History > 2012 > USA > Economy (IV)

Why the Economy Needs Tax Reform

December 29, 2012
The New York Times

Over the next four years, tax reform, done right, could be a cure for much of what ails the economy. Higher taxes, raised progressively, could encourage growth by helping to pay for long-neglected public investment in education, infrastructure and basic research. More revenue would also reduce budget deficits, helping to put the nation’s finances on a stable path. Greater progressivity would reduce rising income inequality, and with it, inequality of opportunity that is both an economic and social scourge.

The big obstacle to comprehensive tax reform is the persistent Republican myth that spending cuts alone can achieve economic and budget goals. That notion was sounded rejected by voters during the election. Yet it still has adherents among many Republicans, which will make it that much harder for Congress to grapple with the bigger and more complex issue at the heart of tax reform: how to pay for government in the 21st century.

The main problem is that the current tax code is incapable of raising the revenue needed to pay for the goods and services of government. Over the last four years, federal revenue as a share of the economy has fallen to its lowest level in nearly 60 years, a result of the recession, the weak recovery and a decade’s worth of serial tax cuts. Even with deep spending cuts, the chronic revenue shortfall is expected to continue, swelling the federal debt — unless taxes go up. To stabilize the debt over the next 10 years while financing more investment would require at least $1.5 trillion to $2 trillion in new revenue, above what could be raised by letting the top income tax rate revert to its pre-Bush-era level of 39.6 percent.

A logical way to help raise the additional needed revenue would be to tax capital gains at the same rates as ordinary income. Capital gains on assets held for more than a year before selling are taxed at about the lowest rate in the code, currently 15 percent and expected to rise to 20 percent in 2013. That is an indefensible giveaway to the richest Americans. Research shows that the tax breaks do not add to economic growth but do contribute to inequality. Currently, the top 1 percent of taxpayers receive more than 70 percent of all capital gains, while the bottom 80 percent receive only 6 percent.

Another sensible approach is to cap deductions at 28 percent, or to convert deductions, which disproportionately benefit high-bracket taxpayers, to tax credits, which would provide the same benefit to all taxpayers, regardless of tax bracket. President Obama must also pursue other revenue raisers, including a restoration of the estate tax, higher tax rates or surcharges on multimillion-dollar incomes, and higher corporate taxes, including an end to the deferral of tax for American companies that stash their earnings abroad.

All that would only be a start, because the new revenue would only slow the growth of the debt in the near term. After 10 years, the pressures of an aging population and health care costs would cause the debt to accelerate again.

With that in mind, Mr. Obama would be wise to instruct the Treasury Department to start work on tax reform now, exploring carbon taxes, both to raise revenue and to protect the environment; a value-added tax, coupled with provisions to protect lower-income taxpayers from higher prices, to tax consumption and encourage saving; and a financial transactions tax, to ensure that the financial sector, whose profits have substantially outpaced those of nonfinancial corporations, pay a fair share.

Not all of the proposed new taxes would gain support, but all deserve to be part of the debate. Controlling the terms of that debate, and then advancing from debate to action, could well be the toughest challenge of Mr. Obama’s second term and, if met, his defining economic legacy.

    Why the Economy Needs Tax Reform, NYT, 29.12.2012,
    http://www.nytimes.com/2012/12/30/opinion/sunday/why-the-economy-needs-tax-reform.html

Shop Owners Report Rise in Firearm Sales

as Buyers Fear Possible New Laws

December 21, 2012
The New York Times
By STEPHANIE CLIFFORD

Rainier Arms, a gun dealer in Auburn, Wash., receives great Yelp reviews for its responsiveness. But a call to the dealer on Friday led to a full voice mail box, and an e-mail to its sales team drew this automatic response: “Thank you for contacting Rainier Arms for your AR-15 needs. Due to an overwhelming response to the latest political climate, we are experiencing longer-than-normal response times.”

At Bud’s Gun Shop in Maryland, a message on the Web site said that customer service was “completely overwhelmed” and it discouraged customers from calling or e-mailing.

And on GunBroker.com, an Oracle .223 that normally retails for around $650 had been bid up to $1,175 with three days left in the auction.

With gun-control legislation getting more serious discussion than it has in years, gun sales are spiking as enthusiasts stock up in advance of possible restrictions.

Gun sales have been increasing over the past five years, with marked increases around the 2008 and 2012 elections, and after mass shootings like the one in Aurora, Colo., and now in Newtown, Conn.

“The largest factor by far is fears over a potential change in gun laws — that’s what’s driving most guns enthusiasts or even first-time buyers to go buy a gun,” said Nima Samadi, senior guns and ammunition analyst for the research firm IBISWorld.

There is increasing demands for guns in the United States. Last year, the Federal Bureau of Investigation conducted 16.45 million background checks for firearm sales through the National Instant Criminal Background Check System, a 14 percent jump from the previous year. In the first 11 months of this year, the bureau conducted 16.8 million background checks, a record since the system’s founding in 1998.

Since the shootings at Sandy Hook Elementary School in Newtown, though, a few companies associated with gun sales have backed away. Cerberus Capital Management put the company that makes the Bushmaster, a gun used in the shootings, up for sale on Tuesday, saying, “The Sandy Hook tragedy was a watershed event that has raised the national debate on gun control to an unprecedented level.”

Dick’s Sporting Goods temporarily ceased selling all guns in its location closest to Newtown, and has also put a hold on sales of so-called modern sporting rifles, which include semiautomatic guns, nationwide.

And Deseret Digital Media, which owns KSL.com, a Web site that has been criticized by Mayor Michael R. Bloomberg for allowing unregulated gun sales, said it was suspending classified advertisements for guns.

Elsewhere, though, consumers are hurrying to buy guns, leading to some models being out of stock, warnings of shipping and customer-service delays, and significant premiums on assault rifles.

“We are seeing a total madhouse of buying everything in sight,” said Bob Irwin, owner of the Gun Store, a Las Vegas shooting range and retailer. Thursday, he said, was the largest sales day in the history of the store, which has been open for 30 years. “We have not only a run on the guns, but a run on ammunition.”

Mr. Irwin has begun limiting how much of some types of ammunition customers can buy, and he has canceled employees’ days off to handle the demand.

Walmart, the largest retailer of guns and ammunition in the United States, indicated that several semiautomatic guns were out of stock at locations across the country. Kory Lundberg, a spokesman, said the company was not sold out of guns altogether, but had low inventory in some situations. Walmart carries guns in about half its stores, and about one-third carry so-called modern sporting rifles, the category including the Bushmaster and other AR-15 weapons.

Other retailers around the country were selling out of guns and accessories. On Friday on ImpactGuns.com, the Bushmaster .223 was out of stock. Davidson’s, a supplier to gun retailers, placed a notice on its Web site that said it was seeing “unprecedented demand,” and at MidwayUSA.com, more than 100 parts for AR-15 guns were out of stock and on back order.

On AR15.com, a gun-enthusiast Web site, a user posted that a barrel for a gun disappeared from an online shopping cart overnight, and is now on back order. Another user, named warplg8654, responded, “Dealers can’t keep anything in stock for what I think are obvious reasons given the current political climate.”

When a user called JazzFan asked whether paying a $100 premium for a Stag Model 3 was a good deal, another user said that seemed “reasonable with all of the panic buying.”

Gavin Gear, the founder of the enthusiast site Northwest Gun, said gun owners were feeling “apprehension.”

“People are trying to think ahead, and if they want to own a particular firearm and they think it’s going to be outlawed or restricted, they’re more likely to buy now,” he said.

    Shop Owners Report Rise in Firearm Sales as Buyers Fear Possible New Laws, NYT, 21.12.2012,
    http://www.nytimes.com/2012/12/22/nyregion/
    gun-shop-owners-report-spike-in-sales-as-enthusiasts-fear-possible-new-laws.html

Retailers Try to Adapt to Device-Hopping Shoppers

December 21, 2012
The New York Times
By CLAIRE CAIN MILLER and STEPHANIE CLIFFORD

Ryan O’Neil, a Connecticut government employee, was in the market to buy a digital weather station this month. His wife researched options on their iPad, but even though she found the lowest-price option there, Mr. O’Neil made the purchase on his laptop.

“I do use the iPad to browse sites,” Mr. O’Neil said, but when it comes time to close the deal, he finds it easier to do on a computer.

Many online retailers had visions of holiday shoppers lounging beneath the Christmas tree with their mobile devices in hand, making purchases. The size of the average order on tablets, particularly iPads, tends to be bigger than on PCs. So retailers poured money and marketing into mobile Web sites and apps with rich images and, they thought, easy checkout.

But while visits to e-commerce sites and apps on tablets and phones have nearly doubled since last year, consumers like Mr. O’Neil are more frequently using multiple devices to shop. In many cases, they are more comfortable making the final purchase on a computer, with its bigger screen and keyboard. So retailers are trying to figure out how to appeal to a shopper who may use a cellphone to research products, a tablet to browse the options and a computer to buy.

“I’ve been yelling at customers for two years, saying, ‘Mobile, mobile, mobile,’ ” said Jason Spero, director of mobile sales and strategy at Google. “But the funny thing is, now we’re going to say: ‘Don’t put mobile in a silo. It’s also about the desktop.’ ”

The challenges are daunting, though. It is technically difficult to track consumers as they hop from phone to computer to tablet and back again. This means customers who, say, fill shopping carts on their tablets have to do all the work again on their PCs or other devices. The biggest obstacle, retailers say, is that the tools used to track shoppers on computers — cookies, or bundles of data stored in Web browsers — don’t transfer across devices.

Instead, retailers are figuring out how to sync the experience in other ways, like prompting shoppers to log in on each device. And being able to track people across devices gives retailers more insight into how they shop.

The retailers’ efforts are backed by research. While one-quarter of the visits to e-commerce sites occur on mobile devices, only around 15 percent of purchases do, according to data from I.B.M. According to Google, 85 percent of online shoppers start searching on one device — most often a mobile phone — and make a purchase on another.

At eBags, customers are shopping on their tablets in the evening and returning on their work computers the next day. But eBags has not yet synced the shoppers across devices, so customers must build their shopping carts from scratch if they switch devices.

“That is a blind spot with a lot of sites,” said Peter Cobb, co-founder of eBags. “It is a requirement moving forward.”

At eBay, one-third of the purchases involve mobile devices at some point, even if the final purchase is made on a computer.

At eBay, once shoppers log in on a device, they do not need to log in again. Their information, like shipping and credit card details and saved items, syncs across all their devices. If an eBay shopper is interested in a certain handbag, and saves that search on a computer, eBay will send alerts to her cellphone when a new handbag arrives or an auction is about to end.

“They might discover an item on a phone or tablet, do a saved-search push alert later on some other screen and eventually close on the Web site,” said Steve Yankovich, who runs eBay Mobile. “People are buying and shopping and consuming potentially every waking moment of the day.”

ModCloth, an e-commerce site for women’s clothes, said that while a quarter of its visits come from mobile devices, people are not yet buying there in the same proportion, though they are becoming more comfortable with checking out on those devices.

“She’s visiting us more on the phone, but she’s actually transacting somewhere else,” said Sarah Rose, vice president of product at ModCloth.

For example, a shopper will skim through new arrivals on her phone while on the bus and add items to her wish list, then visit that evening on her tablet to make a purchase, Ms. Rose said.

To take advantage of this behavior, ModCloth urges shoppers to log in after just a few clicks on the Web site on a phone or computer, so information like credit card numbers and items saved in a shopping cart on another device are accessible. Then if a laptop shopper adds a skirt to her shopping cart and later, it is about to sell out, ModCloth can send her an e-mail, which she will often click on her phone to buy the skirt, Ms. Rose said. Logged-in users who visit the site using multiple devices are 2.5 times more likely to place an order than those on a single device, according to the company.

On Etsy, where 25 percent of the visits but 20 percent of the sales come from mobile devices, the site syncs items in the shopping cart, favorite items, purchasing history and conversations with sellers.

Many other e-commerce sites, however, still lack an easy way for shoppers to use different devices.

The New York Times logged in to the Web sites of some large retailers and added items to the shopping cart, then logged in to the mobile site or app to see if the cart was reflected there.

Amazon.com, Nordstrom, Target, Macy’s and Gap showed items across devices. Walmart did, too, though with some hiccups; it required logging out of and back into the mobile site to update the cart, and on the app, a shopper had to choose the “sync with online cart” option.

Others, though, did not sync across devices, including Newegg, Kohl’s, RadioShack and J. Crew, so shopping on a different device required filling the shopping cart from scratch.

Newegg is working on syncing the shopping carts, said Soren Mills, its chief marketing officer, because customers are asking for that. The information gleaned about customers that way is also critical for retailers, he said, so they can personalize sites and offers based on consumers’ browsing and purchase history.

“We have to recognize the customer, so we look to get a single view of the customer,” he said.

Retailers could use information like this to show different ads to shoppers with cellphones standing in a store at lunch hour than to those using a tablet at 9 p.m., Mr. Spero at Google said.

Despite the hesitance of shoppers like Mr. O’Neil to buy on mobile devices, some technology industry analysts say people just need time to grow comfortable with new technology.

“It’s just like in the old days, 15 years ago, the conversation was people are researching what they want on their PCs but still going to the store to buy,” said Marc Andreessen, a venture capitalist. Mr. Andreessen is involved with e-commerce companies like eBay and Fab, both of which he said had strong mobile sales. “I think that’s a temporary phenomenon.”

    Retailers Try to Adapt to Device-Hopping Shoppers, NYT, 21.12.2012,
    http://www.nytimes.com/2012/12/22/technology/as-shoppers-hop-from-tablet-to-pc-to-phone-retailers-try-to-adapt.html

Debt Ceiling Rises Again as Threat for the U.S.

December 21, 2012
The New York Times
By MARY WILLIAMS WALSH

The three major ratings agencies shrugged off this week’s breakdown in talks aimed at ending the fiscal impasse in Washington by Jan. 1, saying their outlook for America’s sovereign debt was already negative and would not immediately change.

But officials of the agencies said they were looking toward another looming fiscal deadline — a date sometime in February or early March when the United States government risks running out of cash if Congress cannot find a way to raise its statutory debt ceiling. That date appears to pose more of a threat to the nation’s credit rating than Jan. 1, when a package of onerous tax increases and spending cuts will begin if America goes over what is commonly called the fiscal cliff.

Stock investors appeared on Friday to be more concerned about the economic consequences of raising tax rates than about a downgrade of the nation’s credit.

Stock prices fell around the world after Republican leaders announced Thursday night that they could not summon up enough votes for their own proposal to cut spending and raise taxes for the nation’s most affluent households.

The Standard & Poor’s 500-stock index fell 0.94 percent Friday, or 13.54 points, to 1,430.15. The Nasdaq composite index dropped 0.96 percent, or 29.38 points, to 3,021.01, and the Dow Jones industrial average fell 0.91 percent, or 120.88 points, to 13,190.84.

Stocks had largely risen over the last two weeks as President Obama and House Speaker John A. Boehner inched forward with small concessions.

Next week, the Treasury secretary, Timothy F. Geithner, is expected to alert Congress that the government has officially run out of borrowing capacity, currently limited to about $16.4 trillion under law. But Mr. Geithner has a package of extraordinary measures he can take to buy some time, so that lawmakers will not have to raise the nation’s debt limit even as they struggle to agree on how to shrink the budget deficit over the long term. The measures include suspending the issuance of special, nontrading Treasury bills that are used to finance federal employees’ retirement plans.

Fitch Ratings said in a report Wednesday that it was watching both processes and that the time frame was not open-ended.

“If the negotiations on the fiscal cliff and raising the debt ceiling extend into 2013, and appear likely to be prolonged with adverse implications for the economy and fiscal stability, the U.S. sovereign rating could be subject to review, potentially leading to a negative rating,” the agency wrote in its latest six-month report on sovereign debt.

It was a similar chain of events in 2011 that led Standard & Poor’s to downgrade the Treasury’s debt by one notch, an unprecedented move that set off wild swings in the stock market and led to downgrades at other highly rated institutions, like insurance companies, that had significant exposure to Treasury securities. Fitch and Moody’s have both maintained their AAA rating for Treasury debt, which has long been considered risk-free.

A credit downgrade normally makes it more expensive for an institution to borrow, but that did not happen after Standard & Poor’s action.

Global investors have kept on flocking to Treasuries, and the federal government’s borrowing rate has fallen to 1.77 percent, from above 2.5 percent.

The last time Mr. Geithner told Congress the government had exhausted its borrowing capacity and was resorting to the extraordinary measures was mid-May 2011. The measures gave Congress about two-and-a-half months to authorize a borrowing increase. But lawmakers nearly missed the deadline, and some said they thought a default was preferable to more borrowing.

“We came within 10 hours or so of a major cash-flow problem, which is inconsistent, our analysts felt, with a Triple-A credit,” John Piecuch, a spokesman for Standard & Poor’s, said Friday.

Even after the downgrade, Standard & Poor’s said its outlook was still negative, meaning that it saw a 1-in-3 chance of another downgrade within two years. It reaffirmed the negative outlook last June, resetting the two-year clock.

This time, fiscal analysts think Congress may have even less time to act on the debt ceiling. The Treasury has not said how long it will take to burn through the additional money, but the Bipartisan Policy Center, a research group, has projected that it will run out sometime in February. The Congressional Budget Office has said the special funding could last until mid-February or early March.

The ratings agencies have made clear that they will be watching to see whether Congress can raise the debt limit more smoothly this time.

“Last-minute agreements to raise the debt ceiling undermine confidence in the sovereign’s willingness to pay, and thus its AAA status,” Fitch said in its report.

“While Fitch believes the threat of default to be incredible, it would review the U.S. sovereign rating in the unlikely event of a repeat of the August 2011 debt-ceiling crisis.”

When a ratings agency puts a credit under review, it means it has begun an active, deliberate evaluation that could lead to a rating change in a matter of weeks or months. S.& P. had put Treasury debt under review mid-2011, several weeks before its downgrade that August.

Moody’s said in a report this year that it would probably put the federal government’s credit rating “under review” sometime after Mr. Geithner announces the exhaustion of the Treasury’s borrowing capacity, and “several weeks before the exhaustion of the Treasury’s resources.”

Moody’s had put the federal debt under review in July 2011 as well, but completed that review without changing the rating. It has reiterated since then that its outlook remains negative, and that it is watching this time for “a relatively orderly process for the increase in the statutory debt limit.”

Mr. Piecuch of S.& P. said the agency saw this week’s failure to agree on a plan to shrink the deficit in a different light from the failure last year to raise the debt ceiling until it was almost too late.

“In late July and August 2011, what seemed in the realm of possibility was that you could run up against that ceiling, and there would be a missed payment” on the public debt, he said. “In our system it’s very clear — a missed payment does constitute a default. When we’re thinking about the fiscal cliff, and whether or not there’s a deal by the end of this year, that’s not the same thing.”

The dominant fear among investors on Friday was that politicians are running out of time to come up with an agreement and have no clear path to a solution.

“There’s such disarray about coming to a compromise even within the Republican Party,” said Douglas Cote, the chief investment strategist for ING Investment Management. “The market just says, ‘They are not coming up with any feasible plan.’ ”

In the bond market, interest rates fell. The price of the Treasury’s 10-year note rose 8/32, to 98 22/32, while its yield dropped to 1.77 percent, from 1.80 percent late Thursday.

Nathaniel Popper contributed reporting.

    Debt Ceiling Rises Again as Threat for the U.S., NYT, 21.12.2012,
    http://www.nytimes.com/2012/12/22/business/daily-stock-market-activity.html

National Rifle (Selling) Association

December 20, 2012
The New York Times

The National Rifle Association is scheduled to hold a news conference on Friday where it says it plans to provide details about its promise of “meaningful contributions” to prevent another a massacre like the one in Newtown, Conn.

We would like to believe that the N.R.A., the most influential opponent of sensible gun-control policies, will do as it says, but we have little faith that it will offer any substantial reforms. The association presents itself as a grass-roots organization, but it has become increasingly clear in recent years that it represents gun makers. Its chief aim has been to help their businesses by increasing the spread of firearms throughout American society.

In recent years, the N.R.A. has aggressively lobbied federal and state governments to dilute or eliminate numerous regulations on gun ownership. And the clearest beneficiary has been the gun industry — sales of firearms and ammunition have grown 5.7 percent a year since 2007, to nearly $12 billion this year, according to IBISWorld, a market research firm. Despite the recession, arms sales have been growing so fast that domestic manufacturers haven’t been able to keep up. Imports of arms have grown 3.6 percent a year in the last five years.

The industry has, in turn, been a big supporter of the N.R.A. It has contributed between $14.7 million and $38.9 million to an N.R.A.-corporate-giving campaign since 2005, according to a report published last year by the Violence Policy Center, a nonprofit group that advocates greater gun control. The estimate is based on a study of the N.R.A.’s “Ring of Freedom” program and very likely understates the industry’s total financial support for the association, which does not publicly disclose a comprehensive list of its donors and how much they have given.

Officials from the N.R.A. have repeatedly said their main goal is to protect the Second Amendment rights of rank-and-file members who like to hunt or want guns for protection. But that claim is at odds with surveys that show a majority of N.R.A. members and a majority of American gun owners often support restrictions on gun sales and ownership that the N.R.A. has bitterly fought.

For instance, a 2009 poll commissioned by Mayors Against Illegal Guns found that 69 percent of N.R.A. members would support requiring all sellers at gun shows to conduct background checks of prospective buyers, which they do not have to do now and which the N.R.A. has steadfastly argued against. If lawful gun owners are willing to subject themselves to background checks, why is the association resisting? Its position appears only to serve the interest of gun makers and dealers who want to increase sales even if it means having dangerous weapons fall into the hands of criminals and violent individuals.

Businesses and special-interest groups often cloak their profit motives in the garb of constitutional rights — think Big Tobacco and its opposition to restrictions on smoking in public places and bold warnings on cigarette packages. The Supreme Court has made clear that the right to bear arms is not absolute and is subject to regulations and controls. Yet the N.R.A. clings to its groundless arguments that tough regulations violate the Second Amendment. Many of those arguments serve no purpose other than to increase the sales of guns and bullets.

    National Rifle (Selling) Association, NYT, 20.12.2012,
    http://www.nytimes.com/2012/12/21/opinion/national-rifle-selling-association.html

That Terrible Trillion

December 16, 2012
The New York Times
By PAUL KRUGMAN

As you might imagine, I find myself in a lot of discussions about U.S. fiscal policy, and the budget deficit in particular. And there’s one thing I can count on in these discussions: At some point someone will announce, in dire tones, that we have a ONE TRILLION DOLLAR deficit.

No, I don’t think the people making this pronouncement realize that they sound just like Dr. Evil in the Austin Powers movies.

Anyway, we do indeed have a ONE TRILLION DOLLAR deficit, or at least we did; in fiscal 2012, which ended in September, the deficit was actually $1.089 trillion. (It will be lower this year.) The question is what lesson we should take from that figure.

What the Dr. Evil types think, and want you to think, is that the big current deficit is a sign that our fiscal position is completely unsustainable. Sometimes they argue that it means that a debt crisis is just around the corner, although they’ve been predicting that for years and it keeps not happening. (U.S. borrowing costs are near historic lows.) But more often they use the deficit to argue that we can’t afford to maintain programs like Social Security, Medicare and Medicaid. So it’s important to understand that this is completely wrong.

Now, America does have a long-run budget problem, thanks to our aging population and the rising cost of health care. However, the current deficit has nothing to do with that problem, and says nothing at all about the sustainability of our social insurance programs. Instead, it mainly reflects the depressed state of the economy — a depression that would be made even worse by attempts to shrink the deficit rapidly.

So, let’s talk about the numbers.

The first thing we need to ask is what a sustainable budget would look like. The answer is that in a growing economy, budgets don’t have to be balanced to be sustainable. Federal debt was higher at the end of the Clinton years than at the beginning — that is, the deficits of the Clinton administration’s early years outweighed the surpluses at the end. Yet because gross domestic product rose over those eight years, the best measure of our debt position, the ratio of debt to G.D.P., fell dramatically, from 49 to 33 percent.

Right now, given reasonable estimates of likely future growth and inflation, we would have a stable or declining ratio of debt to G.D.P. even if we had a $400 billion deficit. You can argue that we should do better; but if the question is whether current deficits are sustainable, you should take $400 billion off the table right away.

That still leaves $600 billion or so. What’s that about? It’s the depressed economy — full stop.

First of all, the weakness of the economy has led directly to lower revenues; when G.D.P. falls, the federal tax take falls too, and in fact always falls substantially more in percentage terms. On top of that, revenue is temporarily depressed by tax breaks, notably the payroll tax cut, that have been put in place to support the economy but will be withdrawn as soon as the economy is stronger (or, unfortunately, even before then). If you do the math, it seems likely that full economic recovery would raise revenue by at least $450 billion.

Meanwhile, the depressed economy has also temporarily raised spending, because more people qualify for unemployment insurance and means-tested programs like food stamps and Medicaid. A reasonable estimate is that economic recovery would reduce federal spending on such programs by at least $150 billion.

Putting all this together, it turns out that the trillion-dollar deficit isn’t a sign of unsustainable finances at all. Some of the deficit is in fact sustainable; just about all of the rest would go away if we had an economic recovery.

And the prospects for economic recovery are looking pretty good right now — or would be looking good if it weren’t for the political risks posed by Republican hostage-taking. Housing is reviving, consumer debt is down, employment has improved steadily among prime-age workers. Unfortunately, this recovery may well be derailed by the fiscal cliff and/or a confrontation over the debt ceiling; but this has nothing to do with the alleged unsustainability of the deficit.

Which brings us back to ONE TRILLION DOLLARS.

We do indeed have a big budget deficit, and other things equal it would be better if the deficit were a lot smaller. But other things aren’t equal; the deficit is a side-effect of an economic depression, and the first order of business should be to end that depression — which means, among other things, leaving the deficit alone for now.

And you should recognize all the hyped-up talk about the deficit for what it is: yet another disingenuous attempt to scare and bully the body politic into abandoning programs that shield both poor and middle-class Americans from harm.

    That Terrible Trillion, NYT, 16.12.2012,
    http://www.nytimes.com/2012/12/17/opinion/krugman-that-terrible-trillion.html

Quiet Doctor, Lavish Insider: A Parallel Life

December 15, 2012
The New York Times
By NATHANIEL POPPER and BILL VLASIC

Speaking in front of a packed convention hall in Chicago, a top Alzheimer’s researcher, Sidney Gilman, presented the results of a drug trial that had the potential to change the fate of elderly patients everywhere.

But as he worked through the slides, it became clear to the audience on that day in July 2008 that the drug was not delivering and that its makers, Elan and Wyeth, could lose out on blockbuster profits. Along with other Wall Street analysts in the front rows, David Moskowitz zapped messages to clients to dump shares of the companies. “I can remember gasping” at the results, Mr. Moskowitz said.

Little did anyone in the room know that 12 days earlier, Dr. Gilman had e-mailed a draft of the presentation to a trader at an affiliate of one of the nation’s most prominent hedge funds, according to prosecutors, allowing the fund, SAC Capital, and its affiliate to sell over $700 million of Elan and Wyeth stock before Dr. Gilman’s public talk.

Last month, the trader was arrested on insider trading charges after Dr. Gilman agreed to cooperate with prosecutors to avoid charges.

While he appeared a grandfatherly academic, Dr. Gilman, 80, was living a parallel life, one in which he regularly advised a wide network of Wall Street traders through a professional matchmaking system. Those relationships afforded him payments of $100,000 or more a year — on top of his $258,000 pay from the University of Michigan — and travels with limousines, luxury hotels and private jets.

The riddle for Dr. Gilman’s longtime friends and colleagues is why a nationally respected neurologist was pulled into the high-rolling life of a consultant to financiers and how he, by his own admission, crossed the line into criminal behavior.

“My first reaction was, ‘That can’t possibly be right,’ ” said Dawn Kleindorfer, a former student of Dr. Gilman’s at Michigan.

What is clear is that Dr. Gilman made a sharp shift in his late 60s, from a life dedicated to academic research to one in which he accumulated a growing list of financial firms willing to pay him $1,000 an hour for his medical expertise, while he was overseeing drug trials for various pharmaceutical makers. Among the firms he was advising was another hedge fund that was also buying and selling Wyeth and Elan stock, though the authorities have given no sign they have questioned those trades.

His conversion to Wall Street consultant was not readily apparent in his lifestyle in Michigan and was a well-kept secret from colleagues. Public records show no second home, and no indication of financial distress. Nevertheless, he was willing to share a glimpse of his lifestyle with a 17-year-old student whom he sat next to on a flight from New York to Michigan a few months ago, telling her how his Alzheimer’s research allowed him to enjoy fine hotels in New York and limousine rides to the airport.

“I wouldn’t say he was egotistical because he didn’t come across as obnoxious, but he definitely mentioned the kind of lifestyle that he had,” said the student, Anya Parampil, who had been upgraded to first class.

Dr. Gilman’s role in the case involving SAC Capital has largely been overshadowed by the possibility that investigators may be narrowing in on the firm’s billionaire founder, Steven A. Cohen. Mr. Cohen and his firm have not been accused of wrongdoing in acting on the insider information.

Colleagues now say Dr. Gilman’s story is a reminder of the corrupting influence of money. The University of Michigan, where he was a professor for decades, has erased any trace of him on its Web sites, and is now reviewing its consulting policy for employees, a spokesman said.

The case also turns the spotlight back onto the finance world’s expert networks, which match sources in academia and at publicly traded companies — like Dr. Gilman — with traders at hedge funds and financial firms.

The networks have been a central target of prosecutors in the sprawling insider trading investigations that have resulted in dozens of convictions in recent years.

Some networks have closed, and many are shifting their focus outside the financial world, hoping to make up revenue by consulting for corporate America.

Days after the charges were filed, Dr. Gilman retired and has gone into seclusion at his home on a wooded lot overlooking the Huron River on the outskirts of Ann Arbor, which is listed in public records as worth $400,000. He declined to open the door to a reporter last week, directing questions to his lawyer. “I can’t discuss it,” he said. “I’m sorry.”

In a one-paragraph statement, his lawyer, Marc Mukasey, said: “Dr. Gilman’s accomplishments in medicine, research and education speak for themselves. He moved the ball way down the field in helping to find a cure for those who suffer from Alzheimer’s disease.”

The University of Michigan has severed its ties to Dr. Gilman and a spokesman, Pete Barkey, said the case was “caused by a faculty member’s unethical and illegal behavior during the conduct of external activities.”

Dr. Gilman graduated with top honors from the University of California, Los Angeles, trained at Harvard Medical School and moved into a life of teaching. He married Carol Barbour, a psychoanalyst, in 1984. People who know him almost invariably mention his fatherly demeanor, and his gift for teaching.

Brett Kissela, a resident under Dr. Gilman in the late 1990s, remembered him as “a little bit formal” but warm and generous. When faculty members had to sign up for an undesirable task, Dr. Gilman would start by signing up himself, Dr. Kissela remembered.

Dr. Gilman helped turn Michigan into a national center for research in dementia, and eventually the university’s neurology lecture series was named after him.

He was well-known for shaping trials for Alzheimer’s drugs and served on Food and Drug Administration drug advisory panels. J. Timothy Greenamyre, who has known Dr. Gilman for about 30 years, remembered turning to him for help with ethical issues after succeeding him at a top industry journal, Neurobiology of Disease.

“He always gave me rock-solid advice and counseled me to maintain transparency so as to avoid even the appearance of a conflict of interest,” Dr. Greenamyre said.

For most of his career, almost the only work Dr. Gilman did outside Michigan was in national advisory positions and academic journals that provided almost no compensation, according to his 43-page résumé. But in 2000, as he scaled back his academic and editing duties, colleagues said, Dr. Gilman’s desire for recognition remained and he began consulting for two pharmaceutical companies.

He was soon contacted by one of the first expert network firms, Gerson Lehrman, which began in 1998 by enlisting academics in health care and connecting them with financial firms. Experts on drug development, and especially those involved in drug trials, are sought by investors because the fortunes of a pharmaceutical company can rise or fall with the fate of a single treatment.

Dr. Gilman quickly became a popular consultant, working with more than 40 clients and participating in 50 to 100 meetings a year, people with knowledge of his work said. Each meeting paid around $1,000.

In 2006, the SAC Capital trader, Mathew Martoma, asked Gerson Lehrman to find an expert who knew about an Alzheimer’s drug under development, bapineuzumab, according to the affidavit filed by the F.B.I. agent in the case. Dr. Gilman was chairman of the board monitoring trials of the drug. Gerson Lehrman connected the men, but told Dr. Gilman not to discuss the drug, according to the criminal complaint in the case.

Within weeks, Dr. Gilman was speaking with Mr. Martoma shortly after confidential meetings about the drug trials, the complaint said.

To avoid arousing suspicion at Gerson Lehrman, Dr. Gilman began asking Mr. Martoma to falsely request meetings on other topics, the complaint said. Ultimately the men had 42 meetings. Gerson Lehrman declined to comment on the relationship.

