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History > 2013 > USA > Economy (II)



Federal Cuts Are Concern

in Modest U.S. Growth


April 26, 2013
The New York Times


It’s not great, but it’s still probably the best growth the American economy is going to see for a while.

Economic activity picked up in the first quarter of this year, with output expanding at an annualized pace of 2.5 percent, according to a Commerce Department report released on Friday. The number was a welcome improvement from the unusually sluggish growth at the end of 2012, but significant government spending cuts and the pinch from recent tax increases look likely to keep the economy in stall speed in the months ahead.

“We just have not been able to hit escape velocity, to get us growing fast enough to make up for the ground we lost during the recession,” said Steve Blitz, director and chief economist at ITG Investment Research. He forecasts growth around 2 to 2.5 percent for the rest of the year, which is slower than the economy’s long-term average. “Government spending is clearly a negative, but the reason why it’s such a strong negative is because there’s nothing else in the private sector really driving things forward.”

Economists noted that even the decent growth in the first quarter was probably somewhat overstated, with some of the improvement caused mostly by a rebound from the bare 0.4 annual growth rate in the fourth quarter of 2012. Businesses drew down their back-room inventories at the end of last year, so they needed to replenish them at the start of 2013. But that stockroom rebalancing appears to have restored inventories to acceptable levels and probably will not drive much more business spending growth later in the year.

Similarly, consumer spending was stronger in the first quarter, growing at its fastest pace since late 2010. But Mr. Blitz discounted even that apparently good news because so much of the extra spending was in housing and utility costs, which could have been driven by unusually cold weather.

It also seems unlikely that consumers will spend as freely in the months ahead, economists said. Consumer sentiment and retailer reports suggest that households are starting to feel squeezed from the lapse of the two-year payroll tax holiday. That meant the Social Security tax rate rose 2 percentage points in January, adding about $700 a year to the typical worker’s tax bill.

Wage stagnation may also put a crimp in spending. Much of the job growth, after all, has been concentrated in relatively low-paying areas like food services and retail, and household incomes have been more or less flat since May, according to Sentier Research.

On the bright side, gas prices have fallen sharply in the last two months, which means households have more money free for other kinds of purchases.

The most immediate concern for many businesses and consumers is the shrinking government.

In the first quarter of this year, government spending fell at an annual rate of 8.4 percent, after a decrease of 14.8 percent in the fourth quarter of 2012 — with the cuts driven by sharp declines in military spending. Both declines happened largely before the bulk of Congress’s across-the-board spending cuts took place. The so-called sequester is scheduled to strip $85 billion out of federal spending before Oct. 1, cuts that will have secondary effects throughout the private sector. Furloughed federal workers, for example, will spend less money at local businesses.

While lower government borrowing and spending can help free resources for business when the economy is operating closer to its capacity, that is not the case today. What may moderate the drag from federal spending cuts is the prospect that state and local governments may stop cutting and start spending more now that their tax revenue has risen in the last year, said Paul Dales, senior United States economist at Capital Economics.

Still, more federal cuts will probably overwhelm whatever may happen at the state and local levels.

“With fiscal tightening weighing on the spring and summer quarters, we expect weaker growth ahead,” Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisers, said in a note to clients. “We have seen good quarters before, but what counts is sustainability, and on that score we are deeply unconvinced.”

The pace of economic activity may have already begun to slow, given recent disappointing reports about economic indicators in March. Hiring slowed sharply last month, for example, and orders for durable goods like aircraft and metals fell more than analysts had expected. Some economists are keeping their fingers crossed that unusually cold weather was responsible for these dismal numbers, which would mean the slowdown was temporary.

Even some of the other bright spots in the latest gross domestic product report showed a slight slowdown from last quarter. Business spending on equipment and software, for example, rose at an annual rate of 3 percent in the first quarter of 2013, but not as quickly as in the fourth quarter of 2012, when it rose 11.8 percent. Residential investment spending — housing, essentially — had its third consecutive quarter of double-digit growth, but again, the pace in the first quarter was not quite as robust as it was at the end of last year (12.6 percent annual growth in the first quarter, compared to 17.6 percent the previous quarter).

The housing recovery is “becoming an important driver of economic growth and will probably continue to be, which is one thing that really sets the U.S. out from other countries right now,” Mr. Dales said.

