘Plan B’ in the fiscal cliff negotiations a few days ago.
As Washington Post political commentator, Charlie Cook, observed in the aftermath of the collapse of Plan B, in Washington DC, it appears “the art of negotiation has been lost…these people don’t know how to negotiate”. How true.
There are at least three major axioms of negotiation that Boehner violated in his recent attempt to push Plan B and leave Obama on the defensive over the Xmas holidays.
First axiom: Never tackle the toughest or biggest (i.e. costliest) issue first in negotiations. Settle the smaller issues first and leave the big item to last; then settle the big stuff by horse-trading the most important thing you want for the most important thing your opponent wants. Boehner did the opposite. He addressed the big tax hike issue—the Bush tax cut for the top 2% from the outset. In Plan B, he in effect asked his base to agree to a tax hike in mid-stream of negotiations and when doing so would not have concluded the negotiations.
Second axiom: Never negotiate in one direction. Boehner focused on Obama and not on his base. Bargaining is always dual in nature. There’s your opponent and there’s your own supporters. Boehner lost sight of his base. From what is now leaking out in the press, it appears he somewhat desperately pushed forward with his Plan B even though he didn’t have the votes among other House Republican leaders or his base. Never call for a vote guessing on the outcome. Call for a vote you either want to fail or know will pass. Never ‘test’ your base with a vote the outcome of which you are uncertain. That’s an approach that will often lead to an ‘egg pie in the face’, and a significant loss of negotiating authority with your own base thereafter, making it even more difficult subsequently to get an agreement. If there’s a cliff here, it’s not fiscal, but the one Boehner leaped off of with his push for Plan B.
Third axiom: Never tell your bargaining committee you’re going to do what you want regardless of what they want. Never take a stand 180 degrees opposite to them. Never tell your ‘chief steward’ and bargaining committee you’re going to make an offer whether they like it or not. Who’s Boehner’s ‘bargaining committee’? For certain it includes House budget chairman, Paul Ryan, and House Ways and Means chair, David Camp. According to the Wall St. Journal lead page one story today, December 22, Boehner decided to go ahead and offer Plan B without them signing on to it. No doubt those two simply went back to the Republican base and organized a revolt against Boehner before he could even offer Plan B.
Another faux-pas by Boehner was to try to desperately put Obama on the defensive over the holidays with Plan B so he, Boehner, could look tough for his upcoming election in the house on January 3. Lesson: never play chicken in bargaining on the eve of your own election. Boehner should have delayed the negotiations big trade-offs until February, agreeing to minor stuff along the way just to keep up the appearance progress was being made. A February closure to the negotiations would have given him more bargaining leverage, with the federal government due to run out of money in March.
No wonder Boehner, after his bungled bargaining, has passed the task on to McConnell in the Senate and to the Obama team. He’s finished as a negotiator, showing his opponents he can’t get a deal and simultaneously losing all authority with his own bargaining committee and his base. His plan may have been ‘B’, but his bargaining skills grade is a generous D-.
Jack Rasmus
Jack is the author of the book, “Obama’s Economy: Recovery for the Few”, Pluto Press, 2012; host of the weekly radio show, ‘Alternative Visions’, on the progressive radio network, PRN.FM. His website is http://www.kyklosproductions.com, his blog, jackrasmus.com, and twitter handle, #drjackrasmus.
Fiscal Cliff or Just Bush Tax Cut ‘Speed Bump’?