At first, Mr. Martoma’s fund, CR Intrinsic, bought shares of the firms developing the Alzheimer’s drug, Wyeth and Elan, and encouraged SAC’s founder, Mr. Cohen, to do the same, prosecutors say. When Dr. Gilman told Mr. Martoma that the trial results were not as good as expected, the funds sold all their shares, netting gains and avoiding losses totaling $276 million, the complaint said.

Kenneth Fischbeck, a neurologist who has known Dr. Gilman for years, said that it might have been the same urge that led him to be such a good teacher — a desire to share information — that also led him into trouble.

“It’s a cautionary lesson for all of us in academic medicine,” Dr. Fischbeck said. “I think it could happen to anybody if they’re not careful.” The complaint said that Dr. Gilman eventually came to view Mr. Martoma “as a friend and a pupil.”

Besides contracting with expert networks, Dr. Gilman was hired to serve on scientific advisory boards of financial firms including Pequot Capital. His connection to Pequot has rarely been mentioned, but that fund built up its own $25 million position in Wyeth stock and a stake of around $20 million in Elan, according to Pequot’s public filings, at the same time Dr. Gilman was overseeing drug trials for the two companies.

While the records don’t reveal the exact dates of trades, Pequot sold its Wyeth position in the quarter before both drug companies’ shares fell in 2007, and it sold its Elan position at some point during the quarter when it dropped, the filings show. Pequot went out of business in 2010 after admitting its own insider trading scandal involving Microsoft stock.

Neither Dr. Gilman’s lawyer, Mr. Mukasey, nor prosecutors would say whether investigators are questioning Dr. Gilman about his other relationships. In exchange for prosecutors’ not charging Dr. Gilman, he has agreed to share information about “any matters” they want to ask him about. Dr. Gilman stopped meeting with Mr. Martoma in 2008, the complaint said, but continued to consult for Gerson Lehrman until this year, people familiar with his work said.

Dr. Gilman’s life changed starkly on Nov. 20, when Mr. Martoma was arrested. Dr. Gilman agreed to pay federal authorities $234,000 of the money he had earned from Wyeth and Gerson Lehrman. He has been ostracized by the university, and the consequences are broader still as a debate over the propriety of professors’ receiving payments from financial firms has been rekindled.

“What is the argument for sanctioning your full-time faculty, using your brand name, to advise the financial sector?” said Dr. Garret A. FitzGerald, a cardiovascular researcher at the University of Pennsylvania, who has been outspoken about conflicts of interest. “What’s the public good there?”

Stephanie Steinberg contributed reporting.

    Quiet Doctor, Lavish Insider: A Parallel Life, NYT, 15.12.2012,
    http://www.nytimes.com/2012/12/16/business/sidney-gilmans-shift-led-to-insider-trading-case.html

How to Attack the Gender Wage Gap? Speak Up

December 15, 2012
The New York Times
By JESSICA BENNETT

ANNIE HOULE, grandmother of seven, holds up a stack of pink dollar bills.

“How many of you know about the wage gap?” she asks a roomful of undergraduates, almost all of them women, at the College of Mount St. Vincent in the Bronx.

A few hands go up.

“Now, how many of you worry about being able to afford New York City when you graduate?”

The room laughs. That’s a given.

Ms. Houle is the national director of a group called the WAGE Project, which aims to close the gender pay gap. She explains that her dollar bills represent the amounts that women will make relative to men, on average, once they enter the work force.

Line them up next to a real dollar, and the difference is stark: 77 cents for white women; 69 cents for black women. The final dollar — so small that it can fit in a coin purse, represents 57 cents, for Latina women. On a campus that is two-thirds women, many have heard these numbers before. Yet holding them up next to one another is sobering.

“I’m posting this to Facebook,” one woman says.

One of three male students in the room is heading to the photocopier to make copies for his mother.

Another woman in the group sees a triple threat. “This is crazy,” Dominique Remy, a senior studying communications, says, holding the pink cutouts in her hand. “What if I’m all of them? My mother is Latina. My father is Haitian. I’m a woman.”

I’ve come to this workshop amazed that it exists — and wishing that there had been a version of it when I was in school.

I grew up in the Girl Power moment of the 1980s, outpacing my male peers in school and taking on extracurricular activities by the dozen. I soared through high school and was accepted to the college of my choice. And yet, when I landed in the workplace, it seemed that I’d had a particularly rosy view.

When I was hired as a reporter at Newsweek, I took the first salary number that was offered; I felt lucky to be getting a job at all.

But a few years in, by virtue of much office whispering and a few pointed questions, I realized that the men around me were making more than I was, and more than many of my female colleagues. Despite a landmark sex discrimination lawsuit filed against the magazine in 1970, which paved the way for women there and at other publications to become writers, we still had a long way to go, it turned out.

When I tried to figure out why my salary was comparatively lower, it occurred to me: couldn’t I have simply asked for more? The problem was that I was terrified at the prospect. When I finally mustered up the nerve, I made my pitch clumsily, my voice shaking and my face beet red. I brought along a printed list of my accomplishments, yet I couldn’t help but feel boastful saying them out loud. While waiting to hear whether I would get the raise (I did), I agonized over whether I should have asked at all.

This fear of asking is a problem for many women: we are great advocates for others, but paralyzed when it comes to doing it for ourselves.

BACK at the Bronx workshop, Ms. Houle flips on a projector and introduces Tina and Ted, two fictional graduates whose profiles match what’s typical of the latest data. Tina and Ted graduated from the same university, with the same degree. They work the same number of hours, in the same type of job. And yet, as they start their first jobs, Ted is making $4,000 more than Tina. In the second year, the difference has added up to almost $9,500. Why?

“Maybe he just talked up his work more,” one woman, a marketing major, suggests.

“Maybe he was mentored by other men,” another says.

“Or maybe,” chimes in a third, a nursing student, “she didn’t know that she could negotiate.”

Bingo. Over the next three hours, these women are going to learn how to do it — and to do it well.

There has clearly been much progress since President John F. Kennedy signed the Equal Pay Act in 1963, mandating that men and women be paid equally for equal work. Yet nearly 50 years later, if you look at the data, progress toward that goal has stalled.

Of course, not all statistics are created equal. Some account for education and life choices like childbearing; some don’t. But if you sift through the data, the reality is still clear: the gender gap persists — and it persists for young, ambitious, childless women, too.

In October, the American Association of University Women — co-sponsor of the Mount St. Vincent program — offered a report called “Graduating to a Pay Gap,” in which it determined that in their first year out of college, women working full time earned just 82 percent of what their male peers did, on average. Again, women’s choices — college major, occupation, hours at work — could account for some of this. Even so, the A.A.U.W. determined that one-third of the gap remained unexplained.

For years, legislators and women’s advocates have been seeking solutions. In many ways, the wage gap is a complicated problem tied to culture, tradition and politics. But one part of it can be traced to a simple fact: many women just don’t negotiate, or are penalized if they do. In fact, they are one-quarter as likely as men to do so, according to statistics from Carnegie Mellon University. So rather than wax academic about the issue, couldn’t we simply teach women some negotiation skills?

Ms. Houle, along with Evelyn Murphy, the WAGE Project president and a former Massachusetts lieutenant governor, aims to do just that. For almost seven years, Ms. Houle has been training facilitators around the country and introducing their program into schools. (WAGE stands for “women aim to get even.”)

Now, working in conjunction with the A.A.U.W., they plan to have negotiation workshops — called Smart Start — in place by spring in more than 300 colleges and universities nationwide. Nearly 30 colleges have already signed up for three-year commitments.

Several other organizations have also begun working with schools, Girl Scout programs and Y.W.C.A.’s to coach women before they enter the work force.

At Smith College, the Center for Work and Life recently began a program called Leadership for Rebels that teaches young women assertive communication skills, through role-playing and workshops. At Carnegie Mellon, the Heinz School of Public Policy and Management will start its first Negotiation Academy for Women next month, led by the economist Linda Babcock. She is also the founder of a program called “Progress” that aims to teach similar skills to 7- to 12-year-old girls.

“I do think that people are really starting to take this idea seriously,” says Professor Babcock, a co-author of “Women Don’t Ask.” “I think they’re starting to understand that we have to train the next generation of women when they’re young.”

At Mount St. Vincent, the Smart Start workshop is broken into sections: understanding the wage gap, learning one’s worth on the market, and practical negotiation, in which students use role-playing in job-offer situations.

Women learn never to name a salary figure first, and to provide a range, not a number, if they’re pressed about it. They are coached not to offer up a figure from their last job, unless explicitly asked. The use of terms like “initial offer” — it’s not final! — is pounded into them. And, perhaps most important, they learn never, ever, to say yes to an offer immediately.

“I can’t tell you how many times I hear stories of women who go into a negotiation saying, ‘Oh my gosh, thank you so much, I’ll take it!’” says Ms. Houle, noting that one student she coached even hugged her boss. “Here these women are, more educated than ever, incurring incredible debt to get that education, and they’re going to take whatever they’re offered. It’s like, ‘No, no, no!’ “

Many reasons exist for women’s fears about asking for higher pay.

There’s the fear of being turned down. (“I think we take rejection personally,” Ms. Murphy says.) There’s the economy. (If you negotiate in a tough market, might the offer be rescinded?) There’s the fact that women, in general, are less likely to take risks — a business asset in the long run, but one that can make advocating for themselves tricky. There’s also the reality that many women have internalized the idea that asking is somehow not ladylike.

“Girls and women intuit that speaking up can be dangerous to your reputation — that asking for too much can be viewed as conceited or cocky,” says Rachel Simmons, co-founder of the Girls Leadership Institute and a creator of the Leadership for Rebels program at Smith. “This may begin on the playground, but it extends all the way into the workplace.”

Research by the Harvard senior lecturer Hanna Riley Bowles and others has found that women who negotiate are considered pushy and less likable — and, in some cases, less likely to be offered jobs as a result.

That’s why women’s approach to negotiation is crucial. In one study, from Professor Babcock at Carnegie Mellon, men and women asked for raises using identical scripts. People liked the men’s style. But the women were branded as aggressive — unless they gave a smile while they asked, or appeared warm and friendly. In other words, they conformed to feminine stereotypes.

“The data shows that men are able to negotiate for themselves without facing any negative consequences, but when women negotiate, people often like them less and want to work with them less,” says Sheryl Sandberg, Facebook’s chief operating officer, whose forthcoming book “Lean In” is about women and leadership. “Even if women haven’t studied this or seen this data, they often implicitly understand this, so they hold back.”

So, it’s a balancing act. Ask, but ask nicely. Demand, but with a smile. It’s not fair — yet understanding these dynamics can be the key to overcoming them, Ms. Sandberg says.

The good news is that all of these things can be learned. In 2003, when Professor Babcock was conducting research for her book, she surveyed Carnegie Mellon graduates of the management school, determining that 13 percent of women had negotiated the salaries in the jobs they’d accepted, versus 52 percent of men. Four years later, after a lengthy book tour and talking relentlessly about these issues on campus, she found that the numbers had flipped: 68 percent of women negotiated, versus 65 percent of men.

Ms. Simmons put it this way: “This is about muscles that need to be developed. This is about practice.”

 

AND practice they will, one workshop at a time.

At the session at Mount St. Vincent, the women researched median wages and practiced speaking clearly and warmly. They tried to remember the three T’s: tone (be positive but persuasive), tactics (never name a salary figure first) and tips (sell yourself, but anticipate objections; don’t get too personal, but be personal enough).

“It was nerve-racking,” said Ria Grant, a nursing student.

“I stuttered,” recalled Danielle Heumegni, a sociology major.

And yet they felt good.

“I realized there’s a way to sell myself without feeling uncomfortable,” Dominique Remy said.

“You won’t get anything if you don’t at least try,” said Erika Pichardo.

“This,” Ms. Heumegni said, waving her set of pink dollar bills in the air, “was my aha! moment.”

Jessica Bennett is the executive editor of Tumblr.

    How to Attack the Gender Wage Gap? Speak Up, NYT, 15.12.2012,
    http://www.nytimes.com/2012/12/16/business/to-solve-the-gender-wage-gap-learn-to-speak-up.html

High-Tech Factories Built to Be Engines of Innovation

December 13, 2012
The New York Times
By ANNIE LOWREY

SCHENECTADY, N.Y. — The Obama administration has long heralded the potential of American factories to offer good, stable middle-class jobs in an economy that desperately needs them. But experts say there might be another advantage to expanding manufacturing in the United States: a more innovative economy.

A growing chorus of economists, engineers and business leaders are warning that the evisceration of the manufacturing work force over the last 30 years might not have scarred just Detroit and the Rust Belt. It might have dimmed the country’s capacity to innovate and stunted the prospects for long-term growth.

“In sector after sector, we’ve lost our innovation edge because we don’t produce goods here anymore,” said Mitzi Montoya, dean of the college of technology and innovation at Arizona State University.

These experts say that in industries that produce complex, high-technology products — things like bioengineered tissues, not light bulbs — companies that keep their research and manufacturing employees close together might be more innovative than businesses that develop a schematic and send it overseas for low-wage workers to make. Moreover, clusters of manufacturers, where workers and ideas can naturally flow between companies, might prove more productive and innovative than the same businesses if they were spread across the country.

A General Electric facility in upstate New York provides a test case. In a custom-built facility the size of four football fields, workers are casting into thin tubes a kind of ceramic that G.E. invented. Those tubes get filled with a secret chemical “brownie mix,” packaged into batteries and shipped across the world.

The plant sits just a few miles down the road from the research campus where G.E. scientists developed the technology. That allows them to work out kinks on the assembly line, and test prototypes of and uses for the battery, the company’s scientists said.

“We’re not thinking about just one generation,” said Glen Merfeld of G.E.’s chemical energy systems laboratory, showing off a test battery his employees had run into exhaustion. “We’re working on the second, the third, the fourth, the fifth.”

The idea is to knit together manufacturing, design, prototyping and production, said Michael Idelchik, vice president for advanced technologies, who holds a dozen patents himself. “We believe that rather than a sequential process where you look at product design and then how to manufacture it, there is a simultaneous process,” Mr. Idelchik said. “We think it is key for sustaining our long-term competitive advantage.”

Economists and policy experts are now researching whether such strategies offer the same benefits for other businesses — and examining how those benefits might show up in national data on innovation, productivity and growth.

At the Massachusetts Institute of Technology, Suzanne Berger has helped to start the Production in the Innovation Economy project to study the subject. “It is something that’s very difficult to establish systematically,” said Professor Berger. “You really have to be willing to look at case-by-case evidence, qualitative evidence. That’s what we’re trying to do.”

Thus far, she said, the anecdotal evidence from about 200 companies has proved striking, with company after company detailing the advantages of keeping makers and thinkers together. That does not mean every business, she stressed. Companies with products early in their life cycle seemed to benefit more than ones with products on the market for years. So did companies making especially complicated or advanced goods, from new medicines to new machines.

“It’s the companies where the challenge of producing on a commercial scale requires levels of scientific activity that are just as complex as the original challenge of developing the technology,” Professor Berger said.

Economists said that while the link between making and innovating within individual businesses was not yet well established, the link between making and innovating between different companies was.

It is what they call a “spillover” effect: manufacturing companies near one another create a kind of commons. Workers exchange ideas over drinks and at baseball games. They switch jobs, taking their knowledge with them. They draw other companies, who compete to offer them goods and services. It all adds up to a more productive, more innovative economy.

For instance, the economist Michael Greenstone of M.I.T. analyzed what happened to towns after marquee manufacturing plants, like a BMW factory, moved in. Other factories in the town became more productive, he and his co-authors found. Wages rose, too. Such evidence has left many economists and other experts concerned about the overseas movement of manufacturing jobs and facilities over the past 30 years.

The bulk of those jobs, experts were keen to note, were jobs that the United States probably would not want back — like repetitive assembly positions. But many were more cerebral positions, where manufacturing workers were not simply following a schematic, but solving problems.

“Outsourcing has not stopped with low-value tasks like simple assembly or circuit-board stuffing,” wrote Willy C. Shih and Gary P. Pisano of Harvard Business School. “Sophisticated engineering and manufacturing capabilities that underpin innovation in a wide range of products have been rapidly leaving, too.”

That might have left the United States falling behind in some fast-growing areas of cutting-edge technology, like bioscience and nanotechnology.

“The manufacturing process itself is going through an innovation revolution,” said Stephen Hoover, chief executive of Xerox PARC. “It’s not four million people on an assembly line. It’s a small number of really highly skilled people.”

The White House has studied these arguments and evidence, and found itself convinced.

“A vibrant manufacturing sector is inextricably linked to our capacity as a nation to innovate,” concludes a White House report published this year. It has pushed for allocating billions of dollars to an array of policies to bring back manufacturing and keep it in the United States.

Experts and executives for manufacturing companies described the proposals as helpful, but too small to make a significant difference. When asked what might help rebuild the country’s manufacturing commons faster, they mentioned things like a larger immigration program for science, engineering and technology graduates; tripling government investment in basic research and development; hugely increasing export financing; and changing the country’s regulatory scheme.

“Other nations are competing intensely to create an attractive business and regulatory environment for manufacturing firms” said James Manyika, director of the McKinsey Global Institute, which recently published a report on manufacturing’s link with innovation. “The United States just hasn’t done this as aggressively as other countries have.”

    High-Tech Factories Built to Be Engines of Innovation, NYT, 13.12.2012,
    http://www.nytimes.com/2012/12/14/business/companies-see-high-tech-factories-as-fonts-of-ideas.html

N. Joseph Woodland, Inventor of the Bar Code, Dies at 91

December 12, 2012
The New York Times
By MARGALIT FOX

N. Joseph Woodland, who six decades ago drew a set of lines in the sand and in the process conceived the modern bar code, died on Sunday at his home in Edgewater, N.J. He was 91.

His daughter Susan Woodland confirmed the death.

A retired mechanical engineer, Mr. Woodland was a graduate student when he and a classmate, Bernard Silver, created a technology — based on a printed series of wide and narrow striations — that encoded consumer-product information for optical scanning.

Their idea, developed in the late 1940s and patented 60 years ago this fall, turned out to be ahead of its time. But it would ultimately give rise to the universal product code, or U.P.C., as the staggeringly prevalent rectangular bar code is officially known.

The code now adorns tens of millions of different items, scanned in retail establishments around the world at the rate of more than five billion a day.

The bar code would never have developed as it did without a chain of events noteworthy even in the annals of invention etiology:

Had Mr. Woodland not been a Boy Scout, had he not logged hours on the beach and had his father not been quite so afraid of organized crime, the code would very likely not have been invented in the form it was, if at all.

Norman Joseph Woodland was born in Atlantic City on Sept. 6, 1921. As a Boy Scout he learned Morse code, the spark that would ignite his invention.

After spending World War II on the Manhattan Project at Oak Ridge National Laboratory in Tennessee, Mr. Woodland resumed his studies at the Drexel Institute of Technology in Philadelphia (it is now Drexel University), earning a bachelor’s degree in 1947.

As an undergraduate, Mr. Woodland perfected a system for delivering elevator music efficiently. His system, which recorded 15 simultaneous audio tracks on 35-millimeter film stock, was less cumbersome than existing methods, which relied on LPs and reel-to-reel tapes.

He planned to pursue the project commercially, but his father, who had come of age in “Boardwalk Empire”-era Atlantic City, forbade it: elevator music, he said, was controlled by the mob, and no son of his was going to come within spitting distance.

The younger Mr. Woodland returned to Drexel for a master’s degree. In 1948, a local supermarket executive visited the campus, where he implored a dean to develop an efficient means of encoding product data.

The dean demurred, but Mr. Silver, a fellow graduate student who overheard their conversation, was intrigued. He conscripted Mr. Woodland.

An early idea of theirs, which involved printing product information in fluorescent ink and reading it with ultraviolet light, proved unworkable.

But Mr. Woodland, convinced that a solution was close at hand, quit graduate school to devote himself to the problem. He holed up at his grandparents’ home in Miami Beach, where he spent the winter of 1948-49 in a chair in the sand, thinking.

To represent information visually, he realized, he would need a code. The only code he knew was the one he had learned in the Boy Scouts.

What would happen, Mr. Woodland wondered one day, if Morse code, with its elegant simplicity and limitless combinatorial potential, were adapted graphically? He began trailing his fingers idly through the sand.

“What I’m going to tell you sounds like a fairy tale,” Mr. Woodland told Smithsonian magazine in 1999. “I poked my four fingers into the sand and for whatever reason — I didn’t know — I pulled my hand toward me and drew four lines. I said: ‘Golly! Now I have four lines, and they could be wide lines and narrow lines instead of dots and dashes.’ ”

That transformative sweep was merely the beginning. “Only seconds later,” Mr. Woodland continued, “I took my four fingers — they were still in the sand — and I swept them around into a full circle.”

Mr. Woodland favored the circular pattern for its omnidirectionality: a checkout clerk, he reasoned, could scan a product without regard for its orientation.

On Oct. 7, 1952, Mr. Woodland and Mr. Silver were awarded United States patent 2,612,994 for their invention — a variegated bull’s-eye of wide and narrow bands — on which they had bestowed the unromantic name “Classifying Apparatus and Method.”

But that method, which depended on an immense scanner equipped with a 500-watt light, was expensive and unwieldy, and it languished for years.

The two men eventually sold their patent to Philco for $15,000 — all they ever made from their invention.

By the time the patent expired at the end of the 1960s, Mr. Woodland was on the staff of I.B.M., where he worked from 1951 until his retirement in 1987.

Over time, laser scanning technology and the advent of the microprocessor made the bar code viable. In the early 1970s, an I.B.M. colleague, George J. Laurer, designed the familiar black-and-white rectangle, based on the Woodland-Silver model and drawing on Mr. Woodland’s considerable input.

Thanks largely to the work of Alan Haberman, a supermarket executive who helped select and popularize the rectangular bar code and who died in 2011, it was adopted as the industry standard in 1973.

Mr. Woodland, who earned a master’s in mechanical engineering from Syracuse University in the 1950s, received the National Medal of Technology and Innovation in 1992. Last year, he was inducted into the National Inventors Hall of Fame. (Mr. Silver, who died in 1963, was inducted posthumously along with him.)

Besides his daughter Susan, Mr. Woodland is survived by his wife, the former Jacqueline Blumberg, whom he married in 1951; another daughter, Betsy Karpenkopf; a brother, David; and a granddaughter.

Today, the bar code graces nearly every surface of contemporary life — including groceries, wayward luggage and, if you are a traditionalist, the newspaper you are holding — all because a young man, his mind ablaze with dots and dashes, one day raked his fingers through the sand.

    N. Joseph Woodland, Inventor of the Bar Code, Dies at 91, NYT, 12.12.2012,
    http://www.nytimes.com/2012/12/13/business/n-joseph-woodland-inventor-of-the-bar-code-dies-at-91.html

Joe Allbritton, TV and Banking Titan, Dies at 87

December 12, 2012
The New York Times
By ROBERT D. HERSHEY Jr.

Joe L. Allbritton, a Texas financier who at age 50 became a television and newspaper baron in Washington, then climbed the city’s social hierarchy as he transformed himself into the foremost banker to Embassy Row, died on Tuesday in Houston. He was 87.

The cause was a heart ailment, said Frederick J. Ryan Jr., the president of Allbritton Communications, which is based in Arlington, Va. Mr. Allbritton lived in Houston in his retirement.

After early success in the banking business in the Southwest, the diminutive Mr. Allbritton — he stood barely 5 feet tall — expanded in 1974 with the purchase of The Washington Star, the city’s feisty, conservative-leaning No. 2 paper after The Washington Post. The deal included the local ABC television affiliate.

His foray into the Washington publishing scene — he had never before stepped into a newspaper office — was short-lived. In 1978, he was forced to sell The Star after the Federal Communications Commission barred common ownership of broadcast and newspaper properties in the same market. (The buyer was Time Inc., which closed the paper in 1981.)

But keeping the TV station, WMAL, proved a bonanza. It became highly profitable as WJLA — he changed the call letters, using his initials — and it was the foundation of Allbritton Communications, which today has TV outlets in Harrisburg, Pa.; Little Rock, Ark.; and a half-dozen other cities, as well as other media properties.

His son, Robert, now heads the company and in 2007 founded Politico, the news Web site and newspaper devoted to politics.

Briefly retired after selling The Star, Mr. Allbritton found himself bored and decided to return to banking.

A friend invited him to invest in the venerable Riggs National Bank, Washington’s biggest financial institution and one with a rich history. It had provided financing for Samuel F. B. Morse’s telegraph and the gold used to purchase Alaska. Some two dozen presidential families had banked there. Mr. Allbritton wound up with a 40 percent controlling interest.

Riggs became his fief, its board larded with relatives and friends, and the vehicle for his frequent travels to exploit his top-level foreign connections, including a close one with Augusto Pinochet, the Chilean dictator.

He transformed Riggs from a traditional deposit-and-loan institution into a niche asset manager and private banker to the carriage trade. It boasted of being “the most important bank in the most important city in the world.”

Its fortunes waned, however, as competition increased and Riggs became enmeshed in money-laundering investigations. One resulted in a $25 million fine for what the authorities called “willful and systemic” violations of laws governing cash reporting. Federal regulators said the bank had failed to actively monitor transfers through Saudi Arabian and Equatorial Guinean accounts, which were considered possible conduits for terrorist funds or the proceeds of graft.

Mr. Allbritton refused numerous offers to buy Riggs, but under pressure from an investigation by the Securities and Exchange Commission involving oil money from Equatorial Guinea, he succumbed and sold the bank in 2005 to the PNC Corporation.

Besides his son, Robert, who at one time was chief executive of Riggs, Mr. Allbritton is survived by his wife, the former Barbara Jean Balfanz, whom he married in 1967, and two grandchildren.

Joe Lewis Allbritton was born in D’Lo, Miss., near Jackson, on Dec. 29, 1924, to Lewis A. Allbritton and the former Ada Carpenter. As a youngster during the Depression he stirred orange juice for $1 a day at a local bottling plant. While in junior high school he moved with his parents to Houston, where he worked after school each day in the cafe opened by his father.

In high school he was a champion debater. He left Baylor University after a year to serve in the Navy from 1943 to 1946.

Mr. Allbritton returned to take a law degree at Baylor and opened a small office, but after a few years he discovered that he did not like what he called “the environment of practicing law” and gravitated toward business.

He made a killing in real estate selling land for a freeway between Houston and Galveston. He then organized and ran the San Jacinto Savings and Loan. Within 15 years he had acquired and merged his way to Texas banking eminence as the biggest shareholder in First International Bancshares of Dallas.

His reach extended as far as Los Angeles, where he acquired Pierce National Life Insurance and Pierce Brothers, a regional chain of 60 funeral homes, the largest in the area.

Having made a fortune and deciding that prospects for Texas banking were limited, Mr. Allbritton sold his shares and turned his attention in the early 1970s to Washington, where he found what he considered an undervalued TV property whose profits he figured could be used to support The Star.

“Opportunities in a community are rarely seen by the people who grew up there,” he later told Washingtonian magazine.

Mr. Allbritton also owned The Hudson Dispatch in New Jersey from 1977 to 1985; it was eventually merged into The Jersey Journal.

Mr. Allbritton’s chief avocation was racehorses. His Lazy Lane Farms in Upperville, Va., produced Hansel, winner of the 1991 Preakness and Belmont Stakes, the final two-thirds of thoroughbred racing’s Triple Crown.

But none from his stable ever won the Kentucky Derby, a goal he called “one great ambition yet unfulfilled.”

Daniel E. Slotnick contributed reporting.

    Joe Allbritton, TV and Banking Titan, Dies at 87, NYT, 12.12.2012,
    http://www.nytimes.com/2012/12/13/business/joe-allbritton-tv-and-banking-titan-dies-at-87.html

American Tariffs, Bangladeshi Deaths

December 11, 2012
The New York Times
By SANCHITA B. SAXENA

Berkeley, Calif.

THE fire that killed 112 workers at a garment factory in the suburbs of Bangladesh’s capital last month was a stark reminder of the human costs of producing and consuming cheap clothes.

While American officials have condemned poor safety conditions at the factory and have urged the Bangladeshi government to raise wages and improve working conditions, the United States can do much more: It should bring down high tariffs on imports from Bangladesh and other Asian countries, which put pressure on contractors there to scrimp on labor standards in order to stay competitive.

The United States imported more than $4 billion worth of apparel and textiles from Bangladesh last year. So it has an interest in giving the country’s garment industry some financial room with which to improve conditions for the three million employees, most of them female, who work in the industry.

Monitoring systems have, in many cases, achieved progress at the higher levels of the industry: the contractors that deal directly with American retailers. But oversight is lax, and conditions particularly dire, in factories run by subcontractors, like the Tazreen Fashions factory, the site of the deadly blaze on Nov. 24.

A bill introduced in Congress in 2009 by Representative Jim McDermott, Democrat of Washington, could have improved the situation by including Bangladesh, Cambodia, Laos, Nepal, Pakistan and Sri Lanka on the list of developing countries, like Mexico, that receive duty-free access to the American market as a result of free-trade agreements. But the bill never even made it to committee, and Bangladesh still faces a cost squeeze that is ultimately felt most acutely on those lowest on the production chain, especially the lowest-paying subcontractors, among whom corruption is endemic. It takes its greatest toll on workers.

The distortions created by the current trade policy are striking. In the United States federal fiscal year that ended in September 2011, Bangladesh exported $5.10 billion in goods to the United States, of which less than 10 percent were eligible for exemption from import duties. On the rest, Bangladesh had to pay at least 15.3 percent in tariffs. The tariffs were equivalent to imposing a $4.61 tax on every person in Bangladesh, a country with a per-capita annual income of $770.

This year, according to news accounts, Bangladesh will have paid more than $600 million annually in American tariffs, even as the United States Agency for International Development said it was committed to $200 million in development aid to Bangladesh. Of course, no free trade legislation is controversy-free. One argument against reducing restrictions on Bangladeshi imports is that it might hurt even poorer countries, in sub-Saharan Africa, that enjoy duty-free access under a 2000 law, the African Growth and Opportunity Act. But studies have shown that extending duty-free access to South Asian goods would have negligible costs, yield huge benefits for Bangladesh’s economy and have minimal negative impact on African exports.

Bangladesh’s government and industries have a moral duty to prevent catastrophes like the November fire from ever occurring again. They need to insist that factory operators meet safety standards, that inspections are conducted honestly and that recommendations are enforced.

But leveling the playing field of international trade could advance all of these goals. International brands like Tommy Hilfiger, Gap, H&M, Target and Walmart demand low prices and fast turnaround. In that context, high tariffs work against the goals of fair-labor standards and factory safety.

In the fire’s aftermath, it’s tempting to focus only on local corruption and lax labor standards. But there have been positive changes in recent years; labor groups, businesses, nongovernmental organizations and even some international buyers have formed coalitions to improve safety at many factories. In a survey I conducted of garment workers at established factories, 62 percent said labor conditions had improved.

But for improvements in workers’ well-being to have lasting effect, tariffs on exports to the United States, the world’s largest consumer market, must be eased.

Sanchita B. Saxena is a political scientist and associate director

of the Center for South Asia Studies at the University of California, Berkeley.

    American Tariffs, Bangladeshi Deaths, NYT, 11.12.2012,
    http://www.nytimes.com/2012/12/12/opinion/american-tariffs-bangladeshi-deaths.html

Upshot of the Foreclosure Backlog

December 6, 2012
The New York Times
By LISA PREVOST

FORECLOSURES are taking significantly longer in states where lenders must go through the courts, and the delay may or may not be good for borrowers, depending on their circumstances. But some researchers say that dragging the process out hurts society at large.

About half of the 50 states have judicial foreclosure systems. The housing market crash so bogged down the systems in New York and New Jersey that foreclosures there have routinely dragged on for two or three years; their timelines are among the longest in the country. The national average, which factors in nonjudicial states, is about one year, according to RealtyTrac, which monitors foreclosures nationwide.

The sluggish process has caused a backlog of loans in foreclosure and is slowing the housing market recovery in judicial states, says Michael Fratantoni, the vice president for research and economics at the Mortgage Bankers Association. As of the end of the third quarter, according to the association, 6.6 percent of all loans were in foreclosure in judicial states, compared with 2.4 percent in nonjudicial states.

A study released last summer by researchers at the Federal Reserve Banks in Boston and Atlanta found that the longer properties languish in delinquency or under a bank’s ownership, the greater the negative effect on the value of surrounding properties.

“The best outcome is to prevent the foreclosure,” said Paul S. Willen, an economist and policy adviser at the Boston Fed. “But if it’s clear that can’t be done, it’s in society’s interest to get the foreclosure done as soon as possible.”

In a separate study last year, Mr. Willen and his colleagues question the basis for giving borrowers more time to try to fix mortgage problems. The study found that avoiding foreclosure was no more likely for borrowers subject to either judicial foreclosure, or laws forcing lenders to wait 90 days before beginning foreclosure proceedings, than it was for other borrowers.