Strength in the housing market, particularly the rise in home prices, could make consumers feel richer and therefore more willing to spend, said Joshua Shapiro, chief United States economist at MFR Inc. He cautioned that the housing market might not be a strong driver of growth for very long, because the current rebound is coming from “unsustainably low levels of activity from the depths of the recession.” In the future, he said, “we’ll probably see a calmer rate of growth.”

Nothing in Friday’s report looks likely to change Federal Reserve policy, economists said. The Fed has indicated it will slow its asset purchases and raise interest rates only after considerable economic improvement.

Justin Wolfers, an economics professor at the University of Michigan, said the government’s fiscal policy was a drag on the economy. He suggested that the Fed might also not be doing enough to bolster employment, given that inflation rates are still below official targets.

“The bigger picture is that we have a fledgling recovery which needs help but isn’t getting it,” he said.

Friday’s report was the Commerce Department’s initial estimate for gross domestic product growth, and the numbers will be revised substantially in coming months. This summer the department will also will also release its benchmark revisions, which are a more comprehensive overhaul of how it calculates the size and growth of the economy. Those revisions will probably affect all of the numbers released over the last several decades.

    Federal Cuts Are Concern in Modest U.S. Growth, NYT, 26.4.2013,






After Apple’s Rise, a Bruising Fall


April 18, 2013
The New York Times


Where’s the old love, Apple?

Wall Street has turned viciously on its one-time iDarling. The rout in Apple’s share price — it fell nearly 2.7 percent on Thursday, bringing the damage since late September to 44 percent — has many wondering when, and where, all of this will end.

The answer, of course, is that no one really knows. Yes, Apple is slowing, as companies inevitably do. But Apple remains enormously profitable and the envy of corporations worldwide.

And yet Apple’s decline in the stock market has been so swift and so brutal that the development has begun to change the way investors view the company. Apple no longer looks like a sure thing.

It is a remarkable turn in one of the standout stock market stories of recent years. Only seven months ago, Apple’s share price raced above $700 to a record high, making Apple the most valuable company on the planet. By Thursday, the stock had sunk to $392.05, closing below $400 for the first time since late 2011.

The proximate cause of Thursday’s decline was news this week of a glut of audio chips at one of Apple’s suppliers. That, in turn, prompted concern that sales of iPhones might fall short of expectations.

But that was just one more bit of downbeat news in what has been a downbeat few months. All told, $290 billion has been wiped off Apple’s value since September. It might seem difficult to believe, but Apple now ranks among the biggest losers in the stock market over the last seven months, right next to the J. C. Penney Company, that sick man of American department stores. The last time Apple was trading this low was in November 2011. Steve Jobs had just died and everyone wondered how Apple would carry on without its visionary leader.

Stock price aside, Apple is bigger and, by some measures, stronger today that it was then. It sells more iPhones and iPads than ever. It is expanding its global reach. And it is making so much money — analysts expect the company to report another solid quarter next week — that it has been having trouble figuring out what to do with all of its cash. Speculation is rife that Apple might pass some cash to shareholders in the form of an increased stock dividend.

On one level, the Apple story is a common one on Wall Street: what goes up also goes down. As Apple’s stock price soared in recent years, some pointed out that the company’s sales couldn’t keep growing — and its share price couldn’t keep rising — at that rapid pace forever. In hindsight, Apple’s surge above $700 strikes some as irrational, as does its precipitous plunge back below $400.

“Overexuberance on the upside leads to herd behavior and panic during the correction,” said Avanidhar Subrahmanyam, an professor of behavioral finance at U.C.L.A. “People just panic and the stress hormone kicks in.”

One issue is that Apple is a favorite stock among individual investors. The investment firm SigFig estimated last fall that 17 percent of all retail investors owned Apple stock, four times the number that owns the average stock in the Dow Jones industrial average.

Trading by retail investors can be amplified by hedge funds, who see everyday investors piling in and push in the opposite direction by shorting the stock, betting it will decline. The so-called short interest in Apple reached a peak last November, but hasn’t gone down much since then, according to data from Nasdaq.

Aswath Damodaran, professor of finance at New York University, said the enthusiasm surrounding Apple last year prompted him to sell his own holdings in the company when the stock was around $610.

“I was terrified by the kinds of investors coming into Apple’s stock,” said Mr. Damodaran. “Not only were they coming in with unrealistic expectations, they were at war with each other.”

Recently, Mr. Damodaran began buying shares again, convinced that the fears had gone too far.