Posted in Uncategorized, tagged 'Plan B', Bush Tax Cuts, Fiscal Cliff, US House of Representatives on December 20, 2012| 2 Comments »
MY ANALYSIS OF THURSDAY’S US HOUSE (Boehner’s Boys) NO VOTE ON ‘PLAN B’–AS WELL AS AN ECONOMIC EXPLANATION WHY THE ‘FISCAL CLIFF’, SHOULD IT EVEN HAPPEN, IS JUST AN ECONOMIC ‘SPEED BUMP’, THE IMPACT OF WHICH IS GROSSLY OVERESTIMATED
Today, December 20, 2012 the US House of Representatives—aka ‘Boehner’s Boy’s—decided to not vote on the House Speaker’s ‘Plan B’ to continue all the Bush tax cuts except for token reductions on the millionaires and billionaires. The move is being hyped by the press as bringing the US economy to the edge of the so-called Fiscal Cliff. Should the Teaparty radicals who have been running the U.S. House since 2010 continue with their once-again brinkmanship through January 1, 2013, the US economy will descend over the cliff into recession once again. According to the Congressional Budget Office, the result will be an immediate 4% decline in GDP. However, this view is wrong for two reasons:
First, the House refusal to vote Plan B today, December 20, does not represent a breakdown of negotiations. It is just a tactical move designed to pass the hot potato to Obama and the Senate while they, Boehner’s Boys, break for the Xmas holiday. Why vote on Plan B now when they can do so later, after Xmas, and before the January 1 (non) deadline date? The Teapublicans need to look tough during negotiations, and appear as if they were forced into an agreement at the last moment; and this is not the last moment. Nor is January 1.
But it is increasingly clear that Corporate CEOs and public opinion is not willing to go along with a repeat of Teapublican tactics of 2011. As this writer has noted previously, CEOs want an agreement, with top income tax rates and/or revenue raised, in order to later get the big corporate tax cut Obama has promised them, reducing the top corporate tax rate from 35% to 28% later this year. They can’t get it without an agreement on the ‘fiscal cliff’, and that includes tax hikes on the personal income tax. Similarly, public opinion is overwhelmingly identifying the House Republicans as the main problem preventing a settlement. So the Boehner-Teapublican tactic to postpone a Plan B vote is likely to backfire.
Watch for a major decline in the US stock market on Friday, December 21, perhaps as much as 500 points at the market opening, with global markets to follow similarly. Watch for Corporate CEOs to up the pressure in coming week as well. The Capitalists will be sending the House ideologues a message, and Boehner will eventually bring them to heel. What postponing Plan B represents is the House radicals are refusing to appear as if they are willing to negotiate a deal; they prefer to be ‘forced’ into having to accept one. They must have a crisis before they can agree to anything.
But the economic side of the fiscal cliff is also not what it seems. Should no agreement be reached by January 1—or anytime after for that matter—there will be no economic Armageddon. There will be no renewed recession in the first quarter of 2013—at least due to the fiscal cliff. The ‘fiscal cliff’ is no cliff at all, and in reality better described as an economic speed bump derived from the Bush tax cuts. Here’s why:
The Congressional Budget Office (CBO) in its recent November 2012 report on the economic consequences if the tax cuts are allowed to expire, and spending cuts go into effect, on January 1, 2013 estimates that $503 billion will be taken out of the economy starting January 1. Another $682 billion will follow in 2014. Of the $503 billion, about $420 billion represents the expiration of tax cuts—about $80 billion in the payroll tax increase and the rest representing Bush tax cuts. Of the $85 billion or so in spending cuts, a mere $24 billion is defense spending. The rest is social program spending.
The $85 billion in spending cuts won’t hit the economy all at once in the first three months. So let’s say $25 billion will in the first quarter? The US gross domestic product, GDP, in 2013 will exceed $16.5 trillion next year easily. Conservatively estimating $4 trillion GDP in the first quarter, the spending cuts will mean a 0.6 of 1% decline in GDP. Hardly a recession due to the spending cuts.
OK. That still leaves $420 billion in tax increases that will take effect, about $80 billion in payroll hikes and the rest Bush tax cuts expiring. But as nearly all economists will admit, taxes have less an effect on the economy and GDP than spending does. In terms of an attempt to stimulate GDP, a $100 billion in tax cuts has less impact than does a $100 billion in spending increase. The opposite is also true: a $100 billion tax hike will slow the economy less than a $100 billion spending cut. It’s what economists call the ‘multiplier effect’.
Since 2008 the ‘multiplier effect’ has had significantly less impact on stimulating the economy, whether tax or spending multiplier. This has been due to the deep and rapid contraction of the economy in 2008-09, the historic weak recovery ever since, the massive unemployment, the record remaining debt overhang levels, and stagnant disposable income growth for more than 100 million households. Tax multipliers have been especially weak. Some estimates are that in recent years a tax cut of $1 has generated only a spending of that tax cut amounting to 35 cents. The multipliers are thus a fraction, not even a true multiple.