Consumer advocates agree that foreclosures are taking too long in some states. High concentrations of vacant properties have taken a heavy toll on certain neighborhoods, said Michael D. Calhoun, the president of the Center for Responsible Lending in Washington. “We agree that borrowers should be considered quickly for loan modifications,” he said. “They’re more successful if they’re done early on.”

But in his estimation, the delays aren’t a result of the protections provided to consumers under the judicial process, because the court process has worked fine in “normal times.” The problem now, he said, lies with the mortgage servicers. “We had a servicing system that was totally overwhelmed by the housing boom and even more so by the housing crash,” Mr. Calhoun said. “The backlog is due to servicer errors and lack of capacity.”

Communication gaps are also a factor, says Mark S. Cherry, a lawyer who represents borrowers in the state-sponsored foreclosure mediation program in New Jersey. His clients must sometimes return to mediation sessions five or six times before finally getting a loan modification. “Persistence breaks resistance,” he said.

Courts, too, have been overwhelmed. In New Jersey, a typical year brings about 24,000 residential foreclosure filings; in 2009 and 2010, annual filings surpassed 60,000.

The courts have since had time to adjust, especially because lenders have halted the processing of thousands of old cases while they work with federal regulators on improving their practices, said Kevin M. Wolfe, the assistant director of the Civil Practice Division of New Jersey’s Administrative Office of the Courts.

New foreclosure cases are moving much more quickly, and there is no backlog, Mr. Wolfe said. The average time for foreclosures filed this year is 6.4 months.

By the time lenders begin processing those old cases, the court should be far better prepared, he said, adding, “We’re not going to be caught up short this time.”

    Upshot of the Foreclosure Backlog, NYT, 6.12.2012,
    http://www.nytimes.com/2012/12/09/realestate/mortgages-upshot-of-the-foreclosure-backlog.html

Mortgage Crisis Presents a New Reckoning to Banks

December 9, 2012
The New York Times
By JESSICA SILVER-GREENBERG

The nation’s largest banks are facing a fresh torrent of lawsuits asserting that they sold shoddy mortgage securities that imploded during the financial crisis, potentially adding significantly to the tens of billions of dollars the banks have already paid to settle other cases.

Regulators, prosecutors, investors and insurers have filed dozens of new claims against Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and others, related to more than $1 trillion worth of securities backed by residential mortgages.

Estimates of potential costs from these cases vary widely, but some in the banking industry fear they could reach $300 billion if the institutions lose all of the litigation. Depending on the final price tag, the costs could lower profits and slow the economic recovery by weakening the banks’ ability to lend just as the housing market is showing signs of life.

The banks are battling on three fronts: with prosecutors who accuse them of fraud, with regulators who claim that they duped investors into buying bad mortgage securities, and with investors seeking to force them to buy back the soured loans.

“We are at an all-time high for this mortgage litigation,” said Christopher J. Willis, a lawyer with Ballard Spahr, which handles securities and consumer litigation.

Efforts by the banks to limit their losses could depend on the outcome of one of the highest-stakes lawsuits to date — the $200 billion case that the Federal Housing Finance Agency, which oversees the housing twins Fannie Mae and Freddie Mac, filed against 17 banks last year, claiming that they duped the mortgage finance giants into buying shaky securities.

Last month, lawyers for some of the nation’s largest banks descended on a federal appeals court in Manhattan to make their case that the agency had waited too long to sue. A favorable ruling could overturn a decision by Judge Denise L. Cote, who is presiding over the litigation and has so far rejected virtually every defense raised by the banks, and would be cheered in bank boardrooms. It could also allow the banks to avoid federal housing regulators’ claims.

At the same time, though, some major banks are hoping to reach a broad settlement with housing agency officials, according to several people with knowledge of the talks. Although the negotiations are at a very tentative stage, the banks are broaching a potential cease-fire.

As the housing market and the nation’s economy slowly recover from the 2008 financial crisis, Wall Street is vulnerable on several fronts, including tighter regulations assembled in the aftermath of the crisis and continuing investigations into possible rigging of a major international interest rate. But the mortgage lawsuits could be the most devastating and expensive threat, bank analysts say.

“All of Wall Street has essentially refused to deal with the real costs of the litigation that they are up against,” said Christopher Whalen, a senior managing director at Tangent Capital Partners. “The real price tag is terrifying.”

Anticipating painful costs from mortgage litigation, the five major sellers of mortgage-backed securities set aside $22.5 billion as of June 30 just to cushion themselves against demands that they repurchase soured loans from trusts, according to an analysis by Natoma Partners.

But in the most extreme situation, the litigation could empty even more well-stocked reserves and weigh down profits as the banks are forced to pay penance for the subprime housing crisis, according to several senior officials in the industry.

There is no industrywide tally of how much banks have paid since the financial crisis to put the mortgage litigation behind them, but analysts say that future settlements will dwarf the payouts so far. That is because banks, for the most part, have settled only a small fraction of the lawsuits against them.

JPMorgan Chase and Credit Suisse, for example, agreed last month to settle mortgage securities cases with the Securities and Exchange Commission for $417 million, but still face billions of dollars in outstanding claims.

Bank of America is in the most precarious position, analysts say, in part because of its acquisition of the troubled subprime lender Countrywide Financial.

Last year, Bank of America paid $2.5 billion to repurchase troubled mortgages from Fannie Mae and Freddie Mac, and $1.6 billion to Assured Guaranty, which insured the shaky mortgage bonds.

But in October, federal prosecutors in New York accused the bank of perpetrating a fraud through Countrywide by churning out loans at such a fast pace that controls were largely ignored. A settlement in that case could reach well beyond $1 billion because the Justice Department sued the bank under a law that could allow roughly triple the damages incurred by taxpayers.

Bank of America’s attempts to resolve some mortgage litigation with an umbrella settlement have stalled. In June 2011, the bank agreed to pay $8.5 billion to appease investors, including the Federal Reserve Bank of New York and Pimco, that lost billions of dollars when the mortgage securities assembled by the bank went bad. But the settlement is in limbo after being challenged by investors. Kathy D. Patrick, the lawyer representing investors, has said she will set her sights on Morgan Stanley and Wells Fargo next.

Of the more than $1 trillion in troubled mortgage-backed securities remaining, Bank of America has more than $417 billion from Countrywide alone, according to an analysis of lawsuits and company filings. The bank does not disclose the volume of its mortgage litigation reserves.

“We have resolved many Countrywide mortgage-related matters, established large reserves to address these issues and identified a range of possible losses beyond those reserves, which we believe adequately addresses our exposures,” said Lawrence Grayson, a spokesman for Bank of America.

Adding to the legal fracas, New York’s attorney general, Eric T. Schneiderman, accused Credit Suisse last month of perpetrating an $11.2 billion fraud by deceiving investors into buying shoddy mortgage-backed securities. According to the complaint, the bank dismissed flaws in the loans packaged into securities even while assuring investors that the quality was sound. The bank disputes the claims.

“We need real accountability for the illegal and deceptive conduct in the creation of the housing bubble in order to bring justice for New York’s homeowners and investors,” Mr. Schneiderman said.

It is the second time that Mr. Schneiderman — who is also co-chairman of the Residential Mortgage-Backed Securities Working Group, created by President Obama in January — has taken aim at Wall Street for problems related to the subprime mortgage morass. In October, he filed a civil suit in New York State Supreme Court against Bear Stearns & Company, which JPMorgan Chase bought in 2008. The complaint claims that Bear Stearns and its lending unit harmed investors who bought mortgage securities put together from 2005 through 2007. JPMorgan denies the allegations. Another potentially costly prospect for the banks are the demands from a number of private investors who want the banks to buy back securities that violated representations and warranties vouching for the loans.

JPMorgan Chase told investors that as of the second quarter of this year, it was contending with more than $3.5 billion in repurchase demands. In the same quarter, it received more than $1.5 billion in fresh demands. Bank of America reported that as of the second quarter, it was dealing with more than $22 billion in unresolved demands, more than $8 billion of which were received during that quarter.

    Mortgage Crisis Presents a New Reckoning to Banks, NYT, 9.12.2012,
    http://www.nytimes.com/2012/12/10/business/banks-face-a-huge-reckoning-in-the-mortgage-mess.html

Peter Johnson, Crusader Against Corruption, Dies at 91

December 8, 2012
The New York Times
By DOUGLAS MARTIN

Peter Johnson was 17 when his father, James, a longshoreman on the Manhattan docks, died. James was owed pay that the family needed for his burial. Peter had to beg the corrupt longshoremen’s union to get it.

Peter was left with a sense of righteous outrage that fueled a personal crusade to fight union bosses who colluded with gangsters, conspired with shipping companies to underpay workers and demanded kickbacks from workers’ pay. In 1951, he helped lead a 25-day wildcat strike by 30,000 longshoremen against the companies and their own union.

That same year, he took on the corrupt political bosses who controlled Tammany Hall, as the Democratic Party organization was known, blasting them for consorting with criminals and using their power to monopolize the hiring of city employees. He ran slates of delegates to unseat the Tammany kingpins, personally challenging Carmine De Sapio, Tammany’s chieftain, as Democratic district leader in Greenwich Village.

Mr. Johnson, who went on to be a respected corporate lawyer, was a blur of motion. By the time he was 30, he had been a New York City police officer and a Marine who was severely wounded on Iwo Jima, and had graduated from law school and started his own practice — not to mention having slugged it out with Gotham’s despots.

And by the time he died on Monday at 91, his life had added up to an old-time New York ideal: street smarts and raw ambition welded to a hard-nosed commitment to justice. In his battle for the men who loaded and unloaded the great ships, an ally was the Rev. John M. Corridan, whose work with abused longshoremen inspired the character Father Barry, played by Karl Malden, in the 1954 movie “On the Waterfront.”

In a statement last week, former Mayor David N. Dinkins called Mr. Johnson a warrior “for truth.”

Peter James Johnson was born on Oct. 19, 1921, on the third floor of a cold-water tenement on Morton Street in Greenwich Village. He had episodes of pneumonia, and a doctor told him he would die at age 9 or 10. He read voraciously in bed and won a scholarship to La Salle Academy on the Lower East Side of Manhattan. His health improved enough to play basketball.

The week he graduated, his father died at 37, and Peter went to work on the docks, passing up his admission to the Naval Academy. With his mother making only a seamstress’s wages, Peter had to help support his five younger brothers and sisters, as well as four orphans the family had taken in.

He went on to join the New York Police Department, walking a beat on the Lower East Side, and enrolled at St. John’s University. During World War II, he joined the Marines, becoming a drill instructor. He took the last platoon he trained to Iwo Jima, where gunfire shattered his arm. He spent a year in Navy hospitals.

Mr. Johnson returned to St. John’s on the G. I. Bill, then entered its law school. He also rejoined the police after proving he could shoot with his left hand.

He began his law practice in 1949 by representing poor people from his neighborhood, usually free. Dissident longshoremen went to him asking for legal and strategic help in fighting their union, the International Longshoremen’s Association.

Mr. Johnson did not win his battle on the docks, nor his fight with Tammany. But both helped set the stage for later reforms: the union was forced to purge its leadership, and Tammany adopted a fairer, less opaque procedure for electing district leaders.

Mr. Johnson died in Manhattan of pulmonary fibrosis, his son Peter Jr. said. In addition to his son, who was an adviser to Mr. Dinkins and a press aide to Gov. Mario M. Cuomo, Mr. Johnson is survived by his wife, the former Veronica Donohue; another son, Christopher; and two granddaughters.

In later years, Mr. Johnson’s legal clients included Matilda Cuomo, Mr. Cuomo’s wife, as she contested her father’s will. In another case, he won the dismissal of charges against three men who in 1964 fired a bazooka into the East River to protest a speaking appearance by Che Guevara, Fidel Castro’s lieutenant at the time, at the United Nations. Mr. Johnson charged no fee.

    Peter Johnson, Crusader Against Corruption, Dies at 91, NYT, 8.12.2012,
    http://www.nytimes.com/2012/12/09/nyregion/
    peter-johnson-who-battled-union-corruption-and-tammany-hall-dies-at-91.html

Jon Kest,

Advocate for Low-Wage Workers in New York,

Dies at 57

December 7, 2012
The New York Times
By MARGALIT FOX

Jon Kest, a founder of the Working Families Party and a longtime community advocate in New York, who organized the recent strike by the city’s fast-food workers, among many other initiatives, died on Wednesday at his home in Brooklyn. He was 57.

The cause was cancer, his brother, Steven, said.

Mr. Kest began organizing more than 30 years ago and was considered a gentle but tenacious thorn in the side of a string of mayors: Edward I. Koch, David N. Dinkins, Rudolph W. Giuliani and Michael R. Bloomberg.

He sought in particular to improve conditions for the city’s often unseen stratum of low-wage workers: the men and women who wash the cars, bag the groceries and mind the children of better-off residents.

At his death, Mr. Kest was the executive director of New York Communities for Change, an organization based in Brooklyn that advocates on behalf of poor and working-class New Yorkers on issues like wages, housing and education.

On Nov. 29, about 200 of New York’s fast-food workers — in restaurants including McDonald’s, Burger King, Wendy’s, Taco Bell and Domino’s Pizza — took part in a one-day strike, demanding equitable pay and the right to unionize.

The strike, the brainchild of Mr. Kest, was described by The New York Times “the biggest wave of job actions in the history of America’s fast-food industry.”

Mr. Kest was previously the head organizer of New York Acorn, the local chapter of the national nongovernmental organization. In 2010, after the national group’s demise amid allegations — some later discredited — of mismanagement and fiscal impropriety, Mr. Kest and colleagues founded New York Communities for Change.

He helped found the Working Families Party, begun in 1998 by a consortium that included Acorn, labor unions and other advocacy groups. The party, which has chapters throughout New York State and in Connecticut, Delaware, Oregon and South Carolina, seeks to advance a liberal agenda on a range of issues.

Jonathan Lee Kest was born on June 17, 1955, in Mount Vernon, N.Y., and reared in White Plains. After studying at Oberlin College, he earned a bachelor’s degree from the University of Pennsylvania.

He began his organizing career soon afterward, setting up local chapters of Acorn in Arkansas. He later established Acorn’s Philadelphia chapter before moving to New York in the early 1980s.

In New York, Mr. Kest organized a “squatting drive” in the East New York neighborhood of Brooklyn, in which neighborhood residents took over hundreds of apartments in abandoned buildings. As as a result, the city agreed to convert the buildings into low-income housing.

During the Giuliani mayoralty, Mr. Kest helped win better working conditions for members of the city’s workfare force — welfare recipients who, under the mayor’s widely publicized plan, were required to do menial work, including cleaning city parks, in order to receive their benefits.

He also helped stop Mr. Giuliani’s plan to privatize the city’s public schools.

About a decade ago, Mr. Kest conceived the drive to organize home day care workers. Today, 17,000 of these workers belong to the United Federation of Teachers.

More recently, Mr. Kest was involved in the continuing effort to unionize workers in the city’s carwashes. To date, four shops — one each in Manhattan and the Bronx and two in Queens — have been organized under the Retail, Wholesale and Department Store Union.

Besides his brother, Mr. Kest is survived by a sister, Amy Kest; his parents, Martin and Ruth Kest; his wife, Fran Streich; and a son, Jake Streich-Kest. A daughter, Jessie Streich-Kest, was killed in Brooklyn on Oct. 29, when she was struck by a falling tree during Hurricane Sandy.

In an interview with The Daily News of New York in September, Mr. Kest, speaking of the carwash initiative, summed up the sea change in the city that he helped bring about.

“It really does speak to a different day starting to emerge in New York,” he said, “where low-wage immigrant workers are standing up and fighting back.”

    Jon Kest, Advocate for Low-Wage Workers in New York, Dies at 57, NYT, 7.12.2012,
    http://www.nytimes.com/2012/12/08/nyregion/jon-kest-community-advocate-in-new-york-dies-at-57.html

Jobless Rate Edges Down to Its Lowest Level in 4 Years

December 7, 2012
The New York Times
By NELSON D. SCHWARTZ

Despite fears of a slowdown caused by gridlock in Washington, the economic recovery moved forward at a steady pace in November, pushing unemployment to its lowest level in four years.

The nation’s employers added 146,000 jobs last month, in line with the average of 151,000 a month in 2012. But the pace was a substantial improvement from earlier this year, when job growth slowed sharply and many observers feared a double-dip recession.

The biggest surprise was that Hurricane Sandy created so little drag. Economists had estimated that only 86,000 jobs would be added in November, a decline from October largely because of the storm.

According to the monthly snapshot from the Labor Department, released on Friday, the nation’s unemployment rate dropped to 7.7 percent last month from 7.9 percent in October. Economists cautioned that this bit of seeming good news was the result of a shrinking labor force, rather than the addition of jobs. At the current pace of job creation, the unemployment rate will gradually decline to 7.1 percent by December 2013, said Dean Maki, chief United States economist at Barclays Capital.

“The underlying trend in unemployment is downward, and that’s what we continued to see in the November figures,” Mr. Maki said. “Over the past year, unemployment has fallen a full percentage point and is now down 2.3 percentage points from its high in 2009.”

Many economists worry that job creation will slow markedly, however, if President Obama and Congressional Republicans cannot agree on a plan to reduce the deficit by the end of the year, leading to more than $600 billion in government spending cuts and automatic tax increases in 2013. The Congressional Budget Office, as well as many private economists, warn that this path will lead to a recession in the first half of 2013 and push unemployment back up.

While it is encouraging that businesses seem to be hiring in spite of the uncertainty in Washington, that could change quickly, said Ethan Harris, co-head of global economics at Bank of America Merrill Lynch.

“If the budget impasse can’t be resolved this month, it’s likely that jobs growth will weaken early next year,” he said. “The fiscal cliff is a very dangerous game.”

Even if both sides in Washington come up with a short-term solution on the budget, as many observers expect, the pace of job growth remains well below what is needed to push wages substantially higher or to significantly reduce the broadest measure of unemployment anytime soon. Factoring in people seeking work, as well as those who want jobs but have stopped looking and those forced to take part-time jobs because full-time employment was not available, the broad unemployment gauge dipped to 14.4 percent in November from 14.6 percent in October.

Average hourly earnings rose 0.2 percent in November, and are up about 1.7 percent from a year earlier — about half the annual rate of growth seen in 2007 before the recession hit, when unemployment was below 5 percent.

The size of the labor force, according to a household survey separate from the one showing how many jobs were added by businesses and government, shrank by 350,000 in November. Part of that drop can be explained by the number of baby boomers deciding to retire, but a significant number of workers remain discouraged, prompting them to drop out of the job hunt.

As a result, the labor participation rate, which represents the portion of the adult population that is either employed or actively looking for work, remains low by historical standards, said Nigel Gault, chief United States economist for IHS Global Insight.

At 63.6 percent in November, Mr. Gault said, this measure is near the low point in this economic cycle.

“We’re not at the point in which the jobs market is strong enough to pull discouraged workers back into the labor market,” he said. Although job growth in November exceeded expectations, the Labor Department revised downward its figures for the preceding months. For September, the Labor Department said the economy created 132,000 jobs, down from an earlier estimate of 148,000, and the figure for October was lowered to 138,000 from 171,000.

Highlighting just how vulnerable the economy remains, a widely followed measure of how likely consumers were to make purchases showed a marked drop. The Thomson Reuters/University of Michigan index of consumer confidence for early December, released on Friday, fell to 74.5, down from 82.7 in November.

That was the lowest since August. Bricklin Dwyer, an economist with BNP Paribas, attributed the decline to the showdown in Washington over the budget.

“The deterioration in consumers’ future expectations was probably related to increased concerns relating to the political theater surrounding the ‘fiscal cliff’ negotiations,” he wrote in a report Friday.

One notable point of weakness in the latest jobs report was the manufacturing sector, which lost 7,000 jobs in November. Demand for goods from Europe and other overseas markets has softened recently, and some manufacturing companies have held up spending amid the standoff in Washington.

Employment in the construction sector fell by 20,000 last month — one hint of Hurricane Sandy’s impact, economists said. However, construction employment could pick up in December as homeowners rebuild in the Northeast and as the housing sector continues to regain ground nationwide.

Retailers added 53,000 jobs last month, more than triple the typical monthly rate in the last year. Much of that increase was to accommodate holiday shoppers, and Julia Coronado, chief North American economist at BNP Paribas, suggested the early start of sales promotions and an early Thanksgiving may have encouraged stores to hire workers more quickly than usual in November.

“We may see less of a gain in retail in December,” she said. “This was a very, very strong number that probably won’t persist.”

Among the unemployed, the percentage of people who have been out of a job for more than 27 weeks remains high but came down slightly in November, falling to 40.1 percent from 40.6 percent a month before.

Younger workers, who have had significantly higher rates of unemployment than older workers since the recession, also seem to have done a bit better in November. According to seasonally adjusted figures in the household survey, unemployment among workers aged 20 to 24 fell to 12.7 percent in November from 13.2 percent in October, and among 25- to 34-year-olds it fell to 7.9 percent from 8.3 percent.

While substantially lower, the unemployment rate among workers 55 and older held steady at 5.8 percent.

    Jobless Rate Edges Down to Its Lowest Level in 4 Years, NYT, 7.12.2012,
    http://www.nytimes.com/2012/12/08/business/economy/
    us-creates-146000-new-jobs-as-unemployment-rate-falls-to-7-7.html

The Forgotten Millions

December 6, 2012
The New York Times
By PAUL KRUGMAN

Let’s get one thing straight: America is not facing a fiscal crisis. It is, however, still very much experiencing a job crisis.

It’s easy to get confused about the fiscal thing, since everyone’s talking about the “fiscal cliff.” Indeed, one recent poll suggests that a large plurality of the public believes that the budget deficit will go up if we go off that cliff.

In fact, of course, it’s just the opposite: The danger is that the deficit will come down too much, too fast. And the reasons that might happen are purely political; we may be about to slash spending and raise taxes not because markets demand it, but because Republicans have been using blackmail as a bargaining strategy, and the president seems ready to call their bluff.

Moreover, despite years of warnings from the usual suspects about the dangers of deficits and debt, our government can borrow at incredibly low interest rates — interest rates on inflation-protected U.S. bonds are actually negative, so investors are paying our government to make use of their money. And don’t tell me that markets may suddenly turn on us. Remember, the U.S. government can’t run out of cash (it prints the stuff), so the worst that could happen would be a fall in the dollar, which wouldn’t be a terrible thing and might actually help the economy.

Yet there is a whole industry built around the promotion of deficit panic. Lavishly funded corporate groups keep hyping the danger of government debt and the urgency of deficit reduction now now now — except that these same groups are suddenly warning against too much deficit reduction. No wonder the public is confused.

Meanwhile, there is almost no organized pressure to deal with the terrible thing that is actually happening right now — namely, mass unemployment. Yes, we’ve made progress over the past year. But long-term unemployment remains at levels not seen since the Great Depression: as of October, 4.9 million Americans had been unemployed for more than six months, and 3.6 million had been out of work for more than a year.

When you see numbers like those, bear in mind that we’re looking at millions of human tragedies: at individuals and families whose lives are falling apart because they can’t find work, at savings consumed, homes lost and dreams destroyed. And the longer this goes on, the bigger the tragedy.

There are also huge dollars-and-cents costs to our unmet jobs crisis. When willing workers endure forced idleness society as a whole suffers from the waste of their efforts and talents. The Congressional Budget Office estimates that what we are actually producing falls short of what we could and should be producing by around 6 percent of G.D.P., or $900 billion a year.

Worse yet, there are good reasons to believe that high unemployment is undermining our future growth as well, as the long-term unemployed come to be considered unemployable, as investment falters in the face of inadequate sales.

So what can be done? The panic over the fiscal cliff has been revelatory. It shows that even the deficit scolds are closet Keynesians. That is, they believe that right now spending cuts and tax hikes would destroy jobs; it’s impossible to make that claim while denying that temporary spending increases and tax cuts would create jobs. Yes, our still-depressed economy needs more fiscal stimulus.

And, to his credit, President Obama did include a modest amount of stimulus in his initial budget offer; the White House, at least, hasn’t completely forgotten about the unemployed. Unfortunately, almost nobody expects those stimulus plans to be included in whatever deal is eventually reached.

So why aren’t we helping the unemployed? It’s not because we can’t afford it. Given those ultralow borrowing costs, plus the damage unemployment is doing to our economy and hence to the tax base, you can make a pretty good case that spending more to create jobs now would actually improve our long-run fiscal position.

Nor, I think, is it really ideology. Even Republicans, when opposing cuts in defense spending, immediately start talking about how such cuts would destroy jobs — and I’m sorry, but weaponized Keynesianism, the assertion that government spending creates jobs, but only if it goes to the military, doesn’t make sense.

No, in the end it’s hard to avoid concluding that it’s about class. Influential people in Washington aren’t worried about losing their jobs; by and large they don’t even know anyone who’s unemployed. The plight of the unemployed simply doesn’t loom large in their minds — and, of course, the unemployed don’t hire lobbyists or make big campaign contributions.

So the unemployment crisis goes on and on, even though we have both the knowledge and the means to solve it. It’s a vast tragedy — and it’s also an outrage.

    The Forgotten Millions, NYT, 6.12.2012,
    http://www.nytimes.com/2012/12/07/opinion/krugman-the-forgotten-millions.html

In Shift of Jobs, Apple Will Make Some Macs in U.S.

December 6, 2012
The New York Times
By CATHERINE RAMPELL and NICK WINGFIELD

Apple plans to join a small but growing number of companies that are bringing some manufacturing jobs back to the United States, drawn by the growing economic and political advantages of producing in their home market.

On Thursday, Apple’s chief executive, Timothy D. Cook, who built its efficient Asian manufacturing network, said the company would invest $100 million in producing some of its Mac computers in the United States, beyond the assembly work it already does in the United States. He provided little detail about how the money would be spent or what kinds of workers might benefit.

Apple, which long manufactured parts in the United States but stopped about a decade ago, has been under pressure to create more jobs here given its market power. It sold 237 million iPods, iPads, Macs and other devices in the year ended in September.

“I don’t think we have a responsibility to create a certain kind of job,” Mr. Cook told Bloomberg Businessweek. “But I think we do have a responsibility to create jobs.”

Some analysts are hopeful that the move by a big, innovative company like Apple could inspire a broader renaissance in American manufacturing, but a number of experts remain skeptical.

“I find it hard to see how the supply chains that drive manufacturing are going to move back here,” said Andre Sharon, a professor at Boston University and director of the Fraunhofer Center for Manufacturing Innovation. “So much of the know-how has been lost to Asia, and there’s no compelling reason for it to return. It’s great when a company says they want to create American jobs — but it only really helps the country if those are jobs that belong here, if it starts a chain reaction or is part of a bigger economic shift.”

Over the last few years, companies across various industries, including electronics, automotive and medical devices, have announced that they are “reshoring” jobs after decades of shipping them abroad. Lower energy costs in America, rising wages in developing countries like China and Brazil, quality control issues and the desire to keep the supply chain close to the gigantic American consumer base have all factored into these decisions.

“Companies were going abroad in pursuit of cost reduction, and it turns out there were a lot of unintended costs,” said Diane Swonk, chief economist at Mesirow Financial. “America has been looking a lot more competitive lately.”

Even so, the impact on the American job market has been modest so far. Much of the work brought back has been high-value-added, automated production that requires few actual workers, which is part of the reason America’s higher wages are not scaring off companies.

American manufacturing has been growing in the last two years, but the sector still has two million fewer jobs than it had when the recession began in December 2007. Worldwide manufacturing appears to be growing much faster, even for many of the American-owned companies that are expanding at home. General Electric, for example, has hired American workers to build water heaters, refrigerators, dishwashers and high-efficiency topload washers, but continues to add more jobs overseas as well.

Apple has not announced plans to move the complex, faster-growing portions of its product lines. Macs now represent a relatively small part of Apple’s business, accounting for less than 20 percent of its nearly $36 billion in revenue in its most recent quarter. The company’s iPad and iPhone products, which amount to nearly 70 percent of its sales, will continue to be made in low-cost centers of manufacturing like China, mostly on contract with outside companies like Foxconn.

Mr. Cook’s statements suggested Apple was planning to build more of the Mac’s components domestically, but with partners. He told Bloomberg Businessweek that the plan “doesn’t mean that Apple will do it ourselves, but we’ll be working with people, and we’ll be investing our money.”

Whether Apple’s newly announced plan might help create other higher-paying jobs along the supply line depends on the nature of the manufacturing.

Other computer manufacturing has been trickling back to the United States after largely shifting overseas in the 1990s.

In October, Lenovo, the computer giant based in China, said it would begin making its Think-branded computers, including notebooks, desktops and some tablets, at a facility in Whitsett, N.C. The move will create 115 manufacturing jobs at the plant, the company said.

Mark Stanton, director of global supply chain communications for Lenovo, said that moving the jobs to the United States would allow Lenovo to offer faster turnaround times for its customers in North America than if the machines were coming from overseas, and that the company was not specifically creating the American jobs because of any political pressure.

“We’re certainly not unaware of the economic situation and political environment,” he said. “It’s an added benefit, but we didn’t go in with that premise. We went in with a business case.”

The globalized model of the electronics industry was shaken last year by supply chain disruptions after floods in Thailand. The auto industry faced similar challenges after the tsunami in Japan. Not coincidentally, Ford recently announced that it was adding 1,200 jobs in Michigan, and foreign-owned auto manufacturers like Honda and Volkswagen have also invested in more hiring and training in Indiana and Tennessee.

For the most part, companies seem to be stepping up production in the United States for domestic customers, as opposed to exports, said Chad Moutray, the chief economist at the National Association of Manufacturers. (Companies are moving their production closer to where their customers are in Europe, too. Five years ago, Hewlett-Packard supplied all of Europe’s desktops from China, but today it manufactures in the Czech Republic, Turkey and Russia instead, according to Tony Prophet, senior vice president for operations for H.P.’s PCs and printers.)

But the United States is also becoming a more attractive place to manufacture goods destined for overseas markets. While the National Association of Manufacturers and other business groups complain about an antibusiness tax and regulatory environment in America, an international ranking from the World Bank on the “ease of doing business” placed the United States near the top of the list, and countries like Brazil, India and the Philippines near the bottom.

“If you ask how many days does it take to open a business, to get electricity, things like that, you realize there are a lot of reasons why the business environment is really much better here than in places where labor happens to be really cheap,” said Torsten Slok, chief international economist at Deutsche Bank Securities.

On Thursday, the White House said it was encouraging to see more big American companies bringing back manufacturing.

“Policy matters, and our country is pushing policies that encourage manufacturing, R.& D., infrastructure, skills and the support for growing supply chains,” said Gene Sperling, director of the president’s National Economic Council. “I think what you want is a mutually reinforcing cycle, where basic economic trends that make the U.S. more competitive for manufacturing and for creating supply chains is encouraged and supported by policies that recognize those location decisions have broader spillover impacts that benefit the economy beyond specific companies.”

Charles Duhigg and Quentin Hardy contributed reporting.

    In Shift of Jobs, Apple Will Make Some Macs in U.S., NYT, 6.12.2012,
    http://www.nytimes.com/2012/12/07/technology/apple-to-resume-us-manufacturing.html

Race to the Bottom

December 5, 2012
The New York Times


Competition among states and cities to lure businesses in hopes of creating jobs is not new, but it has become more fierce in recent years. An investigation by The Times found that state and local governments are giving out $80 billion a year in tax breaks and other subsidies in a foolhardy, shortsighted race to attract companies. That money could go a long way to improving education, transportation and other public services that would have a far better shot at promoting real economic growth.

Instead, with these giveaways, politicians and officials are trying to pick winners and losers, almost exclusively to the benefit of big corporations (aided by highly paid lobbyists) at the expense of small businesses. Though they promise that the subsidies are smart investments, far too often the jobs either don’t materialize or are short-lived, leaving the communities no better off.

The three-part series by Louise Story described how in places like Texas and Ohio, state and local governments have lavished millions of dollars in tax breaks on corporate giants like Samsung and the Big Three automakers — even as they faced budget deficits and were forced to cut spending on critical services. The tax revenues forgone in this giveaway frenzy should concern Congress deeply. After all, federal funds account for one-fifth of state and local budgets.

In one particularly egregious example in Pontiac, Mich., the State of Michigan gave $14 million in tax credits and a state pension fund guaranteed $18 million in bonds to a movie studio that created just 12 permanent jobs. In Texas, Amazon.com, the online retailer, received tax abatements, sales tax exemptions and other benefits totaling $277 million to open a warehouse that promises to employ 2,500 people. Those benefits were granted after the retailer closed another warehouse because of a dispute with the government involving sales taxes.

Many governments don’t know the full value of the subsidies they hand out in the form of tax refunds, rebates, loans, grants and more. And they don’t know if the jobs created would have been created anyway. The fact is, numerous studies show that such incentives result in only a small increase in jobs and that any gains usually come at the expense of other cities and states.

Local governments would be much better off investing tax dollars in education and public works that would deliver long-term benefits to both businesses and workers. California, for instance, is among the least generous of the larger states in doling out tax breaks. It gave out just $112 per capita compared with $759 in Texas, $672 in Michigan, and $210 in New York. Its experience leaves no doubt that investments made in public institutions like the University of California system can remain critically important to economic growth decades later.