“Right now, Apple is being priced as though it has no future growth,” he said.

Indeed, Apple looks cheap by the most popular way of gauging a stock’s value, the amount of profit it generates for each outstanding share. Investors are willing to pay about $15 for a dollar of profit of the average Standard & Poor’s 500 company. But for Apple, they will pay less than $9.

At its current price, investors are betting that Apple will grow more slowly than the average American company. And they are ignoring the enormous pile of cash that Apple has built up, which it could hand out to shareholders tomorrow if it wanted.

The cash, and Apple’s apparent inability to find a use for it, has taken some of the blame for the stock’s recent performance.

Toni Sacconaghi, an analyst at Bernstein Research, said that if Apple developed a clear plan to use some of its cash to pay dividends to shareholders it would help the company’s shares, perhaps lifting them 10 percent or more. But that will not return Apple shares to their glory days. He said the bigger problem bearish investors saw with Apple’s shares was more straightforward: growth is stalling.

“That’s the story,” he said.

During the fiscal second quarter that Apple will report next Tuesday, Mr. Sacconaghi predicts that Apple will post an 18 percent decline in net income, as less lucrative products eat into its profit margins. In 2012 during that same period, Apple almost doubled its net income from the same period in 2011.

Still, this is Apple — the company that produces some of the most popular products in the world. While Mr. Jobs is no longer around, almost all the people who worked with him are still there.

One thing is sure: the shift in sentiment has been a big change for Apple bulls like Gene Munster, an analyst at Piper Jaffray. He still sees host of opportunities for growth ahead. He said that, for instance, Apple could play a big role in mobile payments.

But it’s no longer easy being an Apple bull.

“It’s like getting a beating every day coming into work,” Mr. Munster said. “Investors are so negative, they want to take it out on somebody. I feel like I end up being that guy.”

    After Apple’s Rise, a Bruising Fall, NYT, 18.4.2013,






Europe’s Bitter Medicine


April 14, 2013
The New York Times


For more than two years, European leaders have pushed a cocktail of fiscal austerity and structural reforms on troubled countries like Portugal, Spain and Italy, promising that it will be the tonic to cure their economic and financial ailments. All the evidence shows that this bitter medicine is killing the patient.

Portugal’s highest court recently ruled against cuts to the wages and pensions of government employees. Protesters in Spain have picketed the homes of lawmakers to demand better treatment of homeowners behind on their mortgages. And frustrated Italians cast such a large vote for an anti-establishment movement that the country still does not have a new government more than a month after its national elections.

From the beginning, it was clear that economic austerity (cutting government spending and public benefits) and structural reforms (relaxing tough labor laws and privatizing state-owned companies, for example) could not be accomplished simultaneously during a deep recession. And that painful reality is playing out with no end in sight.

In Portugal, the government of Prime Minister Pedro Passos Coelho cut spending and raised taxes so much that the fiscal deficit has fallen by about a third from 2010 to 2012. He also pushed through reforms to phase out rent control for tenants and legal changes that make it easier for companies to fire workers. The result is that the country’s unemployment rate has risen to close to 18 percent, from 12.7 percent in 2011. Economists say Portugal will likely have a bigger fiscal deficit this year than it agreed to in exchange for loans from other European countries and the International Monetary Fund, because national policies, not surprisingly, have made the recession deeper than anticipated.

Portugal and other European countries, in the longer term, will need to reduce their deficits and reform policies that have held their economies back for decades. But, for now, this approach, beyond fostering economic disaster, has created widespread public anger and resistance aimed at domestic politicians.

The biggest political beneficiaries have been groups like the Five Star Movement in Italy, which has refused to support any political party in forming a government and has called for a referendum on the country’s use of the euro. The real danger for Europe is that such movements will increase and voters and leaders in struggling countries will see less and less value in sticking with the euro. If countries start ditching the currency, it would cause widespread panic across the Continent and tens of billions of dollars in losses to governments, banks and investors in Germany and other richer European countries, not to mention in the rest of the world.

What would help is if leaders like Chancellor Angela Merkel of Germany stopped insisting on austerity and helped bolster demand by, for instance, allowing weaker countries to issue bonds backed by the euro zone. That could put more into the economies and help lift them out of a downward spiral. Policy makers in Portugal and Italy would have a much easier time selling their people on the need for reforms if they weren’t also cutting popular government programs and benefits. Faster growth and lower unemployment would provide the resources that could later be used to pay down debts and reduce deficits.