What that means in turn is raising taxes will have an equivalent weak, fractional impact on slowing the economy in 2013 just as cutting taxes has had very little effect on stimulating the economy from 2008 to 2012. The tax cuts of 2008-12, and especially the tax cuts for businesses and investors, have been mostly ‘hoarded’ and not invested. That’s why Corporate America still sits on $2 trillion in cash today and is not investing it. Business investment has been declining for months throughout 2012. Instead, corporations and investors have been, and now are increasingly, using the Bush and other tax cuts to buyback stock, pay special dividends to shareholders, invest offshore or in financial securities, etc. Stock buyback volumes this year alone will set a record of more than $400 billion in the US.
The tax cuts since 2008 did not produce much in the way of investment or jobs in the US; so ending them will not likely have all that much impact on the downside as well. If $340 billion of the $420 billion in tax hikes take effect after January 1, 2013, and if the .35 multiplier continues today, then we’re talking about $110 billion hit to the economy in the tax hikes. Over four quarters, remember. So that means about $30 billion taken out of the economy in the first quarter—or about roughly the same impact as the above $25 billion spending cut in the first quarter 2013.
That leaves only the $85 billion or so reduction from the payroll tax returning to its prior 6.2%. That impact is on the working-middle classes, who have not been ‘hoarding’ their tax cuts to the extent corporations and investors have. So one can assume the ‘multiplier’ is higher than .35 cents on the dollar. But it’s still a tax multiplier and not a spending multiplier, so it is not as if spending were cut one dollar. Generously, one can assume the payroll tax multiplier is $1 dollar for every $1 dollar tax hike. For the first three months of 2013, the impact will therefore be a $21 billion negative hit to GDP in the first quarter.
What this all means is that the true negative impact on the US economy during the first quarter from a ‘fiscal cliff’ taking effect, is no more than $75 billion on an economy that will be more than $4 trillion! A more accurate consideration of multiplier effects means the total impact on GDP is about a third of what the CBO has estimated for the first quarter of 2013. Moreover, once a deal is reached by March 27, 2013 at latest in the ‘fiscal cliff’ negotiations, most of that could be restored retroactively. What might be lost in the first quarter would mostly be restored in the second.
Even discounting an eventual deal and restoration of income to GDP in the first quarter, a $75 billion negative impact on GDP from going over a ‘fiscal cliff’ is negligible. There is no such thing as the ‘fiscal cliff’, in other words. There is a ‘Tax Cut Speed Bump’ at most.
It is far more likely that whatever deal is eventually negotiated between Obama and the House of Representatives’ ‘Boehner Boys’ will have a far more negative impact on the economy than the fiscal cliff of mostly Bush tax cuts expiration could ever have.
Not to mention the even more fundamental forces that constitute a drag on the US economy itself, from the rapid slowing of global manufacturing, trade and exports now continuing, to the refusal by big corporations to invest in the US, to the US banks refusing to lend to small businesses, to the steady decline in household consumption income for the 100 million households that constitute the middle and working class, to the growing likelihood of banking crises in Europe, growing problems in Japan’s economy, and so forth. The latter are the real threat to the US economy, not the fiscal cliff. What’s coming as a solution to the ‘fiscal cliff’, or what is best described as ‘Austerity American Style’ in 2013, is also (ironically) more a threat to the economy than the fiscal cliff. That is, the solution will prove decidedly worse than the problem itself.
In conclusion, there is no ‘fiscal cliff’ in reality—just a third derivative negative bump to the US economy in the worst case scenario.
So why all the media and political hype about the fiscal cliff? That’s how you get everyone to buy ‘Austerity American Style’ and convince them—as bad as it is—Austerity is better than the fiscal cliff that might have happened. That’s the only way they can cut social security, medicare, Medicaid, education, and all the rest $4 for every $1 they hike taxes on the wealthy and their corporations. That’s the only way they can clear the deck for historic cuts in corporate income taxes and a total pro-business revision of the entire tax code that is planned for later in 2013.