The senseless race to give away billions in subsidies is, of course, hard to stop when elected leaders think a pledge of potential jobs might help in their next election. But even when attracting businesses is a legitimate goal, it has to be done in ways that are fair and transparent.

The trouble with targeted incentives is that they are little more than transfers of wealth to a handful of powerful corporations from all other taxpayers, including other businesses. If the problem is excessive tax burdens on businesses in general, then the solution is broad tax reform that also benefits small business owners, who are more likely to stick around if the regional economy weakens and who are unlikely to hopscotch around the country in search of a bigger tax break.

    Race to the Bottom, NYT, 5.12.2012,
    http://www.nytimes.com/2012/12/06/opinion/race-to-the-bottom.html

The Affordable Housing Crisis

December 4, 2012
The New York Times

The precious few federal programs that provide rental assistance to the nation’s poorest and most vulnerable families are already underfinanced. These programs provide decent housing for about only a quarter of the low-income families who qualify for them. And with nearly nine million households teetering on the verge of homelessness, the country clearly needs more support for affordable housing, not less.

The main federal programs are traditional public housing, for which the government provides operating expenses, plus two different programs under Section 8 of the housing law, in which rents are subsidized in privately owned properties. Together, they provide a lifeline for about five million low-income households that would otherwise be unable to afford livable housing at all.

More than half of these households are headed by elderly or disabled people and more than a third are families that include children. These families are overwhelmingly “extremely low income,” which means they earn less than a third of the median income in the areas where they live.

Congress has not treated these housing programs kindly in recent years. Between 2010 and 2012, financing fell by about $2.5 billion, or nearly 6 percent, although some of this was mitigated by one-time measures, like spending from reserves. President Obama’s budget for the 2013 fiscal year is not much of an improvement; given inflation, Congress would have to increase appropriations just to keep treading water, when, in fact, what the poor in this country need is a significant jump.

The administration obviously needs to do better. The number of families eligible for this program has grown significantly since the start of the recession. Last year, for example, 8.5 million very-low-income families without housing assistance paid more than half their incomes for housing — an increase of 43 percent from 2007.

These families skimp on food and medical care to make the rent and tend to move often, making it difficult for their children to be successful at school. They are also more prone to homelessness, which is traumatic for them and extremely costly for the municipalities that run shelters.

Yet even as the need for affordable housing has grown, such units have disappeared. Over the last two decades, for example, private landlords have removed more than 200,000 apartments from subsidy programs so that they could raise rents. And, faced with weak federal support and no money for repairs, the local housing authorities that manage federally supported developments have boarded up or torn down more than 150,000 units.

According to an analysis by the Department of Housing and Urban Development, it would take about $26 billion to repair the public housing developments that shelter more than two million of the nation’s most vulnerable people. The department is currently engaged in a pilot project under which a small subset of public housing authorities will be allowed to leverage private capital to make the needed repairs on their properties.

Meanwhile, Congress could help reduce costs for affordable housing units by passing the Affordable Housing and Self Sufficiency Improvement Act, a sound proposal in which core provisions have bipartisan support. The act would save money by streamlining a whole range of rules that are now redundant or excessively complicated — allowing agencies to more efficiently screen applicants, cutting the frequency with which housing authorities are required to inspect units, and simplifying the setting of rental rates.

But Congress would still have to find major new sources of revenue to sustain the current programs and meet increasingly pressing housing needs. It took an important first step in 2008, when it created The National Housing Trust Fund. Modeled on successful state programs, the fund would provide subsidies and incentives to preserve, rehabilitate and build housing for low-income families in stable middle-class communities.

It would also stimulate construction and create jobs. The money to underwrite the fund was supposed to come from the federally backed mortgage companies Fannie Mae and Freddie Mac, which imploded at the start of the recession. Now that those companies have turned the corner, the time may have come to divert some of their profits to affordable housing.

Other ideas are circulating that go beyond simply beefing up programs with more appropriations. The Center on Budget and Policy Priorities, for instance, has suggested revising the tax code — which now provides some $100 billion in tax breaks to homeowners — to give low-income renters a benefit as well. The benefits would take the form of a credit to be distributed by the states according to income and other criteria.

The center estimates that eligible families would end up paying about only 30 percent of incomes on housing, and that even a modest renters’ credit capped at $5 billion would lift 250,000 renters out of poverty, help 1.2 million of the lowest income renters and cut the number of poor households that spend more than half their incomes on rent by 700,000. That proposal deserves a serious reading.

    The Affordable Housing Crisis, NYT, 4.12.2012,
    http://www.nytimes.com/2012/12/05/opinion/the-affordable-housing-crisis.html

From All Sides, Fiscal Plans Fall Far Short of What’s Needed

December 3, 2012
3:04 pm
The New York Times
By STEVEN RATTNER

We don't yet know whether our economy will take the icy plunge off the fiscal cliff, but do we know this: At present course and speed, any budget deal that emerges from the intense brinkmanship now under way would fall short of every sensible ambition for fiscal reform.

Forget about balancing the budget. Forget about paying down any of the government's $11 trillion of obligations (the debt owed to the public). Nor will the package currently being discussed achieve the minimal target of centrist deficit hawks (myself among them), that of stabilizing the rate in which the national debt is growing in relation to the economy.

Battered by four years of trillion-dollar-plus deficits, this "debt-to-G.D.P." ratio has climbed from 36 percent in 2007 to 73 percent at present. Halting its rise would require at least $4 trillion of revenue increases and spending reductions (including the nearly $1 trillion of savings enacted last year) over the next decade.

President Obama has put on the table a package that should be commended for its willingness to both increase taxes on the wealthy and at least dent the mushrooming costs of entitlement programs, most importantly Medicare.

But "scored" fairly, the Obama plan would contribute about $3 trillion to lower projected deficits, at least $1 trillion short of what's needed.

The Republicans are much further from the mark, having not yet even put forward a formal plan. However, none of the intimations from their leaders suggest that their plan will exceed the White House's in size.

While the Republicans have importantly conceded on the need for tax increases, they've vociferously objected to Mr. Obama's proposed $1.6 trillion in added revenue as excessive. On Sunday, the House speaker, John A. Boehner, said that he would support around $800 billion of new revenue over the next decade, similar to what he offered during budget negotiations with Mr. Obama in July.

And on the spending side, while criticizing Mr. Obama's proposals as too timid, the policy changes that the Republicans have endorsed - such as raising the Medicare retirement age and slowing cost-of-living increases for Social Security - fall well short of Mr. Obama's.

Both sides appear more interested in reaching an understanding that avoids the cliff than in achieving the full range of necessary reforms.

And forget about the huge overhaul of our Rube Goldberg tax system and government spending priorities dreamed about by fiscal reformers. What's likely to emerge will be better described as tweaks, and maybe not so many of those.

The bible of deficit hawks - the report of the Simpson-Bowles commission - now feels quaint, with its talk about rewriting the tax code to eliminate loopholes and lower rates, not to mention its call to revamp federal spending to emphasize investment programs that will aid American competitiveness and growth.

Perhaps a surge of courage will inspire Congress and the White House to embrace more sweeping change.

But the brutal process of stabilizing America's fiscal problem is so charged with political peril, for Congress and the White House alike, that the willingness to go big and to go bold seems likely only to diminish as the cliff steadily approaches.

    From All Sides, Fiscal Plans Fall Far Short of What’s Needed, NYT, 3.12.2012,
    http://opinionator.blogs.nytimes.com/2012/12/03/from-all-sides-fiscal-plans-fall-far-short-of-whats-needed/

Mortgage Catch Pushes Widows Into Foreclosure

December 1, 2012
The New York Times
By JESSICA SILVER-GREENBERG

Geraldine Bates lost her husband to kidney failure last year. Now, she has fallen behind on her mortgage payments and is terrified that she will lose her home in Jacksonville, Fla.

Ms. Bates, 70, is caught in a foreclosure trap that is ensnaring widows across America: she cannot get help lowering her payments until her name is added to the mortgage note, but the lender says she must be current on payments before that can happen.

“I keep praying,” said Ms. Bates, who is fighting with the bank to stay in the four-bedroom house.

Just as the housing market is recovering, a growing group of homeowners — widows over the age of 50 whose husbands alone were holders of the mortgage — are losing their homes to foreclosure because of a paperwork flaw that keeps them from obtaining loan modifications.

In the latest chapter of the foreclosure crisis, homeowners over 50 are falling into foreclosure at the fastest pace of any age group, according to nationwide data, in part because women are outliving their spouses and are unable to cope with cuts in their pensions, ballooning medical costs — and the fine print on their mortgages.

While there are no exact measures of how many widows have entered foreclosure, figures compiled by AARP show the rate of foreclosures among people over 50 increased by 23 percent from 2007 to 2011, resulting in 1.5 million foreclosures.

A few lenders have tweaked their procedures to navigate the problem, and housing advocates are petitioning the Consumer Financial Protection Bureau to devise guidelines for lenders in situations that involve surviving relatives. Banks say that while the volume of delinquent mortgages means that they need a blanket policy to cover all homeowners who are behind on their payments, they are willing to work closely with widows.

Still, interviews with elder-care advocates, housing lawyers and borrowers suggest that the problem is spreading fast, propelled by an aging population. Legal aid offices in California, Florida, Ohio and New York say it is among the top complaints from clients. Billy Howard, a consumer lawyer in Tampa, Fla., said he had more than two dozen cases involving widows, up from virtually none before 2007.

“These women are essentially invisible,” said Gladys Gerson, a lawyer for Coast to Coast Legal Aid of South Florida.

At first glance, the issue seems little more than a logistical headache. To stay in the home, the surviving spouse needs to take over the mortgage. But to do that, most banks require that the borrower assuming the mortgage be up-to-date on payments. Housing advocates say that their clients, especially if one spouse experienced a prolonged illness, often find they are already thousands of dollars behind.

“Surviving spouses are trapped without a clear way to preserve their home,” said Arabelle Malinis, a lawyer at Housing and Economic Rights Advocates in California.

The conundrum is pushing some widows into foreclosure by choking off a lifeline that could save their homes. As of 2011, 6 percent of loans held by people over 50 were delinquent, up from about 1 percent in 2007, according to a July study by AARP, an advocacy group for Americans over 50. The study, which housing lawyers say accurately describes the tide of foreclosures on seniors’ homes, analyzed mortgage data over a five-year period.

Part of the problem, according to Debra Whitman, AARP’s executive vice president for policy, is that older Americans are saving less and borrowing more. Debt for Americans ages 65 to 74 is outpacing any other group, according to the Federal Reserve.

Some help is on the way. JPMorgan Chase, for example, allows surviving relatives to complete a loan modification and mortgage assumption simultaneously. And the consumer bureau is finishing rules to provide tighter oversight of mortgage servicing companies, which collect payments from homeowners.

Housing advocates say most of their widowed clients still remain in their foreclosed homes.

The trouble for Ms. Bates, of Jacksonville, Fla., began after her husband Robert, a World War II veteran, died last February. Mr. Bates had obtained a trial loan modification but died before he could make the first payment. Determined to make good on the hard-won plan, Ms. Bates said she notified HSBC, the servicer, of her husband’s death and sent in a check for $1,125.47.

Ms. Bates said she was devastated when the check was returned, with a letter explaining the money could not be accepted because she was not on the mortgage. Ms. Bates still owes roughly $131,000 on the original $140,000 mortgage. HSBC declined to comment on the case, but said in a statement, “HSBC has a strong commitment to home preservation and regards foreclosure as a last resort.”

Complaints from widows about botched forms, unanswered calls and the peculiar frustration of being asked repeatedly by servicers for the same documents echo the concerns that culminated in a $26 billion settlement in February over other mortgage flaws with the country’s five largest mortgage servicers.

While the process of obtaining a modification can be taxing for healthy homeowners, it can be virtually impossible for older borrowers, many of whom do not have the energy to get through the bureaucracy.

Maria Ginise, a 75-year-old widow, says she has developed dizzy spells from the stress of trying to save her mobile home in Deerfield Beach, Fla. When she and her husband, Joseph, left Connecticut, Ms. Ginise said, she dreamed of beach strolls and shuffleboard evenings. But, after her husband died in May 2009, those plans were derailed.

Ms. Ginise, whose only income is Social Security, could not afford payments on her $140,000 mortgage. Since her name was not on the mortgage, though, Wells Fargo, refused to work out a payment plan with her. Now, she faces foreclosure. A spokeswoman for Wells Fargo declined to comment on Ms. Ginise, but said in a statement that the bank reviewed “all applicable, affordable options for customers facing financial difficulties.”

In Toledo, Ohio, Florence McKinney said her efforts to seek help with her monthly payments of $814.06 yielded only confusion. In April, for example, Ms. McKinney, 69 and a widow, said U.S. Bank sent a letter approving her husband, not her, for a loan modification. “Dear Willie D. McKinney Sr.,” the letter read. “Congratulations!” In August, she said, the bank refused her payments altogether. After questions from The New York Times, U.S. Bank said it had worked out a modification with Ms. McKinney. Ms. McKinney did not respond to a request for comment, but her lawyer said the bank had offered her a new modification.

Housing advocates have won reprieves for some homeowners, including Aurora MacDula, 80, in Vallejo, Calif., whose husband died last November. She said when she first contacted Wells Fargo, the servicer, to pay the mortgage, a representative refused to talk to her because she was not on the loan.

In August, with the help of her lawyer, Ms. MacDula got a temporary loan modification and is paying $1,733.21 a month. The problem, advocates say, is that most distressed widows do not have the benefit of legal aid.

Ms. Malinis, with the housing advocacy group in California, said: “We stay up thinking of the ones who we don’t know about.”

    Mortgage Catch Pushes Widows Into Foreclosure, NYT, 1.12.2012,
    http://www.nytimes.com/2012/12/02/business/widows-pushed-into-foreclosure-by-mortgage-fine-print.html

Third-Quarter G.D.P. Growth Is Revised Up to 2.7%

November 29, 2012
The New York Times
By NELSON D. SCHWARTZ

The economy grew at a substantially faster pace in the third quarter than first thought, powered by increases in business inventories and federal spending.

After initially saying output increased at an annual rate of 2 percent, the Commerce Department on Thursday revised its estimate to show growth at a 2.7 percent rate in the three months that ended Sept. 30.

While businesses have remained cautious amid fiscal uncertainty in Washington and weak growth overseas, consumer spending in the United States has moved along in recent months at a healthier pace.

In addition, a strengthening housing market in many regions, along with better employment figures, has reassured some analysts who feared the economy was close to stalling.

However, worries remain about growth in the current quarter, with many economists estimating output to increase at a more tepid annual rate of roughly 1 percent.

And with more than $600 billion in tax increases and spending cuts looming if Congress and the White House can’t agree on a deal to cut the deficit by Jan. 1, economists warn the economy remains vulnerable.

The newly estimated pace of growth represents a substantial increase in the level of expansion from the second quarter, when the economy grew at a rate of just 1.3 percent. It also marks the fastest rate of expansion since the fourth quarter of 2011, when the economy grew at a 4.1 percent annual pace.

This was the second of the government’s three estimates of quarterly growth. The final figure is scheduled for Dec. 20.

“The economy certainly hasn’t taken off, but it’s nowhere close to a stall,” said David Kelly, chief global strategist for JPMorgan Funds. “The economy is still underperforming its full potential, but once we get past the ‘fiscal cliff’ uncertainty, we could see stronger growth next year.”

He cautioned that the inventory buildup in the third quarter might cool growth in the fourth quarter. “If you’re building inventory in the third quarter, then you don’t need to build it in the next quarter,” Mr. Kelly said.

In a separate report, the Labor Department said the number of people filing first-time claims for unemployment dropped by 23,000 to a seasonally adjusted level of 393,000 last week. Economists had been expecting the number to total 390,000.

    Third-Quarter G.D.P. Growth Is Revised Up to 2.7%, NYT, 29.11.2012,
    http://www.nytimes.com/2012/11/30/business/economy/third-quarter-gdp-growth-is-revised-up-to-2-7.html

Jerry Finkelstein, New York Power Broker, Dies at 96

November 28, 2012
The New York Times
By ROBERT D. McFADDEN

Jerry Finkelstein, who made a fortune in business, real estate and newspapers, including The New York Law Journal and The Hill, and for many years was a self-styled Democratic power broker in New York City, died on Wednesday at his home in Manhattan. He was 96.

His death was confirmed by his son Andrew J. Stein.

With money and connections drawn in a wide-ranging career that placed him at the nexus of the legal profession, publishing and politics in New York, Mr. Finkelstein assisted presidents, governors, mayors, members of Congress, city and state officials and a host of judges, lawyers and lesser luminaries.

But he was instrumental to only one politician: his son Andrew, who shortened his surname and in campaigns heavily financed by his father became an assemblyman, Manhattan borough president and City Council president. Mr. Stein quit his last race, for the 1993 Democratic nomination for mayor, lacking public support. The incumbent, David N. Dinkins, won the primary but lost the general election to the Republican candidate, Rudolph W. Giuliani.

Mr. Finkelstein was the retired chairman of Struthers Wells, a conglomerate that manufactures a range of heating, fuel handling and thermal engineering equipment, and the former owner of a newspaper chain that includes The Hill in Washington. He derived much of his power from The Law Journal, which he acquired in 1963 and built into the leading publisher of New York’s court decisions, with news and analyses of legal affairs.

For all his considerable influence, Mr. Finkelstein ran for office only once — for a State Senate seat in 1942 — and lost. He held a few appointive posts. But for 30 years in New York, he was a man to see for political support, votes, a favor, a job or a friend with connections.

For President John F. Kennedy, he helped raise money for what became the Kennedy Center for the Performing Arts. For President Lyndon B. Johnson, he helped pick a patronage dispenser. He promoted the mayoral campaigns of Robert F. Wagner and John V. Lindsay, raised money for Senator Robert F. Kennedy’s 1968 presidential race, and served as a conduit to the Democrats for Gov. Nelson A. Rockefeller, a liberal Republican.

Mr. Finkelstein was born in New York on Jan. 26, 1916. His father, Albert, ran a small business. He attended George Washington High School and New York University and graduated from New York Law School in 1938, but did not take the bar exam. He became a reporter for The New York Daily Mirror, and with a colleague, Seward Brisbane, son of the Hearst editor Arthur Brisbane, founded The Civil Service Leader, a newspaper for public employees, in 1939.

In 1942, he married Shirley Marks. She died in 2003. Besides Mr. Stein, he is survived by another son, James Finkelstein, eight grandchildren and two great-grandchildren.

He managed the 1949 re-election campaign of Mayor William O’Dwyer, who, before resigning in a scandal in 1950, named Mr. Finkelstein chairman of the City Planning Commission.

In 1963, Mr. Finkelstein bought The Law Journal, the official paper of the city’s legal profession, for $1 million. Its circulation was small, and it was an ocean of tiny print: legal notices, case calendars, texts of decisions. But he turned it into a leading journal, and he wielded enormous power by deciding which cases to publish, in effect determining what the bar read — a leverage not lost on judges, lawyers and politicians.

Mr. Finkelstein built his fortune in a series of ventures. In the 1950s, he borrowed $85,000 and, with the help of friends on Wall Street, bought the Fifth Avenue Coach Company for $5 million. He later sold his stock in it for $990,000. He then went into public relations with Tex McCrary, the columnist and radio and television personality. They helped a client, Louis A. Chesler, a stock speculator, with some difficulties he had with the Securities and Exchange Commission. The commission later reported that Mr. Finkelstein had earned $2.3 million in Chesler stock speculations.

By 1960 Mr. Finkelstein had acquired a multimillion-dollar stake, and the chairmanship, of Struthers Wells. In 1961, he branched into real estate, becoming chairman of All-State Properties and All-State Bowling Centers, with properties in New York and New Jersey. He left a year later with 50,000 shares of the companies.

Over the next two decades he acquired News Communications, a chain of weekly newspapers from Manhattan to Montauk, becoming chairman and principal stockholder. Another Finkelstein entity, ABC Industries, published The Law Journal, the civil service newspaper and law books; operated legal seminars and an antiques show; and held real estate. In 1977 alone, Mr. Finkelstein, the chairman and majority stockholder, drew a $154,000 salary as well as $63,000 in retirement and other benefits, and had additional deferred compensation of $500,000.

Mr. Finkelstein’s net worth, amplified by securities trading, was never disclosed, but his lifestyle made no mystery of his wealth. He held parties at his art-filled Manhattan triplex and his oceanfront Southampton estate attended by movie stars, magnates and city, state and federal officials. In 1972, Governor Rockefeller named him a commissioner of the Port Authority of New York and New Jersey. He held that job for three years.

But much of his energy and a great deal of his money went into the political career of his son Andrew. It began in 1968, when Mr. Stein, 23, ran for the Assembly from the East Side of Manhattan. Mr. Finkelstein put up $250,000 — then the largest sum ever spent on a local campaign — and inundated the district with posters, mailings and campaign workers.

The unknown Mr. Stein, whose only employment had been as a teenage water boy for the Baltimore Colts, was endorsed by Vice President Hubert H. Humphrey, the 1968 Democratic presidential nominee; Senator Edmund Muskie, the vice-presidential nominee; and Senator Edward M. Kennedy.

Mr. Stein won handily and was re-elected four times. In 1974 and 1975, his investigation into nursing home abuses won statewide headlines, and there was talk of a run for mayor, governor or even the White House. In 1977, he won the Manhattan borough presidency. In 1985, he was elected Council president. He was re-elected in 1989, but the post was later abolished.

He sought the Democratic mayoral nomination in 1993, but he quit before the primary and retired from public life when his term as Council president expired. In recent years, he has pursued private business as a partner in Arapaho Partners, an entrepreneurial consulting firm in New York City.

Mr. Finkelstein’s acquisition of weekly newspapers in the city and on Long Island during his son’s political days prompted accusations that he was using the publications to promote his son, but no proof was offered. Mr. Stein, while acknowledging the financial help, denied that his father had pulled strings on his behalf.

Mr. Finkelstein sold The Law Journal in 1983 but remained its publisher until 1988. In 1994, Mr. Finkelstein and Martin Tolchin, a correspondent for The New York Times, founded The Hill, focusing on Congressional coverage. James Finkelstein succeeded his father as chairman of The Hill and other publishing interests.

    Jerry Finkelstein, New York Power Broker, Dies at 96, NYT, 28.11.2012,
    http://www.nytimes.com/2012/11/29/nyregion/jerry-finkelstein-new-york-power-broker-dies-at-96.html

Winning Powerball Tickets Sold in Arizona and Missouri

November 28, 2012
The New York Times
By CAMPBELL ROBERTSON

NEW ORLEANS — All across this recession-weary country on Wednesday, Americans of every rank and station lined up at convenience stores and delis, placed their hard-earned dollars on countertops and took part in a venerated national tradition: trying to get really rich without doing anything.

“You want to retire tomorrow?” Vijay Patel asked his customers at Lanzilli’s Groceria in East Boston, where Powerball tickets were constantly being churned out by the lottery machines. “A lot of action today. Good luck.”

Early Thursday, Powerball officials announced that tickets sold in Missouri and Arizona matched all six numbers to win $579.9 million, the second-largest lottery jackpot in United States history. In March, the Mega Millions prize was $656 million, which was and still is, in the words of Michael Jones, the superintendent of the Illinois Lottery, the “largest lottery prize in the history of the solar system.”

The winning numbers drawn on Wednesday night were 5, 16, 22, 23, 29, and a Powerball of 6.

Arizona lottery officials said they had no information on that state’s winner or winners but would announce where the ticket was sold during a news conference on Thursday, The Associated Press reported. Lottery officials in Missouri did not immediately respond to The A.P.

The record-breaking sums are of such a scale that they seem to muddle a person’s ability to calculate probabilities. A woman in Denver bought $450 in tickets on Tuesday. People in Nevada, which does not participate in Powerball, have been calling the Arizona Last Stop, a bar/restaurant/gas station right across the state line, to ask about sending busloads of ticket buyers from Las Vegas.

On Wednesday alone, Floridians had spent more than $10 million by 2 p.m. on Powerball tickets. So many people had bought tickets nationwide, said David Bishop, a spokesman for the Florida Lottery, that there was a 75 percent chance that one or more of the combinations picked will match the combination drawn on Wednesday night.

Most of the buyers interviewed on Wednesday acknowledged that their chances were not especially good.

A standard practice in news media coverage is to compare lottery odds unfavorably with odds of dying in peculiar ways (shark attack, lightning), but even that morbid exercise does not do justice to the long shot. The odds of picking the winning numbers in Wednesday’s drawing were longer than the odds of picking an American man completely at random and having him happen to be Alan Alda.

Granted, the odds were slightly better than they were last year. This year, the officials who oversee Powerball, a game consisting of five numbered white balls and one red ball, reduced the number of red balls to 35 from 39. They also doubled the price of a ticket to $2, but the increase in the size of the jackpot has apparently overcome any sticker shock from the new, higher-priced tickets. There is math, and there is wishful thinking. The contest between the two is not even close.

“It only takes one to win,” said Katherine Scott, amid the lunch-hour traffic at a 7-Eleven in Chicago. “I bought two.”

Ken Menno, who has been buying Powerball tickets every week for years, bought five on Wednesday morning at a Shell station in Denver.

“If I win, I’m going to buy this joint,” he said. “And send everyone here on a vacation.”

Lines were particularly long in places that sat just over the line from the few states that do not participate in Powerball, places like the Purple Cow convenience store in Slidell, La., a few minutes’ drive from Mississippi.

And some people seem to have decided that certain stores are just luckier than others.

One of the three winning tickets from the $656 million Mega Millions prize was sold at the MotoMart convenience store in Red Bud, Ill., about an hour southeast of St. Louis. The electronic marquee outside on Wednesday read “Lightning can strike twice!” which is inarguable. Enough people believed it could strike twice at this MotoMart that the store doubled the number of working staff members to accommodate the rush.

“It’s constant traffic,” said Denise Metzger, the manager. She declined to release her sales numbers because they were so high she feared she would be robbed.

Some buyers, like Katie Flom, 28, who works at an advertising agency in Chicago, still had rather ill-formed ideas of what to do with all of that money.

“I’d first buy a plane ticket somewhere warm and then figure it out from there,” she said.

But she appeared to be in the minority.

Despite the long odds and the cautionary tales about past winners, most people knew exactly what they would do, the bills they would pay, the student debt they would retire, the charity they would start or the car they would finally send to the dump.

Outside the Viva Deli in East Harlem in New York, Manny Colon talked of buying his two daughters a house and setting aside college tuition for grandchildren and great-grandchildren. “They’re the ones that are coming up,” said Mr. Colon, a retired doorman, smiling at his wife of 61 years. “We’re all right.”

His wife, Gloria, nodded. Then, she added: “I would like to go to Hawaii.”

Reporting was contributed by Jess Bidgood in Boston, Ian Lovett in Los Angeles,

Dan Frosch in Denver, Steven Yaccino in Chicago, Kia Gregory in New York

and David Thier in Slidell, La.

    Winning Powerball Tickets Sold in Arizona and Missouri, NYT, 28.11.2012,
    http://www.nytimes.com/2012/11/29/us/despite-powerball-odds-a-mad-rush-to-the-registers.html

A Minimum Tax for the Wealthy

November 25, 2012
The New York Times
By WARREN E. BUFFETT

Omaha

SUPPOSE that an investor you admire and trust comes to you with an investment idea. “This is a good one,” he says enthusiastically. “I’m in it, and I think you should be, too.”

Would your reply possibly be this? “Well, it all depends on what my tax rate will be on the gain you’re saying we’re going to make. If the taxes are too high, I would rather leave the money in my savings account, earning a quarter of 1 percent.” Only in Grover Norquist’s imagination does such a response exist.

Between 1951 and 1954, when the capital gains rate was 25 percent and marginal rates on dividends reached 91 percent in extreme cases, I sold securities and did pretty well. In the years from 1956 to 1969, the top marginal rate fell modestly, but was still a lofty 70 percent — and the tax rate on capital gains inched up to 27.5 percent. I was managing funds for investors then. Never did anyone mention taxes as a reason to forgo an investment opportunity that I offered.

Under those burdensome rates, moreover, both employment and the gross domestic product (a measure of the nation’s economic output) increased at a rapid clip. The middle class and the rich alike gained ground.

So let’s forget about the rich and ultrarich going on strike and stuffing their ample funds under their mattresses if — gasp — capital gains rates and ordinary income rates are increased. The ultrarich, including me, will forever pursue investment opportunities.

And, wow, do we have plenty to invest. The Forbes 400, the wealthiest individuals in America, hit a new group record for wealth this year: $1.7 trillion. That’s more than five times the $300 billion total in 1992. In recent years, my gang has been leaving the middle class in the dust.

A huge tail wind from tax cuts has pushed us along. In 1992, the tax paid by the 400 highest incomes in the United States (a different universe from the Forbes list) averaged 26.4 percent of adjusted gross income. In 2009, the most recent year reported, the rate was 19.9 percent. It’s nice to have friends in high places.

The group’s average income in 2009 was $202 million — which works out to a “wage” of $97,000 per hour, based on a 40-hour workweek. (I’m assuming they’re paid during lunch hours.) Yet more than a quarter of these ultrawealthy paid less than 15 percent of their take in combined federal income and payroll taxes. Half of this crew paid less than 20 percent. And — brace yourself — a few actually paid nothing.

This outrage points to the necessity for more than a simple revision in upper-end tax rates, though that’s the place to start. I support President Obama’s proposal to eliminate the Bush tax cuts for high-income taxpayers. However, I prefer a cutoff point somewhat above $250,000 — maybe $500,000 or so.

Additionally, we need Congress, right now, to enact a minimum tax on high incomes. I would suggest 30 percent of taxable income between $1 million and $10 million, and 35 percent on amounts above that. A plain and simple rule like that will block the efforts of lobbyists, lawyers and contribution-hungry legislators to keep the ultrarich paying rates well below those incurred by people with income just a tiny fraction of ours. Only a minimum tax on very high incomes will prevent the stated tax rate from being eviscerated by these warriors for the wealthy.

Above all, we should not postpone these changes in the name of “reforming” the tax code. True, changes are badly needed. We need to get rid of arrangements like “carried interest” that enable income from labor to be magically converted into capital gains. And it’s sickening that a Cayman Islands mail drop can be central to tax maneuvering by wealthy individuals and corporations.

But the reform of such complexities should not promote delay in our correcting simple and expensive inequities. We can’t let those who want to protect the privileged get away with insisting that we do nothing until we can do everything.

Our government’s goal should be to bring in revenues of 18.5 percent of G.D.P. and spend about 21 percent of G.D.P. — levels that have been attained over extended periods in the past and can clearly be reached again. As the math makes clear, this won’t stem our budget deficits; in fact, it will continue them. But assuming even conservative projections about inflation and economic growth, this ratio of revenue to spending will keep America’s debt stable in relation to the country’s economic output.

In the last fiscal year, we were far away from this fiscal balance — bringing in 15.5 percent of G.D.P. in revenue and spending 22.4 percent. Correcting our course will require major concessions by both Republicans and Democrats.

All of America is waiting for Congress to offer a realistic and concrete plan for getting back to this fiscally sound path. Nothing less is acceptable.

In the meantime, maybe you’ll run into someone with a terrific investment idea, who won’t go forward with it because of the tax he would owe when it succeeds. Send him my way. Let me unburden him.

Warren E. Buffett is the chairman and chief executive of Berkshire Hathaway.

    A Minimum Tax for the Wealthy, NYT, 25.11.2012,
    http://www.nytimes.com/2012/11/26/opinion/buffett-a-minimum-tax-for-the-wealthy.html

Lincoln, Liberty and Two Americas

November 23, 2012
The New York Times
By CHARLES M. BLOW

Four score and seven years ago our fathers brought forth, upon this continent, a new nation, conceived in liberty, and dedicated to the proposition that all men are created equal. Now we are engaged in a great civil war, testing whether that nation, or any nation, so conceived and so dedicated, can long endure.”

Those are the opening words of Abraham Lincoln’s Gettysburg Address, and they seem eerily prescient today because once again this country finds itself increasingly divided and pondering the future of this great union and the very ideas of liberty and equality for all.

The gap is growing between liberals and conservatives, the rich and the not rich, intergenerational privilege and new-immigrant power, patriarchy and gender equality, the expanders of liberty and the withholders of it. And that gap, which has geographic contours — the densely populated coastal states versus the less densely populated states of the Rocky Mountains, Mississippi Delta and Great Plains — threatens the very concept of a United States and is pushing conservatives, left quaking after this month’s election, to extremes.

Some have even moved to make our divisions absolute. The Daily Caller reported last week “more than 675,000 digital signatures appeared on 69 separate secession petitions covering all 50 states,” according to its analysis of requests made through the White House’s “We the People” online petition system.

According to The Daily Caller, “Petitions from Alabama, Florida, Georgia, Louisiana, North Carolina, Tennessee and Texas residents have accrued at least 25,000 signatures, the number the Obama administration says it will reward with a staff review of online proposals.” President Obama lost all those states, except Florida, in November.