European leaders will find it difficult to admit that their approach is failing. But they should realize that staying on the current path is undermining public confidence in the euro and the larger European project. If they let those forces gather strength, everybody on the Continent, not just the Portuguese or the Italians, will be worse off.

    Europe’s Bitter Medicine, NYT, 14.4.2013,






Hiring in U.S. Tapers Off

as Economy Fails to Gain Speed


April 5, 2013
The New York Times


It looks as if the spring swoon is back.

American employers added an estimated 88,000 jobs to their payrolls last month, compared with 268,000 in February, according to a Labor Department report released Friday. It was the slowest pace of growth since last June, and less than half of what economists had expected.

It also was the start of a third consecutive spring in which employers tapered off their hiring after a healthy start to the year. Slowdowns in the previous two years could be attributed to flare-ups in the European debt crisis, but this time the cause is less obvious. The recent payroll tax increase or other fiscal tightening in Washington could be partly to blame for the sudden retreat in hiring, but neither seems to be showing up much yet in other relevant economic data.

“People were starting to believe the economy was really picking up steam, and desperately wanted this report to be better,” said Joshua Shapiro, chief economist at MFR Inc. “But that didn’t happen.”

Economists like Mr. Shapiro cautioned that the numbers, which are adjusted for normal seasonal variations, are volatile from month to month and are still subject to revision.

Nonetheless, the closely watched monthly jobs report was discouraging.

The unemployment rate, which comes from a different survey, ticked down to 7.6 percent in March, from 7.7 percent, but for the wrong reason: because more people reported dropping out of the labor force (meaning they are neither working nor looking for work), not because more people were hired.

The labor force participation rate has not been this low — 63.3 percent — since 1979, a time when women were less likely to be working.

Baby boomer retirements may account for part of the slide, but pessimism about job prospects in a mediocre economy still seems to be playing a large role, economists say.

“The drop in the participation rate has been centered on younger workers,” said Mr. Shapiro, “many of whom have given up hope of finding a decent job and are instead continuing in school and racking up enormous amounts of student debt, which has contributed to the recent surge in consumer credit outstanding.”

Investors initially responded to the jobs report by sending the major stock market indexes down more than 1 percent. But as the day went on, strategists sent out reports noting that the economic slowdowns in previous years ended up being temporary. The Standard & Poor’s 500-stock index climbed back to end the day down only 0.4 percent.

“Given the noise in the data you don’t want to set your pants on fire about it,” said Michael Feroli, chief United States economist at JPMorgan Chase.

Job gains in March were concentrated in professional and business services and health care.

The government again shed workers, as it has been doing for most of the last four years, though reductions at the Postal Service accounted for most of the latest decline. Economists expect more government layoffs in the months ahead as the effects of Washington’s across-the-board budget cuts make their way through the system.

“While the recovery was gaining traction before sequestration took effect, these arbitrary and unnecessary cuts to government services will be a headwind in the months to come, and will cut key investments in the nation’s future competitiveness,” Alan B. Krueger, the chairman of President Obama’s Council of Economic Advisers, said in a statement.

The latest report should quiet speculation that the Federal Reserve will take its foot off the monetary accelerator anytime soon, as some had suggested after a spike in hiring in February. Even before Friday’s numbers came out, though, Fed officials had expressed concerns about not only the pace of job growth, but the quality of hiring as well.

“It’s important to look at the types of jobs that are being created because those jobs will directly affect the fortunes and challenges of households and neighborhoods as well as the course of the recovery,” Sarah Bloom Raskin, a member of the Federal Reserve Board, said in a recent speech.

She noted that relatively low-wage sectors like food services and retail businesses had accounted for a large share of the job growth in the last few years; a report in August from the National Employment Law Project, a liberal advocacy group, found that a majority of jobs lost during the recent recession were in the middle range of wages, while a majority of those added during the recovery had been low-paying.

In March, in fact, jobs in food services and drinking places accounted for the largest share of total American employment on record. Today nearly one in 13 American jobs is in this industry.

Ms. Raskin also expressed concern about temporary jobs, which account for a growing share of total employment.

“Temporary help is rapidly approaching a new record,” said Diane Swonk, chief economist at Mesirow Financial, who noted that there was also a rapid increase in temp hiring during the boom years of the 1990s. “That of course means more flexibility for employers, and less job security for workers.”