So politically there will eventually be no ‘fiscal cliff’. A deal will happen, after all the tough posturing is concluded. Economically there really is no ‘cliff’ just an economic speed bump, even should we go over it. But we won’t do that either. So watch the game play out, and then hold onto your wallets middle class and working class America.
Jack Rasmus
copyright December 2012
Jack is the author of the book, “Obama’s Economy: Recovery for the Few”, April 2012, and host of the weekly radio show, ‘Alternative Visions’, on the progressive radio network (PRN.FM). His blog is jackrasmus.com, website: http://www.kyklosproductions.com, and twitter handle #drjackrasmus where daily updates on the fiscal cliff negotiations are available.
Fiscal Cliff Updates On ‘Alternative Visions’ Radio Show
Posted in Uncategorized, tagged 'Alternative Visions' Radio Show Announcement, Fiscal Cliff on December 6, 2012| 3 Comments »
For my latest update on the Fiscal Cliff negotiations between Obama and Congress, go to my December 5 radio show, ‘Alternative Visions’, on the Progressive Radio Network, at the following url: http://prn.fm/2012/12/05/alternative-visions-income-inequality-america-120512/#axzz2ED5isoYj.
For an hour long in-depth discussion of the Fiscal Cliff and its origins back to 2010, listen to my radio show of the preceding week, November 28, at: http://prn.fm/2012/11/28/alternative-visions-fiscal-cliff-hold-wallet-mr-middle-class-112812/#axzz2ED5isoYj
For a print version of the background to the Fiscal Cliff, see my Chapter 7, “From Deficit Cutting to Double Dip Recession’, of my 2012 book, “OBAMA’s ECONOMY: RECOVERY FOR THE FEW’, which is posted for free on my website, http://www.kyklosproductions/articles.html
And for one-liner daily commentary, check out my twitter account at #drjackrasmus
More to Come on the Fiscal Cliff and my predictions re. the outcome. A Deal is in the works and will happen, as predicted on this blog several weeks ago. Events of the past week are moving toward confirming that, and related, predictions re. the likely content of the deal. Check this blog again on sunday evening for the latest assessment.
Dr. Jack Rasmus
What’s Next for American Labor?
Posted in Uncategorized, tagged 'Alternative Visions' Radio Show Announcement on November 20, 2012| Leave a Comment »
Readers of this blog are invited to tune into my coming Wednesday, November 22,, radio show, ‘Alternative Visions’, to listen to an important discussion between myself, Dr. Jack Rasmus, host of the weekly show, and my guests, long time union officers and now grass roots labor-community activists in the national ‘Emergency Labor Network’ organization, Jerry Gordon of the UFCW, and Dennis Serrette of the CWA. The topic of discussion will be ‘What Next for American Unions and Labor’.
The show may be listened to live (and archived) on wednesdays, 2pm, New York time, online at PRN.FM (Progressive Radio Network). It may also be accessed from my blog page, jackrasmus.com, and website, http://www..kyklosproductions.com.
ANNOUNCEMENT:
“With wages of US workers falling for more than a decade now, chronic long term problems of job creation in the US, attacks on public workers and unions intensifying, and union membership continuing to decline—‘What’s Next for American Labor” is the topic of today’s November 22, 2012 ‘Alternative Visions’ radio show. Dr. Jack Rasmus welcomes special guests—long time union officers and activists, Jerry Gordon (UFCW) and Dennis Serrette (CWA), to discuss what should be the future direction of American labor and unions after having spent $400 million to elect politicians in each of the last two national election cycles, 2008 and 2012, and thus far having little to show for it.
“Jerry Gordon, is a long time activist in the antiwar, labor, and civil rights movements, and has been an International Representative for the United Food and Commercial Workers, UFCW, for 25 years. He is currently the national secretary of the recently formed Emergency Labor Network, ELN, a grass roots organization of union and community leaders and activists dedicated to moving American labor and unions in a more progressive direction.
“Dennis Serrete is a 49 year veteran of the US union movement, a former National Director, now retired, of the Communications Workers of America, CWA, a past president and vice president of CWA locals 2108 and 1101 in New York, a founder of the Coalition of Black Trade Unions, CBTU, in 1972 and also a member of the Emergency Labor Network, ELN, today.”