The former Republican presidential candidate Ron Paul took to his Congressional Web site to laud the petitions of those bent on leaving the union, writing that “secession is a deeply American principle.” He continued: “If the possibility of secession is completely off the table there is nothing to stop the federal government from continuing to encroach on our liberties and no recourse for those who are sick and tired of it.”

The Internet has been lit up with the incongruity of Lincoln’s party becoming the party of secessionists.

But even putting secession aside, it is ever more clear that red states are becoming more ideologically strident and creating a regional quasi country within the greater one. They are rushing to enact restrictive laws on everything from voting to women’s health issues.

As Monica Davey reported in The New York Times on Friday, starting in January, “one party will hold the governor’s office and majorities in both legislative chambers in at least 37 states, the largest number in 60 years and a significant jump from even two years ago.”

As the National Conference of State Legislatures put it, “thanks to an apparent historic victory in Arkansas, Republicans gained control of the old South, turning the once solidly Democratic 11 states of the Confederacy upside down.” Arkansas will be the only one of these states with a Democratic governor.

As Davey’s article pointed out, single-party control raises “the prospect that bold partisan agendas — on both ends of the political spectrum — will flourish over the next couple of years.” But it seems that “both ends of the political spectrum” should not be misconstrued as being equal. Democrats may want to expand personal liberties, but Republicans have spent the last few years working feverishly to restrict them.

According to a January report from the Guttmacher Institute: “By almost any measure, issues related to reproductive health and rights at the state level received unprecedented attention in 2011. In the 50 states combined, legislators introduced more than 1,100 reproductive health and rights-related provisions, a sharp increase from the 950 introduced in 2010. By year’s end, 135 of these provisions had been enacted in 36 states, an increase from the 89 enacted in 2010 and the 77 enacted in 2009.” Almost all the 2011 provisions were enacted in states with Republican-controlled legislatures.

According to the Brennan Center for Justice at the New York University School of Law, at least 180 restrictive voting bills were introduced since the beginning of 2011 in 41 states. Most of the states that passed restrictive voting laws have Republican-controlled legislatures.

An N.C.S.L. report last year found “the 50 states and Puerto Rico have introduced a record 1,538 bills and resolutions relating to immigrants and refugees in the first quarter of 2011. This number surpasses the first quarter of 2010 by 358.” That trend slowed in 2012 in large part because of legal challenges. Many of the states that had enacted anti-immigrant laws or adopted similar resolutions by March of last year, again, had Republican-controlled legislatures.

We are moving toward two Americas with two contrasting — and increasingly codified — concepts of liberty. Can such a nation long endure?

    Lincoln, Liberty and Two Americas, NYT, 23.11.2012,
    http://www.nytimes.com/2012/11/24/opinion/blow-lincoln-liberty-and-two-americas.html

Rising Consumer Optimism Fuels an Annual Spree

November 23, 2012
The New York Times
By CATHERINE RAMPELL

Worries about the economy and fiscal austerity be damned. On Black Friday, consumers were ready to shop till they dropped. And some even did, dozing off on the furniture displays in department stores offering predawn deals.

Consumers have voiced increasing optimism in recent months as employment rises and their home values (finally) go up, or at least stabilize, even as government talks about taxes and spending remain at an impasse. Bargain hunters put that upbeat mood into action on Thursday night and the wee hours of Friday morning at department and discount stores around the country.

Shoppers stood in line Friday for the 7 a.m. opening of Sam’s Club in Eagan, Minn., enduring freezing temperatures and biting winds, and clinging to free Starbuck’s Holiday Blend coffee as they collected vouchers for laptops and big-screen TVs.

“I didn’t even want it,” Meshia Flood, 36, a student from nearby Eagan, told a worker standing near the exit, referring to the 40-inch Sanyo LED TV on her cart. She and her 13-year-old daughter had come for a 96-cent Samsung Galaxy S III smartphone, but did not snag one before they disappeared minutes after opening.

Hundreds to thousands of consumers lined up outside Sears, Target, Macy’s, Old Navy and other retailers offering time-sensitive deals. Some turned up Thursday night for newly extended hours that some merchants have been experimenting with.

Bryan Everett, Target’s senior vice president for stores, said that Target’s decision to open at 9 p.m. on Thursday rather than midnight meant that there were more families in the store, and that customers stayed longer.

“Usually, it’s just a parent with a child, or mom and dad, or just a single guest in the store,” he said. “This year, we were seeing four- to five-person families.”

As a result, he said, customers stayed longer, and there was more “cross shopping.” Usually the Black Friday shoppers make a beeline for the electronics and toys, he said, but this year in addition to the surge in big-screen LCD TVs, iPads, iPods and Xboxes “we saw a nice pattern of shopping in the apparel and home departments.” Children’s pajamas, blankets, sheet sets, pillows and scarves all did particularly well.

The official sales numbers will not be reported for a few days, but analysts are expecting a strong sales day, with results comparable with last year’s gain of about 3 percent, according to MasterCard Advisors SpendingPulse, which is a metric for total American retail sales across all payment forms, including cash and check. The earlier hours from a few select chains seem unlikely to increase the size of the spending pie, but they may reapportion it.

“Black Friday has always been and always will be about being first: first to open, first to price, first to offer that special item,” said Michael Brown, a partner in the retail practice of A. T. Kearney, a global management consulting firm.

He said the race to open earlier and earlier would probably continue in coming years, although there was some question about how early was too early. Some Midtown Manhattan stores that were open at midday on Thursday did not seem to get blockbuster traffic, at least compared with the postdinner doorbusters.

In addition to longer hours, stores also experimented with ways to slow the creep of online competitors onto their turf and prevent consumers from using brick-and-mortar locations as showrooms for the goods they planned to purchase online.

Best Buy, Target, Fry’s Electronics and Staples all agreed to match prices with at least some online competitors. Physical stores may also benefit from decisions by some states to force online retailers to pay sales taxes. That is chipping away at the pricing edge of some major companies like Amazon.com, according to Nelson Granados, an assistant professor at the Graziadio School of Business and Management at Pepperdine University.

Analysts and investors pay a lot of attention to figures and anecdotes from the first shopping day of the holiday season, hoping that they will provide some insight into the consumer psyche and, by extension, the overall economy. Consumer spending, after all, represents about 70 percent of total economic output, and Black Friday is the most hyped shopping day of the year.

But it is not clear how much Black Friday activity actually reveals about the underlying health of the economy, or even about how much consumers are going to spend in the subsequent weeks.

“History suggests that strong sales on Black Friday tend to be followed by weak sales over the rest of the holidays and that weak sales on Black Friday tend to be followed by strong sales later on,” Paul Dales, senior United States economist for Capital Economics, wrote in a note to clients. He added that the overall relationship between sales during Thanksgiving week and sales over the entire holiday season was weak.

“This would make sense if people have a fixed amount of cash that they allocate to either Black Friday or the rest of the holidays,” he said. “Good Black Friday sales may then just mean that households have brought forward some of their holiday spending.”

Vendors in the Northeast had the early part of their holiday shopping season clipped by Hurricane Sandy, and so are trying to reel in as much spending as they can in the coming weeks.

“The good news is there’s more days this year between Thanksgiving and Christmas than there usually is,” said Terry Lundgren, the chief executive of Macy’s, which closed over 200 stores for the first three days of the month because of the storm. He said the company would be staggering its discount deals more evenly throughout the coming weeks, rather than waiting until the week before Christmas, to give shoppers reasons to come more regularly.

There is also one more full weekend between the holidays this year than there was last year, which analysts say could also increase spending.

“There are more opportunities to go out there and shop, and although that won’t impact what people are planning to buy, they will probably end up picking up more impulse items like jewelry or apparel for themselves,” Mr. Brown said.

While lines snaked around cash registers across the country, consumers were not uniformly optimistic. In areas where consumer confidence is low, shoppers stressed that they had participated in the Black Friday frenzy precisely because they needed to save as much money as they could, not because they were eager to spend.

Laura and Dan Schimpf stood in line at a Best Buy in Columbus, Ohio, at 2 o’clock in the morning Friday and listed the compromises that had brought them there. There were small ones, like avoiding all restaurants and movie theaters for the last six months to save money for holiday shopping. And there were larger ones, like driving two cars with a combined 392,000 miles on the odometers, and having just one son when they had always dreamed of two.

Let other people talk of recovery and brighter futures. Despite their steady paychecks, Mr. and Mrs. Schimpf see uncertain times behind and ahead.

“I feel like we’re doing a little better, but I don’t put a lot of weight on that because it all might be smoke and mirrors,” said Mrs. Schimpf, 32, who works for Ohio’s state government. “We have to watch out for the next disaster.”

Reporting was contributed by Christina Capecchi from Eagan, Minn.;

Christopher Maag from Columbus, Ohio; Cindy Wolff from Memphis;

and Rebecca Fairley Raney from Upland, Calif.

    Rising Consumer Optimism Fuels an Annual Spree, NYT, 23.11.2012,
    http://www.nytimes.com/2012/11/24/business/rising-consumer-optimism-fuels-an-annual-spree.html

To Reduce Inequality, Tax Wealth, Not Income

November 18, 2012
The New York Times
By DANIEL ALTMAN

WHETHER you’re in the 99 percent, the 47 percent or the 1 percent, inequality in America may threaten your future. Often decried for moral or social reasons, inequality imperils the economy, too; the International Monetary Fund recently warned that high income inequality could damage a country’s long-term growth. But the real menace for our long-term prosperity is not income inequality — it’s wealth inequality, which distorts access to economic opportunities.

Wealth inequality has worsened for two decades and is now at an extreme level. Replacing the income, estate and gift taxes with a progressive wealth tax would do much more to reduce it than any other tax plan being considered in Washington.

When economists try to measure inequality, they typically focus on income, because the data are most readily accessible. But income is not always a good gauge of economic power. Consider a group of people who all have high incomes but differ widely in their wealth. Who’s going to get into the country club? Who’s going to have the money to finance a new venture? Moreover, income data may not reveal the true economic power of people who are retired, or who receive their pay in securities like stocks and options or use complex strategies to avoid taxes.

Trends in the distribution of wealth can look very different from trends in incomes, because wealth is a measure of accumulated assets, not a flow over time. High earners add much more to their wealth every year than low earners. Over time, wealth inequality rises even as income inequality stays the same, and wealth inequality eventually becomes much more severe.

This is exactly what happened in the United States. A common statistical measure of inequality is the Gini coefficient, a number between 0 and 100 that rises with greater disparities. From the late 1970s through the early 1990s, the Census Bureau recorded Gini coefficients for income in the low 40s. Yet by 1992, the Gini coefficient for wealth had risen into the mid-70s, according to data from the Federal Reserve.

Since then, it has risen steadily, to about 80 as of 2010. In 1992, the top tenth of the population controlled 20 times the wealth controlled by the bottom half. By 2010, it was 65 times. Our graduated income-tax system redistributes a small amount of money every year but does little to slow the polarization of wealth.

These are stunning changes. The global financial crisis did make a dent in the assets of the wealthiest American families, but its effects for the bottom half were utterly destructive; the number of owner-occupied homes has fallen by more than a million since 2007. People in different socioeconomic strata are living ever more different lives, with dangerous results for society: erosion of empathy, widening of rifts and undermining of meritocracy.

American household wealth totaled more than $58 trillion in 2010. A flat wealth tax of just 1.5 percent on financial assets and other wealth like housing, cars and business ownership would have been more than enough to replace all the revenue of the income, estate and gift taxes, which amounted to about $833 billion after refunds. Brackets of, say, zero percent up to $500,000 in wealth, 1 percent for wealth between $500,000 and $1 million, and 2 percent for wealth above $1 million would probably have done the trick as well.

These tax rates would garner a small portion of the extra wealth America’s richest families could expect to accrue simply by investing what they already had. The rates would also be enough to slow — if not reverse — the increase in inequality. To see how the wealth tax would work, consider a family with $500,000 in wealth and $200,000 in annual income. Right now, they might pay $50,000 in federal income tax. With the wealth tax brackets described above, they would pay nothing. On the other hand, a family with $4 million in wealth and $200,000 in annual income would owe $65,000. Most families that depend on their wealth for their income would pay more, and most that depend on their earnings would pay less.

In fact, the majority of American families would receive an enormous tax cut. Some would owe only payroll taxes (for Social Security and Medicare) and state and local taxes every year, and others would pay less in wealth tax than they did in income tax. Taxes on earnings, capital gains, dividends and interest, all of which may distort decisions about working and investing, would disappear.

For most families, whose wealth may never reach $500,000, all disincentives to save would vanish. And families trying to accumulate a fixed amount of wealth for retirement or their children’s college fund could devote less of their incomes to saving, since in most cases the wealth tax would take a smaller bite of their interest, dividends and capital gains than the current income tax. Though the remaining minority of families subject to the wealth tax might end up saving less and spending more, this shift would also reduce inequality; the dollars they spent would be more likely to end up in the pockets of people with less wealth.

Scholars have recommended a wealth tax in the past, but not as a replacement for the income, estate and gift taxes. Indeed, phasing in the new tax would present some complications. People who already paid income tax on the money they used to buy their assets would not want to pay a new tax on them. Yet a reduced wealth tax — perhaps 1 percent in the top bracket to start — would collect less from many of them than the current income tax.

Naturally a cottage industry would spring up to help wealthy people lessen their exposure to the new tax. The federal government would need new rules for the reporting and valuation of assets, as well as new auditing processes. Levying the tax at the family level — perhaps parents and children up to a fixed age — might make it harder for the wealthy to reduce their tax liability by allocating their assets among multiple family members to reduce the wealth-tax liability.

By contrast, people with wealth tied up in property and small businesses might have real trouble coming up with enough cash to pay the tax. This is a problem that can be solved, or at least mitigated, by making payment periods flexible over several years. In addition, new financial products could offer cash for tax payments, either as loans or in return for partial ownership of assets — much like home equity loans do today.

States with income taxes would have to decide whether to switch to the wealth tax. Because some states collect tax from commuters who work within their borders but live elsewhere, an income tax might still be attractive. Yet rather than having two systems, it might be better to apportion state wealth taxes between the states where families live and work.

The benefits of the wealth tax would make these adjustments worthwhile. The economy would allocate opportunities more equitably and efficiently, and the tax system would become simpler. It would help working class people to realize their potential and ensure that society did not become unduly polarized. Of course, we can do much more to improve access to opportunity for all Americans. But a wealth tax would be a good place to start.

Daniel Altman, an adjunct associate professor of economics at the New York University Stern School of Business and a former member of the New York Times editorial board, is writing a book about what would happen if the United States defaulted on its debts.

    To Reduce Inequality, Tax Wealth, Not Income, NYT, 18.11.2012,
    http://www.nytimes.com/2012/11/19/opinion/to-reduce-inequality-tax-wealth-not-income.html

Life, Death and Deficits

November 15, 2012
The New York Times
By PAUL KRUGMAN

America’s political landscape is infested with many zombie ideas — beliefs about policy that have been repeatedly refuted with evidence and analysis but refuse to die. The most prominent zombie is the insistence that low taxes on rich people are the key to prosperity. But there are others.

And right now the most dangerous zombie is probably the claim that rising life expectancy justifies a rise in both the Social Security retirement age and the age of eligibility for Medicare. Even some Democrats — including, according to reports, the president — have seemed susceptible to this argument. But it’s a cruel, foolish idea — cruel in the case of Social Security, foolish in the case of Medicare — and we shouldn’t let it eat our brains.

First of all, you need to understand that while life expectancy at birth has gone up a lot, that’s not relevant to this issue; what matters is life expectancy for those at or near retirement age. When, to take one example, Alan Simpson — the co-chairman of President Obama’s deficit commission — declared that Social Security was “never intended as a retirement program” because life expectancy when it was founded was only 63, he was displaying his ignorance. Even in 1940, Americans who made it to age 65 generally had many years left.

Now, life expectancy at age 65 has risen, too. But the rise has been very uneven since the 1970s, with only the relatively affluent and well-educated seeing large gains. Bear in mind, too, that the full retirement age has already gone up to 66 and is scheduled to rise to 67 under current law.

This means that any further rise in the retirement age would be a harsh blow to Americans in the bottom half of the income distribution, who aren’t living much longer, and who, in many cases, have jobs requiring physical effort that’s difficult even for healthy seniors. And these are precisely the people who depend most on Social Security.

So any rise in the Social Security retirement age would, as I said, be cruel, hurting the most vulnerable Americans. And this cruelty would be gratuitous: While the United States does have a long-run budget problem, Social Security is not a major factor in that problem.

Medicare, on the other hand, is a big budget problem. But raising the eligibility age, which means forcing seniors to seek private insurance, is no way to deal with that problem.

It’s true that thanks to Obamacare, seniors should actually be able to get insurance even without Medicare. (Although, what happens if a number of states block the expansion of Medicaid that’s a crucial piece of the program?) But let’s be clear: Government insurance via Medicare is better and more cost-effective than private insurance.

You might ask why, in that case, health reform didn’t just extend Medicare to everyone, as opposed to setting up a system that continues to rely on private insurers. The answer, of course, is political realism. Given the power of the insurance industry, the Obama administration had to keep that industry in the loop. But the fact that Medicare for all may have been politically out of reach is no reason to push millions of Americans out of a good system into a worse one.

What would happen if we raised the Medicare eligibility age? The federal government would save only a small amount of money, because younger seniors are relatively healthy and hence low-cost. Meanwhile, however, those seniors would face sharply higher out-of-pocket costs. How could this trade-off be considered good policy?

The bottom line is that raising the age of eligibility for either Social Security benefits or Medicare would be destructive, making Americans’ lives worse without contributing in any significant way to deficit reduction. Democrats, in particular, who even consider either alternative need to ask themselves what on earth they think they’re doing.

But what, ask the deficit scolds, do people like me propose doing about rising spending? The answer is to do what every other advanced country does, and make a serious effort to rein in health care costs. Give Medicare the ability to bargain over drug prices. Let the Independent Payment Advisory Board, created as part of Obamacare to help Medicare control costs, do its job instead of crying “death panels.” (And isn’t it odd that the same people who demagogue attempts to help Medicare save money are eager to throw millions of people out of the program altogether?) We know that we have a health care system with skewed incentives and bloated costs, so why don’t we try to fix it?

What we know for sure is that there is no good case for denying older Americans access to the programs they count on. This should be a red line in any budget negotiations, and we can only hope that Mr. Obama doesn’t betray his supporters by crossing it.

    Life, Death and Deficits, NYT, 15.11.2012,
    http://www.nytimes.com/2012/11/16/opinion/life-death-and-deficits.html

Money-Market Pioneer and Son Cleared of Fraud

November 12, 2012
The New York Times
By NATHANIEL POPPER and JESSICA SILVER-GREENBERG

Regulators failed on Monday to win a clear victory over the father-and-son team whose mutual fund collapsed in one of the central blowups of the 2008 financial crisis. It was the latest setback in efforts by regulators to go after individuals responsible for risk-taking that nearly brought down the American economy.

A federal jury in Manhattan rejected the Securities and Exchange Commission’s claim that Bruce Bent, the man credited with inventing a popular investment vehicle known as a money market fund, defrauded investors when his flagship fund failed in September 2008, sowing panic among ordinary investors.

The collapse was a significant turning point because the fund, the Reserve Primary Fund, was pitched to investors as a nearly risk-free alternative to a bank account. The S.E.C.’s lawyers accused Mr. Bent and his son, Bruce Bent II, of falsely assuring investors that the fund could be rescued as it foundered under the weight of hundreds of millions of dollars of bonds issued by Lehman Brothers, which went bankrupt on Sept. 15, 2008. The Reserve Primary Fund ceased operation two days later.

The S.E.C. did convince the jury that the younger Mr. Bent’s statements were negligent, and that the parent company had made fraudulent statements. But the decision clearing the Bents of fraud accusations underscored the difficulty prosecutors and regulators have had in holding financiers accountable for precipitating the financial crisis.

“There is no other way to read this than as a significant loss for the S.E.C.,” said Thomas O. Gorman, a partner at Dorsey & Whitney and formerly the senior counsel for the S.E.C.’s Division of Enforcement.

Regulators are continuing efforts to shore up the money market fund industry against the problems revealed by the collapse of the Reserve Primary Fund. A council of top regulators was set to meet on Tuesday to determine how to impose new rules on the industry after a few S.E.C. commissioners scuttled a previous push to improve the safety and transparency of the funds.

While the S.E.C. imposed some new rules on the industry soon after the crisis, Treasury Secretary Timothy F. Geithner and the Federal Reserve chairman, Ben S. Bernanke, have said that money market funds are still vulnerable to the type of runs that nearly brought the industry down in 2008.

The elder Mr. Bent is widely hailed as the creator of the world’s first money market mutual funds, which since the 1970s have been marketed to small investors as a low-risk investment with an unchanging share value of $1 and the potential to earn a more attractive yield than a bank savings account.

“He did for money market funds what mutual funds did for small investors, bringing Wall Street to Main Street by allowing individuals to participate in what had been the playground of institutions,” said Peter G. Crane, president of Crane Data, which tracks money market mutual funds.

Before the financial crisis, the flagship fund run by the Reserve Management Company loaded up on $785 million of debt issued by Lehman Brothers. The debt, which made up about 1 percent of the fund’s assets, was suddenly worthless after Lehman Brothers declared bankruptcy, and led to the fund’s “breaking the buck,” which is when the value of the assets falls below $1 a share.

During the trial, lawyers for the S.E.C. faulted Mr. Bent for not describing the true extent of the fund’s perilous state during an emergency meeting called on the day that Lehman filed for bankruptcy protection.

In closing arguments, a lawyer for the S.E.C. claimed that the Bents tried to soothe investors’ fears while knowing that they would be unable to avert disaster for the fund.

Hurricane Sandy delayed the jury’s verdict when the courthouse in Manhattan was shuttered for a week.

After the jury announced its verdict, a spokesman for the Bents, Mark Arena, said that the men were “gratified that the jury found” that the men “committed no fraud.” Mr. Arena said that the Bents planned to appeal the jury’s findings that the younger Mr. Bent was liable for negligence.

The Bents have spent their time since 2008 winding down the management company that they privately held. While the funds no longer exist, some assets remain that the court could seek to pay any damages. Mr. Crane said when he last visited Mr. Bent in his nearly empty office near Times Square about nine months ago, he expected him to be withering under the S.E.C.’s case. “But he was unbowed,” Mr. Crane recalled.

Robert S. Khuzami, the S.E.C.’s director of enforcement, emphasized the points on which the commission’s case was affirmed.

“Today’s verdict of liability sends the message that fund executives cannot withhold from investors and trustees key information about their fund’s vulnerability,” he said. “This case, along with our actions against more than 100 other entities and individuals, demonstrates our continuing commitment to pursuing cases arising out of the financial crisis.”

Last month, federal prosecutors brought a case against Bank of America, accusing the bank of scheming, through its Countrywide Financial unit, to defraud the government by producing loans at a manic pace without instituting adequate controls. Critics of the S.E.C. have complained that even in a case where federal prosecutors are charging “brazen” bad acts, no individuals were charged.

Just how difficult it is to prosecute executives was illuminated in August, when a federal grand jury in New York acquitted a manager at Citigroup who was accused of selling a complex financial security involving residential mortgages. The manager, according to the charges, failed to disclose that Citigroup had made wagers against the investment or to fairly explain to investors how Citigroup had selected the assets in the portfolio.

Despite the headline-grabbing charges, the jury exonerated the manager and found that the bank had already provided details of the investment’s risks. In an unusual move, however, the jury included a message to the S.E.C. with its verdict urging the agency not to lose steam in pursuing charges against individuals.

“This verdict should not deter the S.E.C. from investigating the financial industry, to review current regulations and modify existing regulations as necessary,” the jury wrote.

Julie Creswell contributed reporting.

    Money-Market Pioneer and Son Cleared of Fraud, NYT, 12.11.2012,
    http://www.nytimes.com/2012/11/13/business/bruce-bent-sr-and-son-cleared-of-fraud-charges.html

Child’s Education, but Parents’ Crushing Loans

November 11, 2012
The New York Times
By TAMAR LEWIN

When Michele Fitzgerald and her daughter, Jenni, go out for dinner, Jenni pays. When they get haircuts, Jenni pays. When they buy groceries, Jenni pays.

It has been six years since Ms. Fitzgerald — broke, unemployed and in default on the $18,000 in loans she took out for Jenni’s college education — became a boomerang mom, moving into her daughter’s townhouse apartment in Hingham, Mass.

Jenni pays the rent.

For Jenni, 35, the student loans and the education they bought have worked out: she has a good job in public relations and is paying down the loans in her name. But for her mother, 60, the parental debt has been disastrous.

“It’s not easy,” Ms. Fitzgerald said. “Jenni feels the guilt and I feel the burden.”

There are record numbers of student borrowers in financial distress, according to federal data. But millions of parents who have taken out loans to pay for their children’s college education make up a less visible generation in debt. For the most part, these parents did well enough through midlife to take on sizable loans, but some have since fallen on tough times because of the recession, health problems, job loss or lives that took a sudden hard turn.

And unlike the angry students who have recently taken to the streets to protest their indebtedness, most of these parents are too ashamed to draw attention to themselves.

“You don’t want your children, much less your neighbors and friends, knowing that even though you’re living in a nice house, and you’ve been able to hold onto your job, your retirement money’s gone, you can’t pay your debts,” said a woman in Connecticut who took out $57,000 in federal loans. Between tough times at work and a divorce, she is now teetering on default.

In the first three months of this year, the number of borrowers of student loans age 60 and older was 2.2 million, a figure that has tripled since 2005. That makes them the fastest-growing age group for college debt. All told, those borrowers owed $43 billion, up from $8 billion seven years ago, according to the Federal Reserve Bank of New York.

Almost 10 percent of the borrowers over 60 were at least 90 days delinquent on their payments during the first quarter of 2012, compared with 6 percent in 2005. And more and more of those with unpaid federal student debt are losing a portion of their Social Security benefits to the government — nearly 119,000 through September, compared with 60,000 for all of 2007 and 23,996 in 2001, according to the Treasury Department’s Financial Management Service.

The federal government does not track how many of these older borrowers were taking out loans for their own education rather than for that of their children. But financial analysts say that loans for children are the likely source of almost all the debt. Even adjusted for inflation, so-called Parent PLUS loans — one piece of the pie for parents of all ages — have more than doubled to $10.4 billion since 2000. Colleges often encourage parents to get Parent PLUS loans, to make it possible for their children to enroll. But many borrow more than they can afford to pay back — and discover, too late, that the flexibility of income-based repayment is available only to student borrowers.

Many families with good credit turn to private student loans, with parents co-signing for their children. But those private loans also offer little flexibility in repayment.

The consequences of such debt can be dire because borrowers over 60 have less time — and fewer opportunities — than younger borrowers to get their financial lives back on track. Some, like Ms. Fitzgerald, are forced to move in with their children. Others face an unexpectedly pinched retirement. Still others have gone into bankruptcy, after using all their assets to try to pay the student debt, which is difficult to discharge under any circumstances.

The anguish over college debt has put a severe strain on many family relationships. Parents and students alike say parental debt can be the uncomfortable, unmentionable elephant in the room. Many parents feel they have not fulfilled a basic obligation, while others quietly resent that their children’s education has landed the family in such difficult territory.

Soon after borrowing the money for Jenni’s education, Ms. Fitzgerald divorced and lost her corporate job. She worked part-time jobs and subsisted on food stamps and public assistance.

“I don’t really feel guilt, but I do know that this is all because of a loan taken out on my behalf,” said Jenni, who has a different last name and agreed to be interviewed only if it would not be disclosed. “I asked my mother to move in with me, because I couldn’t stand it that she was living in a place with no heat and a basement that kept flooding.”

The unusual arrangements, and strained family dynamics, can be awkward. Like Jenni, many with student debt problems agreed to be interviewed only on the condition that they not be identified because they did not want to expose their financial troubles.

“It makes you feel like a failure as a parent, to be unable to help your children and to have all your hard work end in a pile of debt,” said one New Jersey man, who took out a second mortgage of $280,000 to help cover his children’s college costs. “I sent my older kids to private colleges, and I was happy to do it because it’s how you help them get started off. But I can’t do it for the youngest, and I haven’t even been able to start the conversation with him.”

Ms. Fitzgerald said she had little hope of a comfortable old age. She has no health insurance. She knows that the odds of finding a good job in her 60s, with no college degree, are slim — and she knows that the government will take part of her Social Security, in payment of her debt, which she said had now ballooned to about $40,000 because of penalties for nonpayment. At one point, she said, the Internal Revenue Service seized a $2.43 tax refund.

Jenni has volunteered to take on her mother’s debt, but Ms. Fitzgerald has refused, saying it is her legal and moral obligation, and anyway, Jenni has her own loans to pay off — about $220 a month — and not much discretionary income. The very suggestion that Jenni might take on her debt annoys her.

“Don’t you think she is doing enough for me now by supporting me a hundred percent, financially, by my living with her and her extending her resources?” Ms. Fitzgerald asked. “The whole idea was for her to get a college education so she can succeed in life; it is hard enough just to do that without being burdened with her mother’s welfare, like I was her child.”

Jenni occasionally jumped in with explanations or clarifications, as she and her mother sat in the living room discussing their situation. When Ms. Fitzgerald talked of being depressed last year, so overwhelmed by the cartons of documents and dunning letters that she threw them all out, Jenni said gently, in an almost maternal tone, “But you’re doing much better now.”

Many young people live with deep guilt that their education has pushed their parents into debt, and perhaps ruined their credit rating. Even those who do not know exactly how much money their parents have, or how much they owe, worry about how their debt will affect their parents’ lives.

One 27-year-old man from East Texas, who earned a bachelor’s degree in California, is now nearing graduation with another bachelor’s degree, in Russian literature, from Columbia University. He said he did not know how much debt he and his mother had accumulated in the course of his educational wanderings, sounding almost paralyzed by the prospect of talking to her about it.

“I should know how much I owe, and it’s sad that I don’t,” he said. “I feel like I’m standing on the train track and I can hear the rumble of the train coming, and I don’t know how hard the train will slam into me.”

In one extreme case, student debt, and the constant creditor calls, were mentioned in a suicide note by the stepfather of a young law school graduate. The guilt has been crushing for the graduate.

Teresa Tosh, 56, a mother of five who works for the county government in Tulsa, Okla., had co-signed large graduate and law school loans for one of her sons, Jacob, who has a different last name. In total, he owes more than $200,000 on his federal loans, in addition to more than $100,000 on the private student loans his mother co-signed.

But like many recent law graduates, Jacob had trouble finding a job, and when he finally found one, an hour from home, the salary was nowhere near enough to cover loan payments. Creditor calls to both Jacob and to his mother became more and more frequent.

Jacob talked to the collectors when they called, and tried to work out payments as best he could. But shortly after one call ended, he and his mother said, the phone would ring again: another collection agent, in another part of the country. Ms. Tosh’s husband, George, a Vietnam veteran who worked from home, concluded that Jacob was lying about trying to work things out, deceiving Ms. Tosh, ruining her credit and leaving her holding the bag.

The household tension grew intense, and in July 2010, Mr. Tosh shot himself, leaving a note saying that he could no longer stand the incessant calls from Sallie Mae, one of the lenders.

“Jake has destroyed us. You can’t tell me that sally mae is getting paid when they keep calling all day, every day,” he said in a note to his wife. “I can’t even answer the phone in my own home no more. I can’t live like this no more.”

Ms. Tosh said she was “not naïve enough to think the Sallie Mae calls were the only reason” that her husband killed himself. “But they were adding a lot of stress,” she said. “They’d never stop calling.”

A few months after the suicide, Jacob moved to Dallas and got a document-review job. The pay is not enough to meet his loan payments — or even full interest — but his creditors agreed to let him make partial-interest-only payments for two years. While his balance continues to grow, that arrangement protected his mother from payment demands for two years.

“It’s made my life so much more stressful and guilt-filled because I know that it affects her,” Jacob said. “I barely have enough money to pay the bills, but if I miss by a day, they call her.”

Jacob pays about $1,200 a month toward the debt, more than he pays for rent. He and his mother are carefully rebuilding their relationship, after a period of great tension. Ms. Tosh traveled to Dallas for his birthday.

“She’s been really good about it,” Jacob said. “It’s always there, but she doesn’t bring it up.”

    Child’s Education, but Parents’ Crushing Loans, NYT, 11.11.2012,
    http://www.nytimes.com/2012/11/12/business/some-parents-shouldering-student-loans-fall-on-tough-times.html

Fiscal Impasse and Europe Woes Weigh on Markets

November 7, 2012
The New York Times
By NELSON D. SCHWARTZ

Business leaders and investors on Wall Street reacted nervously to President Obama’s re-election Wednesday, as the focus shifted quickly from electoral politics to the looming fiscal uncertainty in Washington. A gloomy economic outlook in Europe also prompted selling in markets worldwide.