Perhaps more distressingly, 7.6 million workers who want full-time work can find only part-time work, and their missing work hours do not count toward the official unemployment rate. The number of such workers fell slightly from February, but is still about where it was a year ago.

A broader measure of underemployment, which includes those reluctantly working part time as well as those who want jobs but have stopped looking, stands at 13.8 percent.

At the same time, long-term unemployment — joblessness lasting more than six months — has been a persistent problem ever since the recession ended in the middle of 2009. And it may be partly driven by the fact that many of the jobs available do not pay well enough to be worth taking.

“When I’ve had offers for positions they’re part time or temporary, but the child care I’d need to pay to take the jobs is more costly than what I’d be getting paid for the job itself,” said Linda Rubiano, 37, of Pennsauken, N.J., a single mother with a 3-year-old boy. She was laid off from her paralegal job, which she had held for five years, in January 2012. “It’s really, really frustrating.”

Getting people like Ms. Rubiano back to work soon is critical to the economy’s future, experts say. In many cases, the longer people stay unemployed, the less employable they become.

“This seems to be a long-term sleeper crisis too, as we think about long-term unemployed workers who are in midlife and older workers who are likely dipping into retirement savings in order to stay afloat,” said Christine L. Owens, executive director of the National Employment Law Project. “We’re setting ourselves up for somewhere, 10 years down the road, when a lot of retirees who didn’t expect to live in poverty are going to be in poverty.”


Nathaniel Popper contributed reporting.

    Hiring in U.S. Tapers Off as Economy Fails to Gain Speed, NYT, 5.4.2013,






On the Economy, Think Long-Term


March 31, 2013
The New York Times


THE 2009 economic stimulus package has come and gone. So, too, have the temporary payroll tax cuts of 2011-12. Most of the Bush-era tax cuts, in addition, have been made permanent. Yet the lasting effects of these policies have been meager.

The economy is still sluggish. Unemployment remains high, especially for lower-skilled workers. Inequality of incomes is higher still. What’s more, the fundamental structural challenges to our economy remain. Deeply disruptive forces — rapidly evolving information technology, globalization and environmental stresses — are radically reshaping the jobs market. Decent jobs for low-skilled workers have virtually disappeared. Some have been relegated to China and emerging economies, while others have been lost to robotics and computerization.

The results of these changes can be seen in two starkly different employment figures: since 2008, 3.1 million new jobs have been created for college graduates as 4.3 million jobs have disappeared for high-school graduates and those without a high school diploma.

These trends will only continue, and even become more sharply defined. But in the face of such immense challenges, Republicans continue to hawk their age-old remedy, demanding cuts in government spending, tax rates and regulation so that market forces can respond in due course. Democrats, meanwhile, push just as stridently for their familiar fixes — short-term spending programs like the 2009 stimulus package enacted during President Obama’s first term.

It’s time to move beyond such transitory and piecemeal policies. Our underlying economic problems are chronic, not temporary; structural, not cyclical. To solve them, we need a systematic long-term approach.

Consider three priorities for this new, long-range perspective: infrastructure, energy and job skills. With a smart, ambitious strategy in these sectors we can encourage the creation of good jobs and begin to resolve huge problems of competitiveness and the environment.

Start with the country’s crumbling infrastructure. Mr. Obama has spoken eloquently about fast intercity rail, renovated highways, safe water systems and refurbished waterways and coastlines. And on Friday, in a speech at the Port of Miami in Florida, the president called once more for a new public-private funding strategy for infrastructure — $21 billion, on top of some $40 billion previously announced.

That’s good and important. Yet the private money will move off the sidelines only when there are solid, long-term plans to deploy it. After all, the 2009 stimulus program put some short-term money toward infrastructure repair, but there has been precious little sustained investment to show for it. Calls for “public-private” financing aren’t enough. We need strategies — linking federal, state, regional and local efforts — that have a 10- to 20-year perspective.

The same goes for our energy system. We are in the midst of a short-term boom of shale oil and natural gas. Yet this expansion in energy production, driven in large part by two new techniques — horizontal drilling and hydraulic fracturing — won’t begin to address our long-term energy needs.

Like any overhyped gold rush, today’s boom will soon be tomorrow’s bust; fractured gas fields have a remarkably rapid decline rate. They also threaten the local environment. More important, given the genuine and increasing impact of climate change, there is no longer any doubt that the world will have to fulfill its energy needs with low-carbon sources — whether solar, wind, nuclear or carbon-capture and sequestration.