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Jack’s Weekly Radio Show, ALTERNATIVE VISIONS
NEW BOOK
While the capitalist system has undergone numerous restructurings throughout its history, capitalist elites purpose in restructuring has remained the same: to restore and/or extend their hegemony. The current restructuring, operative since 1978, is called Neoliberalism. The book examines Neoliberalism as both an Idea and an historical practice composed of a particular mix of fiscal-monetary-trade-industrial policies that began with the latest US capitalist restructuring in the late 1970s, continuing to evolve to this day. The book further explains the deeper material forces giving rise to - as well as now undermining - the Neoliberal policy regime, with special focus given to the crisis of Neoliberalism in the wake of the 2008-09 global crash, Obama's failure to resurrect it, and Trump's current doomed effort to restore it in a new, more aggressive form. Evidence why Neoliberalism is destroying US Democracy concludes the book's analysis.
NEW BOOK
Describes how US federal governments, often in cooperation with the largest US private banks, introduced and expanded central banking functions from 1781 through the creation of the Federal Reserve Act of 1913. Based on an analysis of the evolution of the US banking system - from pre-1781, through the 1787 US Constitutional Convention, Congressional debates on Hamilton's reports to Congress, the rise and fall of the 1st and 2nd Banks of the United States, and through the long period of the National Banking System form 1862-1913, the book shows how central banking in the US evolved out of the private banking system, and how following the financial crash of 1907 big New York banks pushed through Congress the Federal Reserve Act of 1913, creating a central bank which they then managed for their interests.
BOOK
(Click on image) CENTRAL BANKERS is a comprehensive critique of central banks’ policies in the 21st century, explaining why the massive injections of free money to the banking system since the 1970s enabled the creation of excess corporate debt that has led to financial bubbles and repeated crises. The book addresses the growing contradictions of central banking, why they are failing in their functions, targets and tools, and proposes a radical democratization and restructuring to transform them to serve the public interest and not the private banks.
Book:
(Click on image) LOOTING GREECE, A New Financial Imperialism Emerges. This book - Reveals clearly who calls the shots in the Eurozone—the hardliners, not the remnants and political residue of what was once European social democracy, - Follows the negotiations in their excruciating detail as the Troika tightens the screws from 2009 to the present, - Shows how Europe’s financial elite enriches itself on Greek debt, privatizations and financial manipulations, turning Greece into an Economic Protectorate.
Book:
(Click on image): This book offers a new approach to explaining why mainstream economic analyses have repeatedly failed and why fiscal and monetary policies have been incapable of producing a sustained recovery. It explains why the global economy is slowing long term and becoming more unstable, why policies to date have largely failed the trend, and why the next crisis may therefore prove even worse than that of 2008-09.
Book plus DVD and Powerpoint slideshow
(Click on image) Obama's Economy: Recovery for the Few, explains how the weakest and most lopsided economic recovery since 1947 has been the direct outcome of failed economic policies of the Obama administration and US Federal Reserve bank since February 2009. Includes a detailed 'alternative program' in the final chapter. Includes the book, a video DVD presentation, and 66-slide PPT slideshow.
Book
(Click on image) Obama's Economy: Recovery for the Few, explains how the weakest and most lopsided economic recovery since 1947 has been the direct outcome of failed economic policies of the Obama administration and US Federal Reserve bank since February 2009. Includes a detailed 'alternative program' in the final chapter.
Book
(Click on image) A theoretical analysis, with historical case examples, of origins, causes and future evolution of the recent--and continuing--economic crisis in the U.S. and global economy. Includes predictions in 2009 of the inevitable failure of Obama policies and more serious crisis to come, 2013-15.
Book
(Click on image) Seven specific reasons why economic recovery under Obama since 2009 has failed for all but the wealthiest few and largest corporations. The book spells out eight specific areas as an Alternative Economic Recovery Program.
Book
(Click on image) The War At Home: The Corporate Offensive From Ronald Reagan to George W. Bush, is a 534 page, extensively researched, nonfiction book that describes the evolution of corporate-government policies from 1980 to 2005 that have shifted more than a $1 trillion dollars a year, every year, from 90 million American middle and working class households to the wealthiest 10% and corporations.
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