Stocks were sharply lower in afternoon trading in New York, with both the Standard & Poor’s 500-stock index and the Dow Jones industrial average down 2.2 percent, as European shares sank and Asian stocks were mixed. While many executives on Wall Street and in other industries favored Mitt Romney, many had already factored in the likelihood of Mr. Obama winning a second term.

Still, continued divided government in Washington and little prospect for compromise unnerved traders.

“The bottom line is that this looks like a status quo election,” said Dean Maki, chief United States economist at Barclays. “The problem with that is that it doesn’t resolve some of the main sources of uncertainty that are hanging over the economy.”

Companies in some sectors, like hospitals and technology, could see a short-term pop, said Tobias Levkovich, chief United States equity strategist with Citi. Other areas, like financial services as well as coal and mining, could be hurt as investors contemplate a tougher regulatory environment.

Shares of Alpha Natural Resources, a coal giant, were down 11.8 percent, while Arch Coal was off 11 percent. But HCA Holdings, a hospital operator, was up 8 percent, to $33.39 a share. As a result of Mr. Obama’s victory, Goldman Sachs said it upgraded its rating on HCA to buy from neutral, and raised its price target to $39 from $31. It also raised price targets for Tenet Healthcare and Community Health Systems, although both are still rated neutral.

Goldman downgraded shares of Humana, a leading managed care company, to sell, and its shares fell 9.9 percent. Goldman warned that Humana and other managed care providers could be hurt as health care reform moves forward, especially new rules for health insurers that become effective in 2014.

Mr. Levkovich predicted that the market would remain volatile between now and mid-January. If Congress and the president cannot come up with a plan to cut the deficit, hundreds of billions in Bush-era tax cuts are set to expire at the beginning of 2013 while automatic spending cuts will sharply cut the defense budget and other programs.

Known as the fiscal cliff, this simultaneous combination of dramatic reductions in government spending and tax increases could push the economy into recession in 2013, economists fear.

But it was not just the election results driving shares lower — there was more gloomy economic news out of Europe.

The European Union will experience only a very weak economic recovery during 2013 while unemployment will remain at “very high” levels, according to a set of forecasts issued Wednesday by the European Commission.

This year, gross domestic product will shrink by 0.3 percent for the 27 members of the union as a whole and by 0.4 percent for the 17 European Union countries that use the euro, the commission predicted. Growth in 2013 will be a meager 0.4 percent across the union and only 0.1 percent in the euro area, it said.

Not only is that level of growth far slower than even the tepid pace of the recovery in the United States, it also makes it more difficult for debt-burdened European economies to get their financial house in order. As markets neared the close in Europe, the Euro Stoxx 50 index, a barometer of euro zone blue chips, fell 2.2 percent, while the FTSE 100 index in London was 1.5 percent lower.

The S.&P./ASX 200 in Australia closed up 0.7 percent, as did the Hang Seng Index in Hong Kong. The Nikkei 225 stock average in Japan ended trading little changed.

“There’s a huge question mark hanging over what happens in the next few weeks,” said Aric Newhouse, senior vice-president of policy and government relations at the National Association of Manufacturers. “The fiscal cliff is the 800-pound gorilla out there.”

“We can’t wait,” he said. “We think the idea of going over the cliff has to be taken off the table. We’ve got to get to the middle ground.”

For all the anticipation, some observers said the election still left plenty of unanswered questions.

“While we have clarity on the players now, we don’t have any more clarity on what will happen in terms of the fiscal cliff,” Mr. Maki said. “We still have a divided government and they haven’t been able to agree on what to do.”

If the full package of tax increases and spending cuts go into effect, that would equal a $650 billion blow to the economy, Mr. Maki said, equivalent to 4 percent of the gross domestic product.

Mr. Maki envisions a partial compromise, with $200 billion in tax increases and spending cuts. Partly because of that, he estimates, the annual rate of economic growth will dip to 1.5 percent in the first quarter of 2013 from 2.5 percent in the fourth quarter. He predicted that if the full fiscal cliff were to hit, the economy would contract in the first half of 2013.

James Kanter contributed reporting.

    Fiscal Impasse and Europe Woes Weigh on Markets, NYT, 7.11.2012,
    http://www.nytimes.com/2012/11/08/business/fiscal-impasse-leads-to-caution-after-election.html

Increase Seen in U.S. Suicide Rate Since Recession

November 4, 2012
The New York Times
By BENEDICT CAREY

The rate of suicide in the United States rose sharply during the first few years since the start of the recession, a new analysis has found.

In the report, which appeared Sunday on the Web site of The Lancet, a medical journal, researchers found that the rate between 2008 and 2010 increased four times faster than it did in the eight years before the recession. The rate had been increasing by an average of 0.12 deaths per 100,000 people from 1999 through 2007. In 2008, the rate began increasing by an average of 0.51 deaths per 100,000 people a year. Without the increase in the rate, the total deaths from suicide each year in the United States would have been lower by about 1,500, the study said.

The finding was not unexpected. Suicide rates often spike during economic downturns, and recent studies of rates in Greece, Spain and Italy have found similar trends. The new study is the first to analyze the rate of change in the United States state by state, using suicide and unemployment data through 2010.

“The magnitude of these effects is slightly larger than for those previously estimated in the United States,” the authors wrote. That might mean that this economic downturn has been harder on mental health than previous ones, the authors concluded.

The research team linked the suicide rate to unemployment, using numbers from the Centers for Disease Control and Prevention and from the Bureau of Labor Statistics.

Every rise of 1 percent in unemployment was accompanied by an increase in the suicide rate of roughly 1 percent, it found. A similar correlation has been found in some European countries since the recession.

The analysis found that the link between unemployment and suicide was about the same in all regions of the country.

The study was conducted by Aaron Reeves of the University of Cambridge and Sanjay Basu of Stanford, and included researchers from the University of Bristol, the London School of Hygiene and Tropical Medicine, and the University of Hong Kong.

    Increase Seen in U.S. Suicide Rate Since Recession, NYT, 4.11.2012,
    http://www.nytimes.com/2012/11/05/health/us-suicide-rate-rose-during-recession-study-finds.html

Innovative Immigrants

November 1, 2012
The New York Times
By THOMAS K. McCRAW

Boston

SOME 70 million immigrants have come to America since the first colonists arrived. The role their labor has played in economic development is widely understood. Much less familiar is the extent to which their remarkable innovations have driven American prosperity.

Indeed, while both Barack Obama and Mitt Romney have lauded entrepreneurship, innovation and “job creation,” neither candidate has made comprehensive immigration reform an issue, despite immigrants’ crucial role in those fields. Yet understanding how immigrants have fueled innovation through history is critical to making sure they continue to drive prosperity in the future.

At the country’s beginning, the three most important architects of its financial system were immigrants: Alexander Hamilton, from St. Croix, then part of the Danish West Indies; Robert Morris, born in Liverpool, England; and Albert Gallatin of Geneva. Morris was superintendent of finance during the Revolutionary War, using every resource at his command to support the army in the field. Hamilton, as the first secretary of the Treasury, rescued the country from bankruptcy and designed its basic financial system. Gallatin paid down much of the national debt, engineered the financing of the Louisiana Purchase and remains the longest-serving Treasury secretary ever.

Immigrants’ financial innovations continued through the 19th century. In 1808 Alexander Brown, from Ireland, founded the nation’s first investment bank, and his immigrant sons set up Brown Brothers. The Lehman brothers, from Germany, began as dry-goods merchants and cotton brokers in Alabama, then moved to New York just before the Civil War and eventually founded a bank. Many other immigrants, including Marcus Goldman of Goldman Sachs, followed similar paths, starting very small, traveling to new cities and establishing banks. Meanwhile, “Yankee” firms like Kidder, Peabody and Drexel, Morgan — whose partners were native-born — remained less mobile, tied by family and high society to Boston and New York.

Immigrant innovators were pioneers in many other industries after the Civil War. Three examples were Andrew Carnegie (Scotland, steel), Joseph Pulitzer (Hungary, newspapers) and David Sarnoff (Russia, electronics). Each came to America young, poor and full of energy.

Carnegie’s mother brought the family to Pittsburgh in 1848, when Andrew was 12. He became a bobbin-boy in a textile mill, a telegram messenger, a telegraph-key operator, a low-level manager at the Pennsylvania Railroad, a division superintendent for the same railroad and a bond salesman for the railroad in Europe.

Recognizing the limitless market for the rails that carried trains, Carnegie jumped to steel. His most important innovation was “hard driving” blast furnaces, wearing them out quickly. This violated the accepted practice of “coddling” furnaces, but he calculated that his vastly increased output cut the price of steel far more than replacing the furnaces cost his company. In turn, an immense quantity of cheap steel found its way into lucrative new uses: structural steel for skyscrapers, sheet steel for automobiles.

Pulitzer was the home-tutored son of a prosperous Hungarian family that lost its fortune. He came to the United States in 1864 at age 17, recruited by a Massachusetts Civil War regiment. Penniless after the war ended, he went to St. Louis, a center for German immigrants, whose language he spoke fluently.

He worked as a waiter, a railroad clerk, a lawyer and a reporter for a local German newspaper, part of which he eventually purchased. In 1879, he acquired two English-language papers and merged them into The St. Louis Post-Dispatch.

In 1883, he moved to New York, where he bought The New York World and began a fierce competition with other New York papers, mainly the Sun and, later, William Randolph Hearst’s New York Journal. The New York World was pro-labor, pro-immigration and, remarkably, both serious and sensationalist. It achieved a huge circulation.

Sarnoff was just 9 years old when he arrived from Russia in 1901. He earned money selling Yiddish newspapers on the street and singing at a synagogue, and then worked as an office clerk, a messenger and, like Carnegie, a telegraph operator. From there he became part of the fledgling radio firm RCA and rose rapidly within its ranks.

Sarnoff was among the first to see radio’s potential as “point-to-mass” entertainment, i.e., broadcasting. He devoted a huge percentage of profits to research and development, and won an epic battle with CBS over industry standards for color TV. For decades, RCA and electronics were practically synonymous.

As these men show, one of the key traits of immigrant innovators is geographic mobility, both from the home country and within the United States. Consider the striking roster of 20th-century immigrants who led the development of fields like movies and information technology: the Hollywood studios MGM, Warner Brothers, United Artists, Paramount and Universal; the Silicon Valley companies Intel, eBay, Google, Yahoo and Sun Microsystems.

The economist Joseph Schumpeter — yet another immigrant, and the most perceptive early analyst of innovation — considered it to be the fundamental component of entrepreneurship: “The typical entrepreneur is more self-centered than other types, because he relies less than they do on tradition and connection” and because his efforts consist “precisely in breaking up old, and creating new, tradition.” For that reason, innovators always encounter resistance from people whose economic and social interests are threatened by new products and methods.

Compared with the native-born, who have extended families and lifelong social and commercial relationships, immigrants without such ties — without businesses to inherit or family property to protect — are in some ways better prepared to play the innovator’s role. A hundred academic monographs could not prove that immigrants are more innovative than native-born Americans, because each spurs the other on. Innovations by the blended population were, and still are, integral to the economic growth of the United States.

But our overly complex immigration law hampers even the most obvious innovators’ efforts to become citizens. It endangers our tradition of entrepreneurship, and it must be repaired — soon.

Thomas K. McCraw is a professor emeritus at Harvard Business School

and the author, most recently, of “The Founders and Finance:

How Hamilton, Gallatin, and Other Immigrants Forged a New Economy.”

    Innovative Immigrants, NYT, 1.11.2012,
    http://www.nytimes.com/2012/11/02/opinion/immigrants-as-entrepreneurs.html

The Junk Is Back in Junk Bonds

November 1, 2012
The New York Times


Junk bonds — debt issued by companies with low credit ratings — are growing junkier by the day, with ever weaker companies issuing bonds for ever riskier purposes. The bonds’ falling quality and rising risk, described recently in The Times by Nathaniel Popper, show gaps in investor protection. They also revive concerns about how private equity owners of companies that issue the bonds are using that money.

Demand for junk bonds has soared this year, as both institutional and individual investors have sought higher yields in a near-zero interest rate world. As demand has risen, ever shakier companies have been able to find buyers for their debt, leading to a decline in recent weeks in the average credit rating of junk-bond-issuing companies.

At the same time, the reason for issuing junk debt has changed for the worse. For most of this year, companies used the proceeds from junk bonds to refinance high-rate debt, a move that shores up a company’s financial health.

But, in recent weeks, more of the proceeds have gone to pay dividends to private equity owners, a move that can weaken a company by increasing its debt load without strengthening its underlying business. As critics of private equity rightly point out, the result is too often job losses and even bankruptcy, while private equity owners are vastly enriched in the process.

Mr. Popper also found that there has been a big increase in the issuance of bonds with “optional interest payment,” which allow borrowers to skip cash interest payments if the company runs into trouble. That’s a sign that the company has doubts about its ability to repay — scarily reminiscent of the reckless borrowing that characterized the run-up to the financial crisis.

Not surprisingly, institutional investors are starting to shun these junkier junk bonds. But individual investors haven’t received the message. They added some $2.1 billion in junk bonds to portfolios in the first three weeks of October, often in retirement accounts, compared with a net outflow of $256 million from institutional investors.

It’s not enough to say that investors should educate themselves about the risks. It is the Federal Reserve’s policy of low rates that is pushing investors into riskier investments, so federal regulators have a duty to ensure that investors are not caught unaware, including through rigorous enforcement of rules against reckless, deceptive or abusive offerings.

The recent developments in junk bond investing also highlight, again, the dubious practices and privileges of private equity firms. One portfolio manager who buys junk bonds told Mr. Popper that he screened offerings to avoid those that “are going for no productive purpose.” Piling ever more debt on companies with dim prospects of repayment — in order to pay dividends to the private equity owners — would certainly qualify.

No one is predicting that today’s increasingly risky junk bonds will blow up anytime soon. But risky business, unchecked, has a way of doing so eventually.

    The Junk Is Back in Junk Bonds, NYT, 1.11.2012,
    http://www.nytimes.com/2012/11/02/opinion/the-junk-is-back-in-junk-bonds.html

Little Federal Help for the Long-Term Unemployed

November 1, 2012
The New York Times
By ANNIE LOWREY and CATHERINE RAMPELL

WASHINGTON — In the economy-focused presidential campaign, the two candidates and their teams have scarcely mentioned what economists describe as not just one of the labor market’s most pressing problems, but the entire country’s: long-term unemployment.

Nearly five million Americans out of work for more than six months are left to wonder what kind of help might be coming, as the Federal Reserve, the International Monetary Fund and a bipartisan swath of policy experts implore Washington to act — both to alleviate human misery and to ensure the strength of the economy.

The pain of the long-term unemployed has persisted even as the overall jobs picture has brightened a bit and the unemployment rate has fallen to 7.8 percent. The new government report for October was due to be released Friday morning.

“The problem is incredibly urgent,” said Kevin A. Hassett, director of economic policy studies at the American Enterprise Institute and an adviser to Mitt Romney’s campaign. “Spain had a financial crisis in the late 1970s and has never seen its unemployment rate drop back to where it was before that crisis. The unemployed become discouraged, and ultimately the employment to population ratio might take a permanent hit.”

On the agenda for the next Congress and the next president is ensuring that the unusually long spells of unemployment now afflicting jobless workers remain a temporary setback of the recession.

Economists warned that long-term unemployment could be transformed in the next few years into structural unemployment, meaning that the problem is not just too few jobs and too many job seekers, but a large group of workers who no longer match employers’ needs or are no longer considered employable.

“Skills become obsolete, contacts atrophy, information atrophies, and they get stigmatized,” said Harry Holzer of Georgetown University.

That has been the experience of millions of workers like Beatrice Hogg, 55, of Sacramento, a college-educated white-collar worker who has slid from the middle class into poverty.

Her last job — doing administrative work and advising students at a community college — ended in June 2009. Her unemployment benefits ended more than a year ago. She was evicted from her apartment in December and has been staying at friends’ homes and occasionally at train stations. Despite her efforts, she has been turned down for job after job after job, and is surviving on food stamps.

“I don’t enjoy being out of work,” Ms. Hogg said in an interview. “I don’t enjoy having to ask friends to give me rides or get things for me. I want to take care of myself. I’ve been on my own since I was 18 years old. It’s hard for me. It’s demoralizing. It’s hard to ask people for things when you’ve been independent the rest of your life.”

Stronger economic growth may help to whittle the ranks of the long-term unemployed over time, experts said.

“There must have been a lot of workers badly scarred by long bouts of unemployment in the Great Depression,” said Gary Burtless of the Brookings Institution. “Even in 1939 we had unemployment somewhere around 14 percent, as we’d measure it today. A lot of people who were jobless had been jobless for a long, long time. But in the space of a couple of years those disadvantages looked like nothing given that employers had voracious appetites for workers.”

But many economists contended that policies to help the long-term unemployed are needed as well, to ensure that they have the skills necessary to compete for the jobs that the economy is adding — turning construction workers into oil-and-gas extractors and administrative assistants into home health care providers, for example.

In Washington, many politicians support measures for the long-term unemployed; few demand them.

Both Democrats and Republicans have proposed or supported revamping job-training programs, giving states more flexibility in using funds for the unemployed and providing credits to companies that hire workers who have been out of a job for more than six months, for instance.

The campaigns have offered their preferred policies as well. The White House put out a range of proposals to aid the long-term jobless as part of its stalled American Jobs Act legislation, a few of which made it into a bill extending a payroll tax cut this year. Mr. Romney has proposed, among other measures, creating “personal re-employment accounts” to give funds to unemployed workers for community college or vocational training.

But experts worried about a lack of urgency. Gridlock in Washington, the focus on cutting rather than spending, even the simple fact that discussing the topic can be depressing might leave the issue by the wayside, as it has been in the presidential and Congressional races.

“It’s not just the heat of the campaign” leaving the topic neglected, said Christine L. Owens, the executive director of the National Employment Law Project, an advocacy group for low-wage workers. “There’s a certain kind of fatigue when talking about long-term unemployment, and as a result there hasn’t been the level of attention and discussion that’s warranted.”

For new policies, “there is no political will, none whatsoever,” said Daniel Hamermesh, an economist at the University of Texas.

He noted that during the recession and the recovery, relatively few workers have cycled through unemployment, perhaps undercutting the problem’s political potency.

“There are fewer of us experiencing unemployment, but those who are out are out a lot longer,” Mr. Hamermesh said. “They then become increasingly isolated, which decreases the will to do anything, because they are a less important group.”

Statistics suggested that the long-term unemployment problem had begun to recede. The number of workers who reported actively seeking a job for more than six months fell to 4.8 million from 6.2 million in the past year, according to government data. The proportion of jobless workers who counted as long-term unemployed fell to 40 percent from its peak of 45.5 percent in March 2011.

But it remains a bleak situation. About 800,000 workers want a job but have simply given up looking, and so are no longer even counted as unemployed. About 1.7 million people have joined the disability rolls since the recession began at the end of 2007, an increase of 24 percent, as workers use the disability program as a backdoor safety net when their unemployment insurance runs out. After searching for a new position for a year, a worker trying to regain employment finds that his chance to do so in the coming month falls below 10 percent.

As seen in the debates and on the campaign trail, the problem has largely fallen off politicians’ list of priorities, even as the case for government action grows stronger.

When asked directly how to alleviate long-term unemployment in the second debate, Mr. Romney addressed joblessness in general before quickly switching topics to the Detroit auto bailout. Mr. Obama never addressed the question at all.

Annie Lowrey reported from Washington and Catherine Rampell from New York.

    Little Federal Help for the Long-Term Unemployed, NYT, 1.11.2012,
    http://www.nytimes.com/2012/11/02/business/economy/lingering-unemployment-poses-long-term-risk.html

U.S. Growth Rate Picks Up to 2%

October 26, 2012
The New York Times
By NELSON D. SCHWARTZ

More optimistic consumers are propelling the economy forward, even as businesses pull back.

The pickup in spending by consumers, along with a burst of defense orders and a stronger housing market, helped the economy expand at an annual rate of 2 percent in the third quarter, a slightly better pace than had been anticipated, according to government data released Friday. In the previous quarter, economic growth had dipped to a rate of just 1.3 percent.

While growing more confident that the housing market has stabilized, households have been buoyed by lower energy prices, until recently a rising stock market and a slight improvement in employment. After years of shedding debt, there are also signs that consumers are starting to borrow again.

“Consumers are feeling wealthier so they are still out there spending,” said Joshua Dennerlein, an economist with Bank of America Merrill Lynch.

Still, the pace of economic activity is short of what’s needed to substantially reduce the unemployment rate, now at 7.8 percent and also well below the level of growth typical in this stage of a recovery after a sharp downturn.

What’s more, fears are growing that the economy could slow again in the fourth quarter. Companies are preparing for the possibility of steep tax increases and sharp spending cuts if Congress cannot agree on a deal to reduce the deficit after the election, a combination of factors frequently referred to as the fiscal cliff.

In fact, a series of disappointing earnings reports from the nation’s biggest companies this week, along with a handful of layoff announcements from corporate bellwethers, suggest businesses have already begun to retrench.

With the presidential campaign entering the final, desperate dash to Election Day, there was plenty of fodder in Friday’s report for both candidates to cite as they spar over the direction of the economy.

For President Obama, the best news was that consumer spending grew at an annual rate of 2 percent last quarter, up from 1.5 percent in the second quarter, while residential investment increased at an annual rate of 14.4 percent, compared with 8.5 percent in the second quarter.

The business snapshot was much dimmer. The report showed that business investment fell 1.3 percent, a reversal from the 3.6 percent increase recorded in the second quarter, and a sign businesses are indeed clamping down on spending ahead of the fiscal cliff.

Inventories also were a notable factor with the summer drought in the Midwest shaving overall growth 0.4 percentage point as farm inventories dropped.

In addition to the uncertainty about government policy, corporate performance has been hurt by a recession in parts of Europe and weaker demand from China. Some economists fear that all these factors will keep a lid on growth in the final quarter of 2012 and the first quarter of next year.

The Commerce Department data showed exports decreased by 1.6 percent in the latest quarter, compared with a 5.3 percent increase in the second quarter. It was the first time exports had fallen since the first quarter of 2009, when the global economy was reeling from the collapse of Lehman Brothers and the ensuing financial crisis in the United States.

At a campaign appearance in Iowa, Mitt Romney, the Republican presidential candidate, termed Friday’s report “discouraging,” adding, “slow economic growth means slow job growth and declining take-home pay.”

The new figure, released by the Commerce Department, is the government’s first estimate of growth in the third quarter. Slightly better than the 1.8 percent increase economists had been forecasting, it showed the nation rebounding to the growth it had in the first quarter of the year after a spring slump.

“The report highlights the fact that businesses have already begun to react to the looming fiscal cliff while consumers march steadily ahead,” said Mr. Dennerlein. Noting the jump in residential spending, he added that the slowly recovering housing sector is a bright spot.

Housing values and stock values certainly contribute to consumers’ sense of financial well-being. And despite the hesitancy among businesses, optimism among consumers continues to rise. A separate survey released Friday showed consumer sentiment at its highest level in more than five years, with the Thomson Reuters/University of Michigan index rising to 82.6 in October from 78.3 in September, though it was lower than a preliminary October reading of 83.1 that had been previously reported.

To be sure, the latest growth in consumer spending was still well below the rate of increase in the first half of the last decade, when easy credit and a boom in home prices fueled growth in the 3 percent range.

But it was a crucial antidote to gloom pervading the business sector, experts said. “We’d really be in trouble if consumer attitudes were deteriorating like business attitudes,” said Nigel Gault, chief United States economist for IHS Global Insight.

Mr. Gault warned, however, that the outlook among consumers could erode if political leaders in Washington cannot break the deadlock over tax and budget policy. “Consumers are not so forward-looking as businesses,” Mr. Gault said. “So there are two ways this can go. Either we clear up the uncertainty, or consumers start focusing on the fiscal cliff and we see consumer spending hurt as well.”

In recent days, government data and a steady drumbeat of disappointing earnings reports from corporate bellwethers have underscored the threat to the job market posed by softness in sectors more dependent on exports, like manufacturing and chemicals.

Dow Chemical and DuPont announced job cuts earlier in the week, and that list grew Friday with Newell Rubbermaid, which makes commercial and consumer products like Calphalon and Paper Mate pens, announcing plans to cut more than 1,900 workers, or just over 10 percent of its work force. And Rockwell Collins, an aviation and defense giant, said it was considering eliminating up to 1,250 positions, equivalent to roughly 6 percent of its employees.

The latest data suggest a tug-of-war between countervailing economic forces that could shift at any time. For example, growth last quarter was unexpectedly bolstered by a 13 percent jump in military spending that few economists expect to be repeated in the fourth quarter.

Without the increase from military spending, the economy would have grown at an annual rate of 1.4 percent, said Steve Blitz, chief economist at ITG Investment Research.

“Going forward, consumers might be able to continue at the current pace of spending but they’re not going to be able to drive the growth rate higher,” said Mr. Blitz. “And 2 percent isn’t enough to get unemployment down.”

    U.S. Growth Rate Picks Up to 2%, NYT, 26.10.2012,
    http://www.nytimes.com/2012/10/27/business/economy/us-economy-grew-at-2-rate-in-3rd-quarter.html

Romney’s Economic Model

October 24, 2012
The New York Times
By NICHOLAS D. KRISTOF

Mitt Romney’s best argument on the campaign trail has been simple: Under President Obama, the American economy has remained excruciatingly weak, far underperforming the White House’s own projections.

That’s a fair criticism.

But Obama’s best response could be this: If you want to see how Romney’s economic policies would work out, take a look at Europe. And weep.

In the last few years, Germany and Britain, in particular, have implemented precisely the policies that Romney favors, and they have been richly praised by Republicans here as a result. Yet these days those economies seem, to use a German technical term, kaput.

Is Europe a fair comparison? Well, Republicans seem to think so, because they came up with it. In the last few years, they’ve repeatedly cited Republican-style austerity in places like Germany and Britain as a model for America.

Let’s dial back the time machine and listen up:

“Europe is already setting an example for the U.S.,” Representative Kenny Marchant, a Texas Republican, said in 2010. (You know things are bad when a Texas Republican is calling for Americans to study at the feet of those socialist Europeans.)

The same year, Karl Rove praised European austerity as a model for America and approvingly quoted the leader of the European Central Bank as saying: “The idea that austerity measures could trigger stagnation is incorrect.”

Representative Steve King of Iowa, another Republican, praised Chancellor Angela Merkel of Germany for preaching austerity and said: “It ought to hit home to our president of the United States. It ought to hit all of us here in this country.”

“The president should learn a lesson from the ‘German Miracle,’ ” Representative Joe Wilson of South Carolina, a Republican, urged on the House floor in July 2011.

Also in 2011, Senator Jeff Sessions of Alabama, the top Republican on the Senate Budget Committee, denounced Obama’s economic management and said: “We need a budget with a bold vision — like those unveiled in Britain and New Jersey.”

O.K. Let’s see how that’s working out.

New Jersey isn’t overseas, but since Sessions and many other Republicans have hailed it as a shining model of austerity, let’s start there. New Jersey ranked 47th in economic growth last year. When Gov. Chris Christie took office in 2010 and began to impose austerity measures, New Jersey ranked 35th in its unemployment rate; now it ranks 48th.

Senator Sessions, do we really aspire for the same in America as a whole?

Something similar has happened internationally. The International Monetary Fund this month downgraded its estimates for global economic growth, with only one major bright spot in the West. That would be the United States, expected to grow a bit more than 2 percent this year and next.

In contrast, Europe’s economy is expected to shrink this year and have negligible growth next year. The I.M.F. projects that Germany will grow less than 1 percent this year and next, while Britain’s economy is contracting this year.

Karl Rove, that sounds a lot like stagnation to me.

All this is exactly what economic textbooks predicted. Since Keynes, it’s been understood that, in a downturn, governments should go into deficit to stimulate demand; that’s how we got out of the Great Depression. And recent European data and I.M.F. analyses underscore that austerity in the middle of a downturn not only doesn’t help but leads to even higher ratios of debt to economic output.

So, yes, Republicans have a legitimate point about the long-term need to curb deficits and entitlement growth. But, no, it isn’t reasonable for Republicans to advocate austerity in the middle of a downturn. On that, they’re empirically wrong.

If there were still doubt about this, we’ve had a lovely natural experiment in the last few years, as the Republicans in previous years were happy to point out. All industrialized countries experienced similar slowdowns, and the United States under Obama chose a massive stimulus while Germany and Britain chose Republican-endorsed austerity.

Neither approach worked brilliantly. Obama’s initial economic stimulus created at least 1.4 million jobs, according to the nonpartisan Congressional Budget Office. But that wasn’t enough, and it was partly negated by austerity in state and local governments.

Still, America’s economy is now the fastest growing among major countries in the West, and Britain’s is shrinking. Which would you prefer?

I’m not suggesting Obama distribute bumper stickers saying: “It Could Be Worse.” He might want to stick with: “Osama’s Dead and G.M. Is Alive.”

Yes, there are differences between Europe and America. But Republicans were right to call attention to this empirical experiment.

The results are in. And, as Representative King suggested, the lessons “ought to hit all of us here in this country.”

    Romney’s Economic Model, NYT, 24.10.2012,
    http://www.nytimes.com/2012/10/25/opinion/kristof-romneys-economic-plan.html

The Austerity Trap

October 23, 2012
The New York Times

In Monday night’s presidential debate, Mitt Romney echoed other Republican politicians, saying that under President Obama’s economic policies, the United States is “heading toward Greece.” Mr. Romney was invoking Greece apparently to make the point that deep and swift budget cuts are needed in the United States to avoid a debt crisis.

That bizarre comment, sadly, is no surprise in a campaign that has parted ways with the facts. The president’s budget, as scored by the Congressional Budget Office, would stabilize the ratio of federal debt to the economy over 10 years.

What is more disturbing is that the comment displays willful ignorance about the lessons of Greece, and such ignorance can only lead to bad policy decisions at home. The lesson that should be learned from Greece is that its fiscal mess has been made far worse by severe budget cuts.

New data from the European Union, released on Monday and analyzed in The Times by Landon Thomas Jr. and David Jolly, show that countries that have most ruthlessly cut their budgets — Greece, especially — have seen their overall debt loads increase as a share of the economy.

The data provide objective support for what has been clear to just about everyone except pro-austerity German officials and deficit-crazed Republican politicians. Namely, deep government budget cuts at a time of economic weakness are counterproductive, complicating, if not ruining, the chances for economic growth.

The new European statistics also dovetail with a recent analysis by economists from the International Monetary Fund. They found that budget cutbacks are much more damaging to economies recovering from recession than has been previously believed. The reason is that with interest rates stuck near zero, there is no room to lower them when fiscal policy is tightened, and thus no way to offset the pain of budget cutbacks.

If governments push ahead anyway with deep spending cuts, the result is only more economic weakness without the hoped for budget improvement. That has been the case in Greece and other nations of Europe, like Ireland, Portugal, Spain and Britain. If Republican policies to slash government programs while excessively cutting taxes were carried out here, the United States would experience a similar effect.

Taken together, the Greek experience and the recent European research, show that for the United States, a “grand bargain” on the deficit should include two main parts: spending in the near term to boost the recovery, coupled with tax increases, and spending cuts to reduce the deficit as the economy regains its health.

Mr. Obama is better positioned than Mr. Romney to deliver that agenda. Mr. Obama could make his jobs plan, introduced last September but blocked by Congressional Republicans, part of the budget package to be negotiated after the election, when politicians must agree on tax increases and spending cuts to avoid the so-called fiscal cliff.

Mr. Romney’s agenda is missing a direct focus on jobs, foolishly relying instead on high-end tax cuts and deregulation to help the recovery. And he and his party continue to insist on premature deficit reduction that, in a fragile economy, is the real road to Greece.

    The Austerity Trap, NYT, 23.10.2012,
    http://www.nytimes.com/2012/10/24/opinion/the-austerity-trap.html

Getting More Bang for the Fed’s Buck

October 23, 2012
The New York Times
By JOSEPH A. GRUNDFEST, MARK A. LEMLEY and GEORGE G. TRIANTIS

Stanford, Calif.

IN September, the Federal Reserve announced that it would begin purchasing $40 billion of mortgage-backed bonds every month until the outlook for the labor market improved substantially or inflation reared its ugly head.

The Fed hopes that these purchases will lower mortgage rates, boost new construction, prop up home values, lift stock prices and otherwise energize the moribund job market.

Experts disagree on whether these purchases will stimulate employment and promote recovery, or trigger an inflationary spiral and saddle the Fed with substantial losses if interest rates spike before the Fed can unwind its position.

We don’t intend to weigh in on these debates — but we do want to start a different one: is the mortgage market really the smartest place to spend all this money? Wouldn’t the Fed get more employment bang for its monetary buck by purchasing state and municipal bonds?

Instead of a third round of so-called “quantitative easing,” known in the financial markets as QE3, maybe it’s time for a QE-Muni. Here’s why.

State and municipal bonds help finance new infrastructure projects like roads and bridges, as well as pay for some government salaries and services, by borrowing against future tax receipts. With about $3.7 trillion in debt outstanding, it’s a big and sprawling marketplace for bonds. But even at that size, it’s less than half as large as the securitized mortgage market.