A clearly laid out federal program to support large-scale solar and wind energy, electric vehicles and other smart technologies — and backed partly by public money — would unlock hundreds of billions of dollars of private investments. It would secure America’s energy future and protect the environment, too.

The third area is job skills. Let’s take a lesson from Germany, which boasts a low youth unemployment rate because of skills training. There, many young people gain a job foothold through an apprenticeship with a private company partly financed by the government.

If Mr. Obama were to stop angling for more temporary stimulus and instead put forward sound programs for job training, low-carbon energy and modernized infrastructure, he would most likely carry the public and eventually win the political battle.

For encouragement, he can look to history. Indeed, the United States government has a strong track record of success in such long-term public-private investment programs. Federal agencies helped support and guide the birth of the computer age, the Internet, the Human Genome Project, the federal highway system, the GPS revolution, the global fight against AIDS and, of course, the space program. Each was built on the painstaking political work of a president, backed by scientific experts and private businesses, and fashioned over many years.

All of the challenges above were daunting. We set out for the moon, John F. Kennedy said, not because it was easy but because it was hard. Likewise, those who think returning the nation to prosperity, economic fairness and a safe environment will be easy are only fooling themselves.


Jeffrey D. Sachs, a professor of sustainable development

and director of the Earth Institute at Columbia University,

is the author of the forthcoming book

“To Move the World: JFK’s Quest for Peace.”

    On the Economy, Think Long-Term, NYT, 31.3.2013,






Cry About the Real Wolf


March 6, 2013
The New York Times


The White House horribly botched its messaging on the sequester.

The Obama administration desperately wanted to define the sequester’s immediate job casualties and calamitous disruptions.

In a way, Obama’s strategy was understandable, and may well have worked on a different group of Republicans from the present crop, which is constitutionally opposed to anything that this president supports.

It’s like one of those Warner Brothers cartoons where Bugs Bunny argues with Yosemite Sam and then takes Sam’s position only to have Sam continue to disagree out of spite and anger and ignorance. In our version, Sam then threatens to blow the economy to smithereens. It would be funny it weren’t so tragically real.

The White House wanted to cause enough outcry that it would pressure Republicans into a deal that would avert indiscriminate, across-the-board cuts.

But the outcry never came. Republicans gambled that it never would. They called the White House’s bluff.

The public had grown numb with the sky-is-falling hysterics in Washington, so much so that few were paying close attention to the sequester. A CBS News poll issued this week found that only 28 percent of Americans said that they were paying very close attention.

Many Republicans played down the sequester’s potential fallout, while fact checkers castigated the White House for exaggerating it.

This seems to have won some converts among the tangentially engaged electorate.

Sure, most people preferred some balance of spending cuts and tax increases, and a plurality blamed Republicans in Congress for not coming up with a deal, according the CBS News poll. But the percentage of people who said that the sequester would either be good for the country or wouldn’t have a real impact was equal to the percentage of people who believed that it would be bad for the country.

And, since the country didn’t fall apart during the first week of the sequester, many Americans may be even more open to the argument that the administration was crying wolf. In fact, the Dow Jones industrial average hit a record high this week, and there were no long lines at airports for any reason other than a brewing snowstorm.

But remember that in the story of the boy who cried wolf, ultimately, a real wolf does show up after all the false cries, and that very real wolf destroys a vulnerable flock.

The lesson, as applied to our present dilemma, is that alarmism erodes credibility, but real danger can still lurk.

The pain of the sequester is that kind that lurks: a slow, creeping disaster mainly affecting those Americans on the fringes who are barely inching their way back into a still-bleak job market — or hopelessly locked out of it — and poor Americans too old or too young to participate in it.

That is how the effects should always have been framed: not as a danger to air travelers and contractors, but as a prowling danger to the most vulnerable in our flock.

Not framing it this way harkens back to a larger problem in our culture: a failure, or outright unwillingness, to acknowledge America’s poor — both working and not — and to appreciate their struggle.

When I think about the effects of the sequester, I can’t help thinking about the people in my hometown in rural north Louisiana and in places like it.

In my hometown, the median family income is less than $30,000, and poverty rates are staggeringly high, according to the American Community Survey. This isn’t necessarily because people don’t take work if they can find it, but because much of the work they can find doesn’t pay a living wage.

So they supplement their salaries with the public benefits they’re eligible to receive.