So every Fed dollar spent in the muni market would absorb a larger percentage of outstanding debt and is likely to have a greater effect on reducing the bonds’ interest rates than the same expenditure in the mortgage market. The greater the effect in reducing borrowing costs in either market, the more powerful the impact on employment is likely to be.

In addition, while the current Fed program helps keep mortgage rates low, its effect on the economy isn’t direct. Rock-bottom rates, naturally, will prompt some to buy homes or spend more on renovations — both of which spur job creation. But some homeowners will simply refinance to increase their savings, which has a less immediate stimulus effect. In contrast, lowering the borrowing costs for states, cities and counties should not only forestall tax increases (which dampen individual spending), but also make it easier for local governments to pay for police officers, firefighters, teachers and infrastructure improvements.

Finally, while the private sector is hiring (with a net gain of 4.7 million jobs since February 2010), the public sector continues to lay off workers. We’ve lost a million government jobs since 2010. Republicans and Democrats alike have been decrying the failure to stimulate the economy through the infrastructure improvements that are necessary to keep our economy competitive. But shrinking tax revenues and limited debt service capacity have tied the hands of state and local governments.

To be sure, our proposal raises pragmatic, political and legal challenges. For starters, the muni bond market is highly fragmented, and many bond issues are illiquid. Having the Fed train billions of dollars of buying firepower on this market could roil the pricing of individual bond offerings.

This problem could be addressed, we think, by having the Fed announce the amount and quality of muni debt that it’s willing to buy in a given month; sellers could then choose whether or not to come to the table. (That would also allow the Fed to sidestep the politically loaded question of which state’s bonds to buy: the market can make that decision.)

From a political perspective, some will object that our plan would unfairly bail out states and municipalities that have been profligate in the past, a problem economists call moral hazard.

Such an objection might be addressed, in part, by restricting the Fed to purchases of bonds that pay for critical infrastructure or hiring rather than, say, new sports stadiums.

A still bigger problem with our proposal is simple. It is illegal, at least as the law currently stands. The Federal Reserve Act prohibits the Fed from purchasing muni debt with a maturity of more than six months, and none of the beneficial effects we predict from QE-Muni can occur unless the Fed is able to buy longer-dated muni paper.

But after the elections, Congress will head into the mother of all negotiation sessions as it tries to avoid the fiscal cliff. All options will be on the table. And as both Republicans and Democrats look for strategies that create the greatest number of jobs at the lowest cost to the public treasury, wouldn’t it make sense to give the Fed another tool to help it spend our money more effectively?

Yes, we can and should debate whether another round of quantitative easing is the medicine that the economy needs now. But if it’s the medicine we’re destined to get, shouldn’t we do all we can to assure that it works as best it can?

Joseph A. Grundfest, Mark A. Lemley and George G. Triantis are professors

at Stanford Law School.

Mr. Grundfest was a commissioner of the Securities and Exchange Commission

from 1985 to 1990.

    Getting More Bang for the Fed’s Buck, NY10.2012,
    http://www.nytimes.com/2012/10/24/opinion/why-the-fed-should-buy-munis-not-mortgages.html

The Myth of Job Creation

October 21, 2012
The New York Times

The headlines from the last presidential debate focused on President Obama challenging Mitt Romney on issue after issue. There was a less noticed, but no less remarkable, moment when Mr. Obama agreed with Mr. Romney on something — and both were entirely wrong.

The exchange began with a question about the offshoring of American jobs. Part of Mr. Obama’s answer was that federal investments in education, science and research would help to ensure that companies invest and hire in the United States. Mr. Romney interrupted. “Government does not create jobs,” he said. “Government does not create jobs.”

It was a decidedly crabbed response to a seemingly uncontroversial observation, and yet Mr. Obama took the bait. He said his political opponents had long harped on “this notion that I think government creates jobs, that that somehow is the answer. That’s not what I believe.” He went on to praise free enterprise and to say that government’s role is to create the conditions for everyone to have a fair shot at success.

So, they agree. Government does not create jobs.

Except that it does, millions of them — including teachers, police officers, firefighters, soldiers, sailors, astronauts, epidemiologists, antiterrorism agents, park rangers, diplomats, governors (Mr. Romney’s old job) and congressmen (like Paul Ryan).

First, the basics. At last count, government at all levels — federal, state and local — employed 22 million Americans, with the largest segment working in public education. Is that too many? No. Since the late 1980s, the number of public-sector workers has averaged about 7.3 for every 100 people. With the loss of 569,000 government jobs since June 2009, that ratio now stands at about 7 per 100.

Public-sector job loss means trouble for everyone. Government jobs are crucial to education, public health and safety, environmental protection, defense, homeland security and myriad other functions that the private sector cannot fulfill. They are also critical for private-sector job growth in two fundamental ways. First, the government gets its supplies from private-sector companies, which is why Republican senators like John McCain have been frantically warning about the dire effects on job creation if Congress moves ahead with planned military spending cuts. (Republicans insisted upon the cuts as part of their ill-advised showdown over the debt ceiling.) Second, government spending on supplies and salaries reverberates strongly through the economy, increasing demand and with it, employment.

That means the economy suffers when government cuts back. A report by the Economic Policy Institute examined the effect of recent cutbacks at the state and local level — including direct loss of government jobs and indirect loss of suppliers’ jobs; the jobs that should have been added to keep up with population growth; and the reduction in purchasing power from other cutbacks. If not for state and local budget austerity, the report found, the economy would have 2.3 million more jobs today, half of which would be in the private sector.

The government does not create jobs? It most certainly does. And at this time of state budgetary hardship, a dose of federal fiscal aid to states and localities could create more jobs, in both the public and private sectors.

    The Myth of Job Creation, NYT, 21.10.2012,
    http://www.nytimes.com/2012/10/22/opinion/the-myth-of-job-creation.html

2 From U.S. Win Nobel in Economics

October 15, 2012
The New York Times
By CATHERINE RAMPELL

Two Americans, Alvin E. Roth and Lloyd Shapley, were awarded the Nobel Memorial Prize in Economic Science on Monday for their work on market design and matching theory, which relate to how people and companies find and select one another in everything from marriage to school choice to jobs to organ donations.

Their work primarily relates to markets that do not have prices. In classical economics, prices are the main mechanism through which resources are allocated. The laureates’ innovations involve figuring out how to properly assign people and things to stable matches when prices are not available to help buyers and sellers agree on matches.

Mr. Roth, 60, has put these theories to practical use, in his work on a program that matches new doctors to hospitals and more recently for a project matching up kidney donors. Public school systems in New York, Boston, Chicago and Denver, among other cities, use an algorithm based on his work to help assign students to schools. A professor at Harvard, he recently accepted a new position at Stanford.

“Al has spent the last 30 years trying to make economics more like an engineering discipline,” said Parag Pathak, an economics professor at M.I.T. who has worked on school matching systems with Mr. Roth. “The idea is to try to diagnose why resource allocation systems are not working, and how they can be engineered to produce something better.”

Mr. Shapley, 89, a mathematician and economist long associated with game theory, is a professor emeritus at the University of California, Los Angeles. He made some of the earliest theoretical contributions to research on market design and matching, in the 1950s and 1960s. He looked at why, in a free market, it was sometimes difficult for individuals to come to an agreement about proper matches.

In a paper with David Gale in 1962, Mr. Shapley explained how individuals can be paired together in a stable match even when they disagree about what qualities make the right match. The paper focused on the puzzle of marriage: that is, how mates find one another in a fair and stable way, so that no one who is already married would want (and be able to) break off and pair up with someone else who is already married.

In the 1980s, Mr. Roth applied this work to matches for medical residency programs and eventually school choice. He was interested in how to keep matches fair and how to keep more sophisticated players from manipulating the system to their advantage.

In older matching systems, a student would apply to his first choice school, which was often popular. If the student did not get in, then the application would be sent on to the student’s second choice. But if that was also a popular choce, then that school’s program would have already filled up by the time the application was even considered, and the process would repeat itself with his third choice school and so on.

Even if students were qualified to get into one of their top schools, they could be shut out because they did not rank their preferences strategically. All this gave an incentive for students to try to game the system by listing a less-popular school as their first choice — even if they really preferred somewhere else — because that way they figured they would at least have a chance of getting in somewhere.

Mr. Roth’s innovation was to develop and apply matching theory so that students would have an incentive to tell the truth about where they wanted to go. A centralized system could then assign them to a school best suited for them, based both on their own preferences and the preferences of the schools they were applying to.

The school systems he helped create use a “deferred acceptance algorithm,” which was developed by Mr. Shapley.

The algorithm works by tentatively accepting students to their top-choice school. It holds off on the final assignment until going through all the other applications to make sure there are not other students who have a higher claim to a spot at that given school (because those other students might have higher test scores, a sibling at the school, or whatever other criteria the school prioritizes) even if those students happened to rank the school lower on their list of preferences.

“The idea is to level the playing field,” said Mr. Pathak. “You want to make sure that not only do sophisticated players not have to spend the time learning the strategies and different heuristics that will get them ahead, but also that unsophisticated players are not hurt by the fact that they are not aware of all this information.”

This same sort of system is used to match new medical school graduates to medical residency programs, which was once a messy process that led to a lot of unhappy candidates. Now all residency assignments are posted simultaneously. Mr. Roth later tweaked the system to help figure out how to match married couples who were jointly looking for jobs at hospitals, an additional complication that was not accounted for in the original Gale-Shapley literature.

Mr. Roth has also helped build a system that assigns kidney donation swaps, to better allocate the scarce resources of organs and save lives.

For example, a husband in Boston may need a kidney, and his wife is willing to donate one of hers but she is not a match. Across the country there is a couple in the same position, and it turns out that the wives are a match for the husbands in the opposite couple. In this simple case, the two couples essentially barter their kidneys: wife A gives her kidney to husband B, and wife B gives her kidney to husband A. Two patients who might not have otherwise found a generous donor are saved.

It is rare that two couples will serendipitously match each other’s kidney donation needs this way, and there are often more pairs of donor-recipients involved. The longest chain of kidney recipients and donors involved 60 people, or 30 pairs.

But hospitals prefer to limit, if possible, the number of pairs involved in organ exchanges, since they cannot handle an infinite number of transplants simultaneously. Mr. Roth’s system helps find the most efficient exchange of organs so that the most patients can be saved with the fewest number of pairs involved in a given trade.

    2 From U.S. Win Nobel in Economics, NYT, 15.10.2012,
    http://www.nytimes.com/2012/10/16/business/
    economy/alvin-roth-and-lloyd-shapley-win-nobel-in-economic-science.html

Truth About Jobs

October 7, 2012
The New York Times
By PAUL KRUGMAN

If anyone had doubts about the madness that has spread through a large part of the American political spectrum, the reaction to Friday’s better-than expected report from the Bureau of Labor Statistics should have settled the issue. For the immediate response of many on the right — and we’re not just talking fringe figures — was to cry conspiracy.

Leading the charge of what were quickly dubbed the “B.L.S. truthers” was none other than Jack Welch, the former chairman of General Electric, who posted an assertion on Twitter that the books had been cooked to help President Obama’s re-election campaign. His claim was quickly picked up by right-wing pundits and media personalities.

It was nonsense, of course. Job numbers are prepared by professional civil servants, at an agency that currently has no political appointees. But then maybe Mr. Welch — under whose leadership G.E. reported remarkably smooth earnings growth, with none of the short-term fluctuations you might have expected (fluctuations that reappeared under his successor) — doesn’t know how hard it would be to cook the jobs data.

Furthermore, the methods the bureau uses are public — and anyone familiar with the data understands that they are “noisy,” that especially good (or bad) months will be reported now and then as a simple consequence of statistical randomness. And that in turn means that you shouldn’t put much weight on any one month’s report.

In that case, however, what is the somewhat longer-term trend? Is the U.S. employment picture getting better? Yes, it is.

Some background: the monthly employment report is based on two surveys. One asks a random sample of employers how many people are on their payroll. The other asks a random sample of households whether their members are working or looking for work. And if you look at the trend over the past year or so, both surveys suggest a labor market that is gradually on the mend, with job creation consistently exceeding growth in the working-age population.

On the employer side, the current numbers say that over the past year the economy added 150,000 jobs a month, and revisions will probably push that number up significantly. That’s well above the 90,000 or so added jobs per month that we need to keep up with population. (This number used to be higher, but underlying work force growth has dropped off sharply now that many baby boomers are reaching retirement age.)

Meanwhile, the household survey produces estimates of both the number of Americans employed and the number unemployed, defined as people who are seeking work but don’t currently have a job. The eye-popping number from Friday’s report was a sudden drop in the unemployment rate to 7.8 percent from 8.1 percent, but as I said, you shouldn’t put too much emphasis on one month’s number. The more important point is that unemployment has been on a sustained downward trend.

But isn’t that just because people have given up looking for work, and hence no longer count as unemployed? Actually, no. It’s true that the employment-population ratio — the percentage of adults with jobs — has been more or less flat for the past year. But remember those aging baby boomers: the fraction of American adults who are in their prime working years is falling fast. Once you take the effects of an aging population into account, the numbers show a substantial improvement in the employment picture since the summer of 2011.

None of this should be taken to imply that the situation is good, or to deny that we should be doing better — a shortfall largely due to the scorched-earth tactics of Republicans, who have blocked any and all efforts to accelerate the pace of recovery. (If the American Jobs Act, proposed by the Obama administration last year, had been passed, the unemployment rate would probably be below 7 percent.) The U.S. economy is still far short of where it should be, and the job market has a long way to go before it makes up the ground lost in the Great Recession. But the employment data do suggest an economy that is slowly healing, an economy in which declining consumer debt burdens and a housing revival have finally put us on the road back to full employment.

And that’s the truth that the right can’t handle. The furor over Friday’s report revealed a political movement that is rooting for American failure, so obsessed with taking down Mr. Obama that good news for the nation’s long-suffering workers drives its members into a blind rage. It also revealed a movement that lives in an intellectual bubble, dealing with uncomfortable reality — whether that reality involves polls or economic data — not just by denying the facts, but by spinning wild conspiracy theories.

It is, quite simply, frightening to think that a movement this deranged wields so much political power.

    Truth About Jobs, NYT, 7.10.2012,
    http://www.nytimes.com/2012/10/08/opinion/krugman-truth-about-jobs.html

Drop in Jobless Figure Gives Jolt to Race for President

October 5, 2012
The New York Times
By SHAILA DEWAN and MARK LANDLER

The jobless rate abruptly dropped in September to its lowest level since the month President Obama took office, indicating a steadier recovery than previously thought and delivering another jolt to the presidential campaign.

The improvement lent ballast to Mr. Obama’s case that the economy is on the mend and threatened the central argument of Mitt Romney’s candidacy, that Mr. Obama’s failed stewardship is reason enough to replace him.

Employers added a modest 114,000 jobs last month, the Labor Department reported on Friday, but estimates for what had been disappointing gains in July and August were revised upward to more respectable levels.

Unemployment fell to 7.8 percent from 8.1 percent, crossing what had become a symbolic threshold in the campaign. Mr. Romney was deprived of a favorite line of attack, mocking the president for “43 straight months with unemployment above 8 percent.”

The new numbers may have less economic than political import, since they represent only one month of data that can be quite volatile and give little indication that the plodding recovery has accelerated.

“We’ve been amazingly resilient thus far in the face of all these headwinds,” said Ellen Zentner, the senior United States economist for Nomura Securities International, referring to global obstacles like the slowdown in China and domestic ones like the looming expiration of tax breaks. “But it’s awfully hard to see getting significantly above that growth range given that these headwinds are still in place.”

Still, an energized Mr. Obama seized on the statistics as he campaigned in Virginia and Ohio, seeking to regain his footing after a listless performance in the first debate this week. Mr. Romney, whose muscular showing in Denver had emboldened his campaign, scrambled to play down the report, saying it merely confirmed that millions of Americans had given up looking for work.

In back-to-back rallies in Virginia, the president declared, “This country has come too far to turn back.” His Republican challenger then insisted, “We don’t have to stay on the path we’ve been on. We can do better.”

Some Romney backers, led by the former chief executive of General Electric, John F. Welch Jr., suggested that the White House had massaged the Labor Department data to make it more favorable. The Obama administration, economic experts and some Republicans dismissed that notion as a groundless conspiracy theory.

The jobs report was preceded by other signs of growing economic strength, including a jump in consumer confidence, the strongest auto sales in four years, rallying stock prices and, at long last, a stabilization of housing prices.

According to the monthly survey of employers, the bulk of the gains came from service jobs, particularly in education and health care. Though government downsizing has been a drag on the recovery, government over all added 10,000 jobs in September, the third consecutive month of gains.

The nation’s employers have added an average of 146,000 jobs a month in 2012, just ahead of the numbers that are considered necessary to absorb new workers into the labor force. “This is not what a real recovery looks like,” Mr. Romney said in a statement.

Areas of weakness included manufacturing, one of the bright spots that Mr. Obama has showcased throughout the re-election campaign. It lost 16,000 jobs after a revised 22,000 drop in August in the face of a global slowdown. The number of temporary jobs, usually considered a harbinger of future growth, fell 2,000. Speaking to a rain-soaked crowd of 9,000 at Cleveland State University, Mr. Obama said, “Today’s news should give us some encouragement. It shouldn’t be an excuse for the other side to talk down the economy just to try to score some political points.”

“We’ve made too much progress to return to the policies that led to this crisis in the first place,” the president said to cheers.

The nation now has nearly the same number of jobs as when Mr. Obama took office in January 2009. Since the economy stopped hemorrhaging jobs in February 2010, there has been an increase of more than 4.3 million. A mere 61,000-job increase would allow Mr. Obama to claim a net gain in jobs over his tenure.

The White House has already made that claim based on one measurement. In an annual recalibration last month, the Bureau of Labor Statistics said 400,000 more jobs were added in the 12 months that ended in March than previously thought. Such revisions are common, but the adjustment process is slow — that new benchmark will not be incorporated into the monthly jobs figures until early next year.

Mr. Romney, on other hand, said the lower rate spoke to a nation short of hope. The rate, he asserted, would be about 11 percent if the same percentage of people were looking for work now as on the day Mr. Obama was elected.

“If you just dropped out of the labor force, if you just give up and say, ‘Look, I can’t go back to work, I’m just going to stay home,’ if you just drop out altogether, why, you’re no longer part of the employment statistics, so it looks like unemployment is getting better,” Mr. Romney said at a farm equipment dealership in Abingdon, Va.

That was true in August, when the rate dropped to 8.1 percent, from 8.3 percent. But this time, the statistics showed that more people were working, not that discouraged job seekers had stopped looking for work.

The jobs report is based on two surveys, one of businesses and one of households, that can present different pictures.

While the survey of businesses showed mediocre growth, the household survey had a whopping increase of 873,000 people working in September. The household survey is much more volatile and prone to sampling error, but it captures aspects of the labor market that the business survey does not, like self-employment and household workers. Economists said that this month’s household survey probably overstated the improvement, but that its credibility was bolstered by an unexpectedly robust rise in consumer confidence.

The polling firm Gallup pinpointed the improvement in consumer confidence last month to the first day of the Democratic National Convention and attributed it almost entirely to increased optimism among Democrats, while confidence among Republicans remained at low levels. But Gallup could not say whether politics or economic conditions had driven the change.

The employment gains were not spread equally. While for older workers, the unemployment rate was the lowest in years, the unemployment rate for black men improved only 0.1 percentage point and the portion of all black men with jobs actually fell, to 57.5 percent.

There was no movement between August and September in a broader measure of underemployment, which includes the jobless who have stopped looking for work and those who work part time but would like to work full time. That stayed at 14.7 percent, though it is down from 16.4 percent a year earlier.

And 4.8 million people are in the group that has had the toughest time finding work — those who have been unemployed for longer than six months.

Sarah Thurman, a civil engineer in Kansas City, Mo., has been looking since May 2010. “The smaller firms are starting to post job openings, and that hasn’t been like that for over two years, but there’s so many of us without jobs that there’s so much competition,” she said. “I’m hearing from the headhunters that it’s going to be opening up, it’s going to be opening up — but when?”

Like Republicans and Democrats, consumers and businesses have divergent views of the economic situation. Consumers have brightened along with the better outlook for employment, calmer stock markets and whispers of rising home values.

Business leaders have been hanging back, more focused on a global slowdown and domestic concerns. They say they are uncertain what the election will mean for the business climate and are waiting in part for a resolution of the host of tax increases and budget cuts that will be set off at the end of the year if Congress fails to act.

The discrepancy between consumers’ mood and companies’ outlook can be easily explained, economists said. “Businesses are much more forward-looking,” said Ms. Zentner at Nomura.

In a survey of 400 chief financial officers conducted this summer, Grant Thornton, a management consulting firm, found that only 37 percent foresaw the possibility of adding workers while 18 percent said they expected to shrink over the next six months.

Harry Kazazian, the chief executive of Exxel Outdoors, a maker of camping equipment based in Alabama, said the election, the fiscal cliff and rapidly shifting regulations had put him in a cautious mood.

With sales on the rise, Exxel has slowly resumed a capital investment plan that it suspended three years ago. “We’re moving forward, but we’re doing it in steps rather than being much more aggressive and putting ourselves out there,” Mr. Kazazian said. “I wouldn’t be surprised if things start turning the other way, meaning down.”

But at a Walmart in Atlanta, shoppers were loosening the reins a bit, buying what they described as small indulgences like scented candle oil and seasonal beer.

Michael Peacock, 43, said that although his house was in foreclosure, he could sense enough activity in his chosen field, online marketing, that he could afford to turn down some work outside his specialty. “I’m not superconfident in the economy. But in my line of work, things have been getting better. There seems to be some improvement.”

John H. Cushman Jr. contributed reporting.

This article has been revised to reflect the following correction:

Correction: October 5, 2012

An earlier version of this article misstated the increase in jobs since February 2010 and the number of jobs needed for President Obama to claim an increase during his tenure. More than 4.3 million jobs have been added since February 2010, not more than 400,000, and an increase of 61,000 jobs, not 62,000, would allow Mr. Obama to claim a net gain. The earlier version also misidentified the city where Sarah Furman lives. She lives in Kansas City, Mo., not Kansas City, Kan.

    Drop in Jobless Figure Gives Jolt to Race for President, NYT, 6.10.2012,
    http://www.nytimes.com/2012/10/06/business/economy/us-added-114000-jobs-in-september-rate-drops-to-7-8.html

Attacks on 6 Banks Frustrate Customers

September 30, 2012
The New York Times
By NICOLE PERLROTH

Six major American banks were hit in a wave of computer attacks last week, by a group claiming Middle Eastern ties, that caused Internet blackouts and delays in online banking.

Frustrated customers of Bank of America, JPMorgan Chase, Citigroup, U.S. Bank, Wells Fargo and PNC, who could not get access to their accounts or pay bills online, were upset because the banks had not explained clearly what was going on.

“It was probably the least impressive corporate presentation of bad news I’ve ever seen,” said Paul Downs, a small-business owner in Bridgeport, Pa. “This is extremely disconcerting.”

The banks suffered denial of service attacks, in which hackers barrage a Web site with traffic until it is overwhelmed and shuts down. Such attacks, while a nuisance, are not technically sophisticated and do not affect a company’s computer network — or, in this case, funds or customer bank accounts. But they are enough to upset customers.

A hacker group calling itself Izz ad-Din al-Qassam Cyber Fighters — a reference to Izz ad-Din al-Qassam, a Muslim holy man who fought against European forces and Jewish settlers in the Middle East in the 1920s and 1930s — took credit for the attacks in online posts.

The group said it had attacked the banks in retaliation for an anti-Islam video that mocks the Prophet Muhammad. It also pledged to continue to attack American credit and financial institutions daily, and possibly institutions in France, Israel and Britain, until the video is taken offline. The New York Stock Exchange and Nasdaq were also targeted.

On Friday, PNC became the latest bank to experience delays and fall offline. Customers said they had been unable to get access to PNC’s online banking site, and those that visited the bank’s physical locations were told it was because PNC, and many others, had been hacked.

Fred Solomon, a PNC spokesman, said Friday afternoon that the bank’s Web site was back online, but that it was still working to restore online bill payment. Asked why the bank was not better able to withstand such an attack, he said that while PNC had systems in place to prevent delays and disruption from hacker attacks, in this case “the volume of traffic was unprecedented.”

Representatives for other banks also confirmed that they had experienced slow Internet performance and intermittent downtime because of an unusually high volume of traffic.

Security researchers said the attack methods were too basic to have taken so many American bank sites offline. The hackers appeared to be enlisting volunteers for the attacks with messages on various sites. On one blog, they called on people to visit two Web addresses that would cause their computers to flood banks with hundreds of data requests a second. They asked volunteers to attack banks according to a timetable: Wells Fargo on Tuesday, U.S. Bancorp on Wednesday and PNC on Thursday.

But experts said it seemed implausible that this method would create an attack of this scale. “The number of users you need to break those targets is very high,” said Jaime Blasco, a security researcher at AlienVault who has been investigating the attacks. “They must have had help from other sources.”

Those sources, Mr. Blasco said, would have to be a group with money, like a nation, or botnets — networks of infected computers that do the bidding of criminals. Botnets can be rented through black market schemes that are common in the Internet underground, or lent out by criminals or governments.

Last week, Senator Joseph I. Lieberman of Connecticut, chairman of the Senate Homeland Security Committee, said in an interview on C-Span that he believed Iran’s government had sponsored the attacks in retaliation for Western economic sanctions. The hacker group rejected that claim. In an online post, it said the attacks had not been sponsored by a country and that its members “strongly reject the American officials’ insidious attempts to deceive public opinion.”

The hackers maintained that they were retaliating for the online video. “Insult to the prophet is not acceptable, especially when it is the last Prophet Muhammad,” they wrote.

It is very difficult to trace such attacks back to a particular country, security experts say, because they can be routed through different Internet addresses to mask their true origin.

But experts said they had seen an increase in such activity from Iran and in the number of so-called hacktivists, hackers who attack for political purposes rather than for profit, based in Iran.

“We absolutely have seen more activity from the Middle East, and in particular Iran has been increasingly active as they build up their cyber capabilities,” said George Kurtz, the president of CrowdStrike, a computer security company, and former chief technology officer at McAfee. “There is also a strong activist movement underfoot, which should be concerning to many large companies. The threat is real, and what we are seeing now is only the tip of the iceberg.”

James A. Lewis, a computer security expert at the Center for Strategic and International Studies, said that in this case, the attack methods used were “pretty basic” to have been state-sponsored. But he added that even if the attacks were not the work of Iran’s government, the state would be aware of them because Iran monitors its networks extensively.

For Mr. Downs, the small-business owner in Pennsylvania, such half explanations were of little consolation.

“A major bank has a problem and gives no indication of what’s happening, when it started or when it will stop,” he said. “That’s pretty freaky if it’s your own business’s money and you need to do things with it.”

    Attacks on 6 Banks Frustrate Customers, NYT, 30.9.2012,
    http://www.nytimes.com/2012/10/01/business/cyberattacks-on-6-american-banks-frustrate-customers.html

How to Erase a Debt That Isn’t There

September 29, 2012
The New York Times
By GRETCHEN MORGENSON

GREETINGS, unhappy homeowners! Here’s some wonderful news:

“We are canceling the remaining amount you owe Chase!” says a letter that JPMorgan Chase sent recently to thousands of home loan borrowers. “You are approved for a full principal forgiveness of your Home Equity Account,” says another, from Bank of America.

Jackie Esposito, of Guilford, Conn., got a letter like that. But she wasn’t elated — because she doesn’t owe the money anymore. She and her husband filed for bankruptcy three years ago. The roughly $64,000 they owed Chase has been legally wiped out.

What’s going on?

Cast your mind back to February. Five of the nation’s big banks, including Chase and Bank of America, agreed to pay $25 billion to settle state and federal claims over questionable mortgage practices and promised to work harder to help borrowers who were in trouble. To prod the banks, the government said it would give them credits against the amounts they agreed to pay.

So, to the ire of customers who couldn’t get banks to work with them before, banks are now forgiving debts that no longer exist.

“When I got this letter that said they were going to relieve our debt, I just about fell over,” Ms. Esposito said last week. “You can’t forgive a debt that you’re legally unable to collect.”

Others have received similar letters about phantom debts. A borrower in Florida received word this month that Chase was erasing $190,065.10 of debt that had already been wiped out. Bank of America told a Virginia resident that a $231,767 home equity loan was being forgiven, even though the debt was discharged last May.

Neil Crane is a lawyer in Hamden, Conn., who represented Ms. Esposito and her husband in their bankruptcy. He says four of his other clients have recently received letters from banks claiming to forgive discharged debt.

“I never thought in my wildest dreams that the banks would do this properly,” Mr. Crane said last week. “But I think it’s really wrong to be foreclosing on mortgages you don’t own and relinquishing debt you don’t own.”

It’s bad enough that these letters are inaccurate. But even worse are the tax problems that they may create for people like Ms. Esposito. In most cases, the Internal Revenue Service considers debt that is forgiven to be taxable income. One exception occurs in bankruptcy; when a debt is discharged, it is not taxable.

But the letters sent by Chase and Bank of America clearly warn that the forgiveness will be reported to the I.R.S. If so, these borrowers may have to prove that the banks erred in claiming to have forgiven the debts.

I ASKED spokesmen for Chase and Bank of America how they could forgive debts that no longer existed. Both gave the same unsatisfying answer. Very similar letters had been sent, both banks said, to two very different types of borrowers. One set of borrowers has outstanding debt that the banks are offering to forgive. The other set has had their debts discharged in bankruptcy, but the bank still holds a lien against their properties. Releasing the liens provides a benefit to borrowers when they go to sell their homes, and both banks said the letters were intended to notify borrowers whose liens were being released.

Why not take care to write letters specifically tailored to each borrower’s situation?

Dan Frahm, a Bank of America spokesman, said the bank would work on clarifying what was in the letters to borrowers. And, late Friday, the bank put a more extensive description of the forgiveness and lien release program on its Web site. Not a bad idea, since nowhere does Bank of America’s letter discuss releasing the lien. Mr. Frahm estimated that 12,000 Bank of America customers whose debts had been discharged had received these letters.

Tom Kelly, a Chase spokesman, conceded that the bank “may have caused some confusion for customers.” Its letter does note that the bank is releasing the lien on the property.

But even this is incorrect in Ms. Esposito’s case, Mr. Crane said. Her lien was actually eliminated back in 2009, during her bankruptcy proceeding.

All of this made me wonder: are the banks’ forgiveness letters a way to gain credits for debts these institutions are improperly claiming to have extinguished? The banks say no.

But Chase appears to be claiming to release a lien on Ms. Esposito’s property that it does not hold. And under the mortgage settlement, it could receive a credit.

So I asked Joseph A. Smith Jr., a former banking regulator in North Carolina who is monitoring the settlement, how he planned to vet the banks’ claims of relief provided and credit earned. For example, how will he ensure that institutions do not receive credit for releasing liens that have been eliminated?

“We will review compliance with this requirement as we will with all of the consumer relief requirements,” Mr. Smith said, “through review of the corporate records relating to such transactions.”

Good luck with that.

AS for Ms. Esposito, she said she found the bogus loan forgiveness letter from Chase especially upsetting because of the years she has spent trying to have the bank modify her first mortgage. She pays 9 percent on her loan and cannot refinance it into a lower-rate mortgage, given her recent bankruptcy.

Chase won’t help her modify her loan, Ms. Esposito said, but it is happy to help by forgiving a loan that has already been discharged and releasing a lien that is already gone.

“There is no chance that this group of institutions can help homeowners,” Mr. Crane said. “They should not be in charge of fixing problems they helped create.”

    How to Erase a Debt That Isn’t There, NYT, 29.9.2012,
    http://www.nytimes.com/2012/09/30/business/when-banks-erase-a-debt-that-isnt-there.html

Ammunition for a Trade War Between U.S. and Mexico

September 27, 2012
The New York Times
By STEPHANIE STROM and ELISABETH MALKIN

Estimates are that nearly one out of two tomatoes eaten in the United States comes from Mexico — a statistic Florida growers would like to change, even at the risk of a trade war.

On Thursday, they got a reason to hope.

The United States Department of Commerce signaled then that it might be willing to end a 16-year-old agreement between the United States and some Mexican growers that has kept the price of Mexican tomatoes relatively low for American consumers. American tomato growers say the price has been so low that they can barely compete.

Within hours of the American action, Mexico threatened to retaliate, claiming that the Obama administration was trying to placate farmers in an important swing state. The Mexican government has support from seemingly unlikely backers in the United States: the big box stores like Walmart, which fear they will have to raise their prices, and other commodity producers, who worry that their products will be caught in a trade war.

“It will be very unfortunate if this devolves into a shooting war because this becomes a tit-for-tat and in the end, nobody wins,” said John Keeling, chief executive of the National Potato Council.