The town is also home to the Head Start program for the area, and some of the only professional jobs available are at the school.

It is in places like this, places full of the working poor who don’t take airplanes or own stock, that the effects of the sequester will be all too real.

The director of the Congressional Budget Office has estimated that the sequester could cost 750,000 jobs this year. Those are not likely to be lost from the top down but from the bottom up. And the estimate of job losses isn’t simply a factor of government pink slips, but the blow to the private sector when billions of dollars are withdrawn from the larger economy.

Pundits and politicians have mocked the cuts for being small in the grand scheme of an enormous national budget, but those are the callous waggings of tongues that have never given voice to the fear of poverty or tasted the bitterness of hunger.

For the rest, the less fortunate, those trying their best to feed their families and praying that illness passes over their houses, these cuts will be no joke.

Those are the people the White House and Congressional Democrats should highlight: good people dealt a poor hand and trying to make good of it.

There is another America, unseen and uncelebrated, where the wolf is ever sniffing at folks’ heels.

    Cry About the Real Wolf, NYT, 6.3.2013,






Bleeding the Borrower Dry


March 3, 2013
The New York Times


New York is one of 15 states that have banned the predatory, high-interest loans that payday lenders commonly use to pillage low-income borrowers. But offshore lenders increasingly get around state laws by issuing predatory loans over the Internet. Worse still, as the Times’s Jessica Silver-Greenberg reported recently, banks in the state are profiting from the loans by allowing the Internet lenders to automatically withdraw payments from the borrower’s account, in some cases without his or her permission. When the borrowers — or their lenders — overdraw on the accounts, the banks get to collect fat overdraft fees.

About 12 million borrowers turn to payday lenders each year. The loan model that lures them in is based on deception. Customers are told, for example, that they can borrow small amounts, perhaps a few hundred dollars, which they are supposed to repay in full within a short period, typically two weeks. The promotional material does not let on that the loans, which carry annual interest rates of 500 percent or more, are structured in a way that inevitably turns a short-term obligation into long-term debt.

A new study by the Pew Charitable Trusts finds, for example, that only about 14 percent of borrowers can afford to take enough out of their monthly budget to repay the average payday loan. Instead, average borrowers carry a debt for five months, during which time they pay repeated fees to renew the loan. By the fifth month, someone who borrowed $375 will have paid about $520 in interest alone. Many also resort to borrowing from another payday lender. Not surprisingly, payday borrowers are more likely than others to default on credit card debt, to file for bankruptcy or to lose their bank accounts because of abuse of overdraft privileges.

New York State passed one of the strongest anti-usury laws in the nation in 1976, making it a felony for lenders to charge in excess of 25 percent interest. Even so, New Yorkers are still preyed upon by out-of-state payday lenders, which collect payments through an automatic withdrawal process.

Under federal law, bank customers have a right to revoke a creditor’s automatic withdrawal privileges. They can also simply close an account whenever they choose. A federal lawsuit brought against JPMorgan Chase Bank by two customers in New York shows how difficult exercising these rights can be.

One plaintiff was besieged by payday lenders that had charged her an annual interest rate of nearly 800 percent — clearly illegal in New York — and continually tried to debit her bank account, triggering $34 overdraft fees. She asked the bank in March 2012 to close her account, but it remained open for two months, during which the lenders attempted to debit her some 55 times, ringing up $1,523 in overdraft and other fees.

Chase has promised to revisit its policies. But judging from consumer complaints nationally, this problem is not unique to New York. Congress and state governments need to crack down on these practices.

A bill pending in the Senate, known as the Safe Lending Act, would require all online lenders to comply with state laws that provide stronger consumer protections than the federal statutes. It would establish once and for all that payday loan borrowers have the right to stop lenders from raiding their bank accounts. State and federal regulators also need to prohibit banks from giving payday lenders access to the automatic payment system in states where predatory, high-interest loans are illegal.

    Bleeding the Borrower Dry, NYT, 3.3.2013,






Obama Picks Foundation President for Budget Chief


March 3, 2013
The New York Times


WASHINGTON — President Obama plans to nominate Sylvia Mathews Burwell, the president of the Walmart Foundation, as his budget chief, a White House official said on Sunday.

Ms. Burwell, if confirmed by the Senate, would step into the role amid heated budget battles with Congressional Republicans. Federal agencies have started to implement the budget cuts known as sequestration — $85 billion in blunt, across-the-board spending reductions that were meant to force Democrats and Republicans to reach a long-term deal to pare the deficit.

In addition, the temporary measure that is financing the government will run out at the end of March, setting up another potential fight between the White House and Republicans in Congress.

A native of West Virginia, Ms. Burwell is a graduate of Harvard and Oxford, where she was a Rhodes scholar. In the 1990s, she served in a variety of economic policy roles in the Clinton administration, including as a top aide to Robert E. Rubin, then the Treasury secretary, and as a staff member of the White House’s National Economic Council.

Ms. Burwell would bring a new voice to an administration that has developed a reputation for insularity, and she would provide some gender diversity to a circle of top White House aides that is dominated by men.

Ms. Burwell would be only the second woman to hold the title of budget director, after Alice Rivlin, an economist now at the Brookings Institution, who held the job in the Clinton administration. Ms. Burwell’s selection, which was expected, was to be announced on Monday.

She has worked in the nonprofit world since leaving politics, spending much of the 2000s at the Gates Foundation, the $36 billion fund that finances global health and poverty-eradication programs. She has led the billion-dollar Walmart Foundation, the charitable organization with ties to Wal-Mart Stores Inc., since late 2011.

The budget office helps the White House develop its spending policies, including its overdue budget proposal for the 2014 fiscal year, which begins in October. That budget might include many of the economic priorities Mr. Obama laid out in his State of the Union address, like a major expansion of early childhood education programs.

Ms. Burwell would take over for Jacob J. Lew, now the Treasury secretary, who left the budget post in early 2012 to become the White House chief of staff. Jeffrey Zients has held the title of acting director since then.

    Obama Picks Foundation President for Budget Chief, NYT, 3.3.2013,






As the Cuts Hit Home


March 1, 2013

The New York Times


House Republicans were elated this week when their leader, John Boehner, made it clear that deep, automatic spending cuts would begin as scheduled on Friday. Incredibly, some consider the decision a victory.

As the cuts take effect, they will inflict widespread hardship. But some Americans will be hurt more than others, and the people who will be hurt the most are those who are already struggling. In the months ahead, an estimated 3.8 million Americans who have been unemployed for more than six months face a cut in federal jobless benefits of nearly 11 percent — or about $32 a week — all from the recent average weekly benefit of $292. And an estimated 600,000 low-income women and toddlers will be turned away from the federal nutrition program for women, infants and children, known as WIC.

It should not be this way. Deficit reduction should not occur on the backs of the poor and vulnerable. At the insistence of Democrats, most major programs that help the needy have been exempted from the cuts, including food stamps and Medicaid. Democrats also won exemptions for beneficiaries of programs that are not explicitly aimed at low-income Americans but that are crucial to keeping many retirees out of poverty or near-poverty, notably veterans’ pensions, Social Security and Medicare. Still, smaller, vital programs will fall under the knife, in part because they are in spending categories deemed dispensable under the unthinking rules for across-the-board cuts.


FEDERAL UNEMPLOYMENT BENEFITS By the end of the fiscal year, on Sept. 30, the Labor Department estimates that $2.3 billion will be cut from federal jobless benefits. Those benefits provide 14 to 47 weeks of aid after state-provided benefits run out, generally after 26 weeks. The support is critical. The share of unemployed workers who have been out of work for more than six months was 38.1 percent in January, with the worst levels of long-term unemployment occurring among workers 45 or older. That group is likely to have substantial family and financial obligations, even as it is often shunned by employers. According to an Urban Institute survey last year, workers in their 50s are about 20 percent less likely to be rehired than workers ages 25 to 34.

It will probably take the states, which administer the benefits, at least until April to make the program changes. While that will postpone the immediate pain, it means that the cuts, when they come, will be concentrated over an even shorter period.


NUTRITION AID The federal government has yet to issue specific guidance on how states should handle an estimated cut to the WIC program of $340 million this fiscal year. Little will happen until April, but, after that, priority is likely to be given increasingly to pregnant and breast-feeding women and to infants, while women not breast-feeding are put on an indefinite wait list, along with many children over 1 year old. The cutbacks to mothers would affect African-Americans disproportionately, because their breast-feeding rates are lower than other groups’. The cuts in aid to children will fall disproportionately on Hispanic families, who tend to have more children.

Why are the Republicans are so happy when they should be ashamed?

As the Cuts Hit Home,




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