As part of a complex arrangement dating to 1996, the United States has established a minimum price at which Mexican tomatoes can enter the American market. Over the years, Florida’s tomato sales have dropped as low as $250 million annually, from as much as $500 million, according to Reggie Brown, executive vice president of the Florida Tomato Exchange, which has led the push to rescind the agreement. The state is the country’s largest producer of fresh market tomatoes, followed by California.

In the meantime, Bruno Ferrari, the economy minister of Mexico, said the value of Mexico’s tomato exports to the United States had more than tripled to $1.8 billion since the agreement was signed, and the tomato industry there supports 350,000 jobs. Producers of other commodities and big retailers still have stark memories of the high tariffs Mexico slapped on United States producers of potatoes, pork and toilet paper — $2.4 billion worth of goods — during a trade fight over trucking that began in 2009 and ended last year.

In the first year of the trucking fight, potato exports to Mexico fell more than 35 percent and growers lost $64 million in revenue as Mexicans shifted buying to Canada, Mr. Keeling said.

An analysis by an economist at Iowa State suggests that pork producers, who also lost money during the trucking trade fight, would lose about $14 an animal if Mexico imposed similar tariffs on pork now, said Nick Giordano, vice president at the National Pork Producers Council.

“We’re already having one of the worst financial periods ever because of high grain prices, and if we were to lose a major market like Mexico, it would be like Armageddon,” Mr. Giordano said.

Mr. Ferrari said Mexico was prepared to take all retaliatory measures available under the law. He warned that a final ruling against Mexico could also jeopardize talks over other trade disputes between the two countries.

The Mexicans say they fear that ending the agreement will clear the way for American growers to file formal complaints accusing the Mexicans of unfair trade practices, which they did repeatedly before the agreement.

Thursday’s announcement came as Mexican tomato producers prepared to meet with officials at the Commerce Department on Friday to propose new terms to sweeten the agreement. The growers have said they are willing to accept a higher floor price for their tomatoes, expand the number of growers in the agreement and establish new measures to enforce the deal.

“We’re disappointed. We’re confused. We’re frustrated. We’re angry,” said Martin Ley, vice president of Del Campo Supreme, a family business that exported $60 million in tomatoes to the United States and Canada last year. “We don’t understand where this is going and where this is coming from.”

Robert S. LaRussa, a lawyer who represents Mr. Ley and other growers from Sinaloa, the largest exporting state, said it was an “insult” for the Commerce Department to make its announcement a day before their meeting. He noted that more than 300 letters had been filed in favor of maintaining the agreement.

“They need to take into account much more than the interests of five or six families in Florida,” Mr. LaRussa said.

The Mexicans argue that they are under attack for producing a better product. They say they have invested heavily in new types of tomatoes, in greenhouses and in sophisticated agricultural techniques to improve productivity and quality.

The Mexicans say Florida tomatoes are picked green and then gassed with ethylene to turn them red, but tomatoes grown in Sinaloa ripen on the vine, which accounts for the explosion in vine-ripened tomatoes sold in American grocery stores.

The risk of hurricanes in Florida makes it harder for growers there to set up greenhouse cultivation, though growers elsewhere do not have that concern.

Mr. Brown, of the Florida Tomato Exchange, said he could not envision anything that the Mexicans could offer that would make the agreement palatable to the American growers.

The Commerce Department will have 40 days after Thursday’s announcement is printed in the Federal Register, probably sometime next week, to make a final decision. The Mexicans — and many others — speculated that Florida’s role in the coming elections may have had something to do with the timing.

“This is a debate being fought out in the context of this presidential election, and Florida is one of those swing states,” said Gary Clyde Hufbauer, a senior fellow at the Peterson Institute for International Economics and a former deputy assistant secretary for international trade and investment policy at the Treasury Department. “But we also have a lot of fish to fry with Mexico, a lot of reasons to maintain better relations there.”

The 1996 agreement suspended an investigation that began as a result of a dumping complaint filed by tomato growers in the United States against their Mexican counterparts in 1996, after the North American Free Trade Agreement eliminated tariffs on Mexican tomatoes. The complaint accused the Mexican growers of selling tomatoes at an unfair price. Antidumping regulations forbid an exporter to sell products abroad at so low a price that the producer loses money while the goods flood another country’s market.

The Commerce Department will decide whether to lift the suspension permanently, ending the investigation and the agreement.

The agreement, which has been amended since it was struck, sets the floor price for Mexican tomatoes at 17 cents a pound in the summer and 21.6 cents in the winter. American growers say they cannot compete at that price.

Mr. Hufbauer said American companies typically sought to end such agreements because they planned to file new dumping charges, hoping for better terms.

“The only strategy we have right now is to get out of a deal that is the only trade agreement I know of in history where the restricted party is more concerned with it staying in place than the domestic industry,” Mr. Brown said.

    Ammunition for a Trade War Between U.S. and Mexico, NYT, 27.9.2012,
    http://www.nytimes.com/2012/09/28/business/global/
    tomatoes-are-ammunition-for-a-trade-war-between-us-and-mexico.html

United States Economy Still Weak, but More Feel Secure

September 27, 2012
The New York Times
By ANNIE LOWREY

Both economists and the Romney campaign are puzzling over the same paradox: The recovery has flagged and yet the country’s mood appears to be improving.

Despite months of disappointing-to-dismal economic reports — capped by a Commerce Department release Thursday showing the economy had expanded at an annual pace of just 1.3 percent in the second quarter, barely above stall speed — a closely watched measure of consumer confidence surged to its highest level since February.

Economic experts pointed to several trends to explain how Americans were feeling better about the economy even though growth in jobs and the overall economy had weakened. First, the election is having a strong effect on economic perceptions. Second, though the recovery is weak, it has persisted, with employment and wages rising and some households feeling more secure.

Though the unemployment rate has been stuck between 8.1 and 8.3 percent all year, employers have continued to add workers to their payrolls. Wages and consumer spending have strengthened.

The housing sector’s nascent recovery foretells rising employment in the construction, real estate and mortgage finance sectors, as well as rising household wealth.

“There is a recovery. There are jobs. There is more income. There is some improvement,” said Lawrence Mishel, a labor market expert at and president of the liberal Economic Policy Institute. “But the improvement is obviously disappointing,” he added, a sentiment that many economists echoed.

Moreover, Labor Department data released on Thursday suggested that job growth in the 12 months through March 2012 might have been significantly stronger than government economists first expected.

In a standard revision of its jobs numbers, the department said that the economy added nearly 400,000 more jobs during that period than originally thought.

“The pattern of revisions suggest that the recession that began at the end of 2007 was deeper than initially reported, and the jobs recovery over the last 2.5 years has been a bit stronger than initially reported, although much work remains to be done to return to full employment,” Alan B. Krueger, the head of the White House’s Council of Economic Advisers said in a statement.

In the first quarter of the year, the economy added, on average, 134,000 jobs a month. Over the last three months, the rate of job growth has fallen to 79,000 a month. Similarly, economic growth was 2 percent in the first quarter before dropping to 1.3 percent in the second, largely because of the effects of the nation’s worst drought in 50 years.

According to Macroeconomic Advisers, a widely respected forecasting firm, growth is tracking at 1.7 percent for the third quarter. Moreover, rising gas and food prices have cut into workers’ wallets.

The economic data has grown so dismal that Federal Reserve this month announced a major new bond-buying effort to resuscitate the recovery once more. “The Federal Reserve is basically saying that we don’t have a recovery,” said Representative Paul D. Ryan of Wisconsin, Mitt Romney’s running mate. “Obamanomics didn’t work.”

Earlier this year, the conventional wisdom held that numbers like these should have meant trouble for the Obama campaign. Yet, even as job growth has fallen far below 100,000 a month, the American people appear to be growing more confident in both the economy and the president.

On Tuesday, the Conference Board’s measure of consumer confidence surged to a seven-month high, trouncing economists’ expectations. Respondents in particular had a more favorable view of the job market going forward — with more consumers expecting employers to add positions in the coming months.

The recovery seems to have jelled with voters, too. A recent New York Times/CBS News poll found that 40 percent of respondents think the country is on the right track, up from 23 percent a year ago. Moreover, 31 percent of respondents described the economy as very or fairly good, up from 14 percent a year ago.

Just as opinions about the economy have driven opinions about the campaign, it seems that opinions about the campaign are driving opinions about the economy.

Democrats have become much more optimistic, pulling the national numbers up with them. A new Pew poll, for instance, shows that just 15 percent of Democrats say that recent economic news is mostly bad, while 60 percent of Republicans say the same. A year ago, they held similar opinions.

“Right now, politics is playing an inordinately large role in the behavioral economic data,” wrote Lydia Saad and Dennis Jacobe, of Gallup, in an analysis of the surge in consumer confidence. “This suggests that the period between now and the election is a particularly hazardous time to apply traditional behavioral economic and political interpretations to key economic measures.”

Economists and political experts described the recovery as a “Rorschach test,” with both sides’ arguments compelling to voters.

“It’s a challenging messaging environment,” said Lynn Vavreck, a political scientist at the University of California, Los Angeles. “President Obama is in this strange situation of wanting to go out there and own this growth when people are saying, ‘That’s nothing to be proud of!’ ”

“If it were just the economy, the president would be in a lot of trouble based on how voters have reacted to numbers like the ones we’re seeing now,” said Nigel Gault, the chief United States economist at IHS Global Insight, an economic forecasting firm.

Mr. Gault said he believed that Mr. Obama’s significantly higher likability and favorability numbers — and the Romney campaign’s recent decision to talk about other things besides the economy — helped to explain Mr. Obama’s lead in the polls.

Professor Vavreck, though, said that the fact that the economy was growing gave Mr. Obama a powerful leg up, even given voters’ queasiness about the economy.

“Incumbents in growing economies, even slow ones, are hard to beat,” she said.

Others noted that the time for Mr. Romney to make his case and have it sink in had grown short.

“The economy’s not going to change much between now and the election,” said Mr. Gault of IHS Global Insight. “The economy is what it is. And if the economy hasn’t tilted the race in favor of Romney by now, you wonder whether it ever will.”

    United States Economy Still Weak, but More Feel Secure, NYT, 27.9.2012,
    http://www.nytimes.com/2012/09/28/business/economy/economy-still-weak-but-more-feel-secure.html

Good News and Bad in New Data on Economy

September 27, 2012
The New York Times
By THE ASSOCIATED PRESS

WASHINGTON (AP) — New economic data painted a mixed picture on Thursday of the nation’s economy.

Demand for long-lasting manufactured goods fell, and slightly fewer people signed contracts to buy homes. The job market looked only a little better.

Taken together, the reports suggested the economy was growing only modestly and not quickly enough to spur hiring.

“The economy over all has only weak forward momentum,” Nigel Gault, the chief United States economist at IHS Global Insight, said in a note to clients. “The news from housing may be improving, but manufacturing is struggling now.”

Most of the data seemed discouraging on the surface, but a closer inspection of the details offered some promise.

Companies cut orders for long-lasting goods by 13.2 percent in August, the Commerce Department said. That was the biggest drop in more than three years, but it was largely influenced by a large decline in aircraft orders. Excluding transportation equipment, orders fell only 1.6 percent. And in a positive sign, orders that reflect business investment plans rose 1.1 percent, the first increase since May.

The overall economy grew at a 1.3 percent annual rate in the April-June quarter, much lower than the 1.7 percent the government had estimated. About half of the downward revision stemmed from the severe drought in the Midwest, which cut overall farm output. But growth also fell because exports and consumer spending expanded at a slower pace.

The number of Americans who signed contracts to buy previously occupied homes fell in August from a two-year high in July. The National Association of Realtors said its index of sales agreements declined 2.6 percent, to 99.2. That was just below the reading of 100 that is considered healthy. Still, the index was 10.7 percent higher than a year ago.

Economists expected growth to hover near or below 2 percent for the rest of the year. Typically, that is too weak to create enough jobs to lower the jobless rate.

One report appeared to offer some hope that the job market will improve. Weekly applications for unemployment benefits fell 26,000 to a seasonally adjusted 359,000, the lowest level in two months, the Labor Department said. The four-week average, a less volatile measure, fell to 374,000.

Applications are a measure of the rate of layoffs. When they consistently fall below 375,000, it typically indicates that hiring is strong enough to lower the unemployment rate.

The last few reports on applications for unemployment benefits “suggest no significant acceleration or deceleration in employment growth,” said Jim O’Sullivan, an economist at High Frequency Economics.

    Good News and Bad in New Data on Economy, NYT, 27.9.2012,
    http://www.nytimes.com/2012/09/28/business/economy/manufacturing-and-housing-dip-but-job-market-bumps-up.html

Romney and the Forbes 400

September 24, 2012
The New York Times
By JOE NOCERA

Last week, sandwiched between Monday’s leak of the video in which Mitt Romney dismissed “the 47 percent” and Friday’s release of the Romneys’ 2011 tax returns — showing that they had paid an effective tax rate of 14 percent — Forbes magazine published its annual list of the 400 wealthiest Americans.

There weren’t a lot of surprises on the Forbes 400. Bill Gates, with an estimated net worth of $66 billion, remains the wealthiest man in the country. He is a whopping $20 billion richer than his pal Warren Buffett, who came in at No. 2, according to Forbes. All the usual suspects were there: Michael Bloomberg; George Soros; the Koch brothers; various descendants of Sam Walton, the founder of Walmart; and on and on.

What was illuminating was not so much who was on the list but what they collectively told us about the state of the richest of the rich. Thirty years ago, when Forbes published its first Forbes 400, a net worth of $75 million would get you on the list. Today it takes $1.1 billion. In the last year alone, the cumulative net worth of the wealthiest 400 people, by Forbes’s calculation, rose by $200 billion. That compares with a 4 percent drop in median household income last year, according to the Census Bureau. One would be hard pressed to find a clearer example of how powerfully income inequality has taken root.

Like Romney, Forbes magazine is a little defensive about this — and, like Romney, Forbes has adopted a self-justifying narrative. Luisa Kroll, one of the magazine’s “wealth editors,” nods toward “concerns” about income inequality in her introduction to the list, but she goes on to write that “a deeper analysis instills confidence that the American dream is still very much alive.” In fact, it does nothing of the sort.

The fundamental reason the Romneys pay so little in taxes is that the bulk of their income comes from investments and thus is taxed at the capital gains rate of 15 percent. Although Romney himself isn’t close to being rich enough to join the Forbes 400, his reliance on capital gains is a trait he shares with most of the ultrawealthy. It is the thread that ties together the Forbes 400.

Financiers, who make up a large percentage of the Forbes 400, long ago found ways to convert their compensation to capital gains, for instance. Romney, of course, did the same thing when he was running Bain Capital, a private equity firm. But even those who are not on Wall Street rely on capital gains. A large number of the Forbes 400 — “roughly 40 percent,” according to a group called United for a Fair Economy — inherited their wealth. Many others on the list — people who started companies that they’ve since left — are classified by Forbes as investors.

Even many of the corporate executives on the Forbes 400 are likely paying a lower tax rate. Many of them get minimal cash compensation and rely on stock options for the bulk of their wealth. Or they maneuver to take their companies through a leveraged buyout, which reaps them huge potential capital gains. In 2009, according to recent Congressional testimony by Leonard E. Burman, a professor at Syracuse University, the 400 highest-income taxpayers reaped an astounding 16 percent of all capital gains.

All of which would be justifiable if the country got some benefit in return. On “60 Minutes” Sunday night, when Romney was asked about the justification for his low tax rate, he said what most conservatives say, that a low capital gains rate is “the right way to encourage economic growth, to get people to invest, to start businesses, to put people to work.”

This is also what Forbes means when it links its list to “the American dream.” Except that there is no evidence that it’s true. In 1986, when Ronald Reagan was president, the differential between capital gains and ordinary income was eliminated — and the economy soared. The capital gains rate was higher during the Bill Clinton years than in the George W. Bush years, yet the economy did better under Clinton than under Bush.

In the printed copy of his Congressional testimony, Burman has a chart that plots the ups and downs of the economy since the 1950s with changes in the capital gains rate. There is no correlation between the two. The idea that a lower capital gains rate spurs economic growth is one of the enduring myths of conservative thought.

The American dream exists not because of the capital gains differential but in spite of it. It is the tax break that most glaringly exists to benefit the wealthy. If you have any doubts about that, all you need to do is read the latest Forbes 400.

    Romney and the Forbes 400, NYT, 24.9.2012,
    http://www.nytimes.com/2012/09/25/opinion/nocera-romney-and-the-forbes-400.html

Chicago’s Next School Crisis: Pension Fund Is Running Dry

September 19, 2012
The New York Times
By MARY WILLIAMS WALSH

One of the most vexing problems for Chicago and its teachers went virtually unmentioned during the strike: The pension fund is about to hit a wall.

The Chicago Teachers’ Pension Fund has about $10 billion in assets, but is paying out more than $1 billion in benefits a year — much more than it has been taking in. That has forced it to sell investments, worth hundreds of millions of dollars a year, to pay retired teachers. Experts say the fund could collapse within a few years unless something is done.

“There’s a huge crisis,” said Laurence Msall, president of the Civic Federation, a nonpartisan research organization in Chicago that works on fiscal issues. “The problem does not get easier by waiting. The problem gets bigger, and starts to become an insurmountable obstacle.”

Having skipped its pension contributions for many years, Chicago is supposed to start tripling them in another year under state law. But the school district has drained its reserves. And it cannot easily turn to the local taxpayers, because of a cap on property taxes. Borrowing the money would be difficult and expensive as well, because of a credit downgrade this summer. One of the few remaining choices would be to make deep cuts in other services.

Like Chicago, many cities and school districts now face pension pressure after reducing their contributions in recent years to save money. Among the funds for different types of workers, teachers’ plans tend to be shortchanged more often, according to research done by the Center for Retirement Research at Boston College for The New York Times.

The reasons are unclear, but in many states — California, New Jersey, Rhode Island and Illinois, among others — pension contributions must be set by state legislators every year. And since teachers’ pension costs are blended with other education spending, lawmakers sometimes decide to withhold money from pensions to allow more direct state spending on the schools. The teachers’ pension fund for the State of Illinois is in even worse shape than the Chicago teachers’ fund.

What many Chicago residents may not realize is that their school district also has been paying $130 million a year to cover most of the pension contributions required of the teachers, a practice known as a “pickup,” which became a flash point last year in the collective bargaining battle in Wisconsin. Wisconsin’s public workers have agreed to make their own contributions, as a concession.

Officials in Chicago know they have a pension problem, even though it has not been front and center in the strike. Mayor Rahm Emanuel has focused on trying to improve the quality of public education, with a longer school day and more meaningful teacher evaluations. The Chicago Teachers’ Union, meanwhile, has been intent on reinstating a 4 percent pay increase, and protecting those who are laid off when failing schools are closed.

Mr. Emanuel has made it clear that he wants to address teachers’ pensions, too. Earlier this year, he tried to curb at least some of Chicago’s ballooning costs by seeking to raise retirement ages, increase employee contributions and trim the 3 percent yearly pension increases that the city’s retirees now receive. He called those increases “the single greatest threat to the retirement security of city employees,” because they drain money from pension funds very quickly.

The State Legislature, which must approve such changes, has said pensions must wait until next year. But Mr. Emanuel says the system is broken and he is not willing to make any increased contributions until it has been fixed. The mayor said earlier this year that making the larger contributions would lead to “direct cuts in our classrooms.”

“Those cuts mean the average class size will jump to approximately 55 students,” he warned.

The teachers union has blasted Chicago for failing to set aside enough money for the pensions, but it has reassured workers and retirees that their benefits are protected by the State Constitution and cannot be reduced. A state law bars strikes in Chicago over pension issues.

Retirees say they are dismayed at the way their fund has been neglected, though they generally believe their benefits are safe.

“In the State Constitution of Illinois, it says that once you receive a pension, it can never be changed to be lower,” said Claire J. Murray, 69, who retired in 2002 with a pension of about $42,000 a year, based on 34 years as a teacher and middle-school counselor.

If the money in the fund ever ran out, “the State of Illinois would have to pay our pensions,” she said. “We’re not just a pension fund, we’re part of the State Constitution.”

Ms. Murray pointed out that teachers in Chicago, as in many cities, do not earn Social Security credit for their years in the classroom. Their pension plan is intended to replace the federal benefit.

She also said it would be unfair to penalize retired teachers for the school district’s failure to set aside enough money for their benefits.

“It’s the Board of Education who kept on taking all these funding holidays,” she said.

Indeed, the State Legislature granted the Chicago school district a break from its pension contributions, starting in 1995. Since then, the city has never contributed the required amount; for many years it put in nothing. All the while, the teachers kept building up their benefits.

Pension fund documents say the teachers continuously made their share of the contributions, 9 percent of each paycheck. But in fact, the teachers have been putting in just 2 percent of their pay, while the school district has been making up the rest of what is called the “employee contribution” every year. The practice began under an agreement reached in the early 1980s that was supposed to reduce future pay raises, keep money in the fund and take advantage of a federal tax break.

Such pickups were not widely known until Gov. Scott Walker of Wisconsin began his push to make public employees pay more for their benefits and to bar them from bargaining for anything besides base pay. Wisconsin law calls for public workers and their employers to split the cost of pension contributions, but in practice, state and local governments were picking up almost all of the employees’ share. Local and state workers have contended that they sacrificed current pay increases and the pickup should not be considered a giveaway.

Chicago does not have the state’s only pickup. While Illinois says that teachers outside Chicago send in 9.4 percent of every paycheck for the separate state fund, the state really pays most of that too.

Gov. Pat Quinn of Illinois and Mr. Emanuel have both called for public workers to increase the amounts they pay toward their pensions. Forcing the Chicago teachers to make their full contributions, of course, would erode much of the salary increases they fought for during the strike.

    Chicago’s Next School Crisis: Pension Fund Is Running Dry, NYT, 19.9.2012,
    http://www.nytimes.com/2012/09/20/business/teachers-pension-a-big-issue-for-chicago.html

Cleaning Up the Economy

September 6, 2012
The New York Times
By PAUL KRUGMAN

Bill Clinton’s speech at the Democratic National Convention was a remarkable combination of pretty serious wonkishness — has there ever been a convention speech with that much policy detail? — and memorable zingers. Perhaps the best of those zingers was his sarcastic summary of the Republican case for denying President Obama re-election: “We left him a total mess. He hasn’t cleaned it up fast enough. So fire him and put us back in.”

Great line. But is the mess really getting cleaned up?

The answer, I would argue, is yes. The next four years are likely to be much better than the last four years — unless misguided policies create another mess.

In saying this, I’m not making excuses for the past. Job growth has been much slower and unemployment much higher than it should have been, even given the mess Mr. Obama inherited. More on that later. But, first, let’s look at what has been accomplished.

On Inauguration Day 2009, the U.S. economy faced three main problems. First, and most pressing, there was a crisis in the financial system, with many of the crucial channels of credit frozen; we were, in effect, suffering the 21st-century version of the bank runs that brought on the Great Depression. Second, the economy was taking a major hit from the collapse of a gigantic housing bubble. Third, consumer spending was being held down by high levels of household debt, much of which had been run up during the Bush-era bubble.

The first of these problems was resolved quite quickly, thanks both to lots of emergency lending by the Federal Reserve and, yes, the much maligned bank bailouts. By late 2009, measures of financial stress were more or less back to normal.

This return to financial normalcy did not, however, produce a robust recovery. Fast recoveries are almost always led by a housing boom — and given the excess home construction that took place during the bubble, that just wasn’t going to happen. Meanwhile, households were trying (or being forced by creditors) to pay down debt, which meant depressed demand. So the economy’s free fall ended, but recovery remained sluggish.

Now, you may have noticed that in telling this story about a disappointing recovery I didn’t mention any of the things that Republicans talked about last week in Tampa, Fla. — the effects of high taxes and regulation, the lack of confidence supposedly created by Mr. Obama’s failure to lavish enough praise on “job creators” (what I call the “Ma, he’s looking at me funny!” theory of our economic problems). Why the omission? Because there’s not a shred of evidence for the G.O.P. theory of what ails our economy, while there’s a lot of hard evidence for the view that a lack of demand, largely because of excessive household debt, is the real problem.

And here’s the good news: The forces that have been holding the economy back seem likely to fade away in the years ahead. Housing starts have been at extremely low levels for years, so the overhang of excess construction from the bubble years is long past — and it looks as if a housing recovery has already begun. Household debt is still high by historical standards, but the ratio of debt to G.D.P. is way down from its peak, setting the stage for stronger consumer demand looking forward.

And what about business investment? It has actually been recovering rapidly since late 2009, and there’s every reason to expect it to keep rising as businesses see rising demand for their products.

So, as I said, the odds are that barring major mistakes, the next four years will be much better than the past four years.

Does this mean that U.S. economic policy has done a good job? Not at all.

Bill Clinton said of the problems Mr. Obama confronted on taking office, “No one could have fully repaired all the damage that he found in just four years.” If, by that, he meant the overhang of debt, that’s very much the case. But we should have had strong policies to mitigate the pain while households worked down their debt, as well as policies to help reduce the debt — above all, relief for underwater homeowners.

The policies we actually got were far from adequate. Debt relief, in particular, has been a bust — and you can argue that this was, in large part, because the Obama administration never took it seriously.

But, that said, Mr. Obama did push through policies — the auto bailout and the Recovery Act — that made the slump a lot less awful than it might have been. And despite Mitt Romney’s attempt to rewrite history on the bailout, the fact is that Republicans bitterly opposed both measures, as well as everything else the president has proposed.

So Bill Clinton basically had it right: For all the pain America has suffered on his watch, Mr. Obama can fairly claim to have helped the country get through a very bad patch, from which it is starting to emerge.

    Cleaning Up the Economy, NYT, 6.9.2012,
    http://www.nytimes.com/2012/09/07/opinion/krugman-cleaning-up-the-economy.html

The Better Economic Question

September 5, 2012
The New York Times

Democrats have been nervous about the inevitable election-year question, “Are you better off than you were four years ago?” Gov. Martin O’Malley of Maryland even stumbled over it a few days ago, saying “no,” before quickly blaming President George W. Bush.

There is really no reason for any hesitancy. The country is unquestionably better off than it was in 2008. The economy has added 4.5 million private-sector jobs since January 2010; even if you subtract the vast job losses in the early months of President Obama’s term, before his policies went into effect, the country is still ahead by 332,000 private-sector jobs.

That level of job growth is close to the recovery following the 1990s recession, and it is actually stronger than after the early-2000s recession. But it doesn’t feel strong because the original hole was so deep and so many people are still suffering: 12.8 million remain unemployed.

The contradiction between the plain facts of the data and the tepid feel of the recovery suggests that the recession created a more important question than the simplistic “are you better off?” Voters should ask themselves — and their leaders — how to keep this and future generations better off. How to prevent future recessions. How to design a tax code that promotes fairness and reduces inequality. How to make sure a safety net is in place for those who inevitably need more help.

And when the question is phrased like that — looking forward rather than backward — it becomes obvious that the Republicans’ answer is inadequate.

“When we vote in this election, we’ll be deciding what kind of country we want to live in,” former President Bill Clinton told the convention Wednesday night. “If you want a winner-take-all, you’re-on-your-own society, you should support the Republican ticket.”

The damage Mr. Obama faced when he took office was far greater than any president, current or past, could repair in four years, Mr. Clinton said, yet Mitt Romney wants to return to the policies that caused it. “They want to cut taxes for high-income Americans, even more than President Bush did,” he said.“They want to get rid of those pesky financial regulations designed to prevent another crash and prohibit future bailouts.”

At every step, when Mr. Obama and Democrats have proposed measures to reduce the risk of the kind of recession still haunting the economy, Republicans have opposed them. Mitt Romney regularly sneers at the most fundamental protections against Wall Street excesses and promises to repeal them.

House Republicans, including Representative Paul Ryan, have passed budgets that gutted the Commodity Futures Trading Commission, hoping to prevent it from regulating toxic derivatives that undermined the economy in 2008. They have voted to withhold money needed by the Securities and Exchange Commission to enforce the Dodd-Frank financial reform bill.

They have sent a clear signal to the corporate executives spending hundreds of millions to elect Mr. Romney that they need not worry about restrictions on their behavior, no matter how destructive to the economy or the lives of millions still struggling to get back on their feet.

As Elizabeth Warren, the Democratic candidate for the United States Senate in Massachusetts, told the convention: “Mitt Romney wants to give billions in breaks to big corporations, but he and Paul Ryan would pulverize financial reform, voucherize Medicare and vaporize Obamacare.”

Mr. Obama could have demanded even stronger regulation of the banks, but he at least clearly supports the need for government to step in when the financial industry threatens the rest of the economy.

Voters should remember the days when the country was hemorrhaging jobs by the millions, but it is far more important to make certain they never have to remember another financial crisis.

    The Better Economic Question, NYT, 5.9.2012,
    http://www.nytimes.com/2012/09/06/opinion/the-better-economic-question.html

Mr. Bernanke’s Next Task

September 3, 2012
The New York Times

It will be another week — at a meeting of the Federal Reserve policy-making committee on Sept. 12 and 13 — before anyone knows for sure what Ben Bernanke thinks the Fed should do, if anything, to stimulate the weak economy. What is known is that, without more help, the economy is likely to remain weak, or grow weaker, through the rest of this year.

In his speech on Friday at the annual meeting on monetary policy in Jackson Hole, Wyo., Mr. Bernanke said that past Fed interventions had been a plus for the economy, raising growth enough to add an estimated two million jobs, but that economic conditions are still “obviously far from satisfactory.” Then he said that more help would be forthcoming “as needed.”

But, by his own analysis, help is needed now.

Mr. Bernanke said that national unemployment, at 8.3 percent, is unacceptably high and that much faster growth will be needed to bring that number down. But the economy, instead of accelerating, has slowed, from 4.1 percent in the last quarter of 2011, to 2 percent in the first quarter of 2012 and to 1.7 percent in the second quarter.

Mr. Bernanke also stressed that persistently high unemployment risks bringing on irreversible economic damage as the long-term unemployed become the permanently unemployable. Even as overall unemployment has declined from a peak of 10 percent in October 2009, the share of jobless workers out of work for more than six months has remained stubbornly high.

According to Mr. Bernanke, the economy is being held back by a sluggish housing market; counterproductive fiscal policy, as both the federal government and the states cut spending in the face of weak growth; and the euro crisis, which hurts the United States because of trade and financial links to Europe.

All this is true and reflected in slumping consumer confidence, heightened business uncertainty and a recent slowdown in manufacturing. Unfortunately, meaningful progress on housing and fiscal policy requires Congress to act. Congressional Republicans, however, have long resisted efforts to revive growth on the theory that a weak economy will help them regain the White House. As for the euro crisis, there is nothing much that American policy makers can do.

That leaves the Fed the only entity with the autonomy and the power to take action. Admittedly, its tools — various ways to reduce borrowing costs and spur lending — are not ideal for the problems that Mr. Bernanke has identified. It would be better, for example, for lawmakers to bolster federal spending in the near term to create jobs than for the Fed to indirectly attempt to boost activity through more lending. It would also be better for Congress to provide more debt relief for underwater homeowners, as the Fed keeps mortgage rates low for new buyers.

But that is too logical for these times. Mr. Bernanke has laid out the problem, including the economic drag caused by political dysfunction. But he has also risked becoming part of the dysfunctional dynamic, exhorting and waiting for others to act when they are clearly unable or unwilling to do so.

Here’s hoping that will change at the Fed meeting next week. And here’s hoping that any help is not too little, too late.

    Mr. Bernanke’s Next Task, NYT, 3.9.2012,
    http://www.nytimes.com/2012/09/04/opinion/ben-bernankes-next-task.html

Democrats Say U.S. Is Better Off Than Four Years Ago

September 3, 2012
The New York Times
By JIM RUTENBERG

CHARLOTTE, N.C. — A day after fumbling a predictable and straightforward question posed by Mitt Romney last week — are Americans better off than they were four years ago — the Obama campaign provided a response on Monday that it said would be hammered home during the Democratic convention here this week: “Absolutely.”

The focus on the campaign’s handling of the question, after halting and contradictory responses from Democrats on Sunday, complicated the White House’s effort to begin striking a set of themes the president intends to highlight here and carry through the general election.

That effort starts with an argument that Mr. Romney, the Republican nominee, would raise taxes on the middle class while cutting them for the wealthy. It seeks to pitch forward to the next four years the case that Mr. Obama and his allies have made over the spring and summer — that Mr. Romney’s business career showed him intent on profit even at the expense of workers and that his wealth has given him tax advantages not enjoyed by regular people.

“The problem is everybody’s already seen his economic playbook,” Mr. Obama said at a campaign stop in Ohio before a Labor Day audience largely consisting of United Auto Workers union members. “On first down he hikes taxes by nearly $2,000 on the average family with kids in order to pay for a massive tax cut for multimillionaires.”

The Obama campaign began running a new commercial making the same point, and asserting, “The middle class is carrying a heavy load in America, but Romney doesn’t see it.”

As delegates streamed in for the opening of the convention on Tuesday, Mr. Obama and his team were putting the finishing touches on a program that requires a different kind of political daring from the one they showed four years ago, when Mr. Obama gave his speech in a stadium on a stage compared by some to a Greek temple.

This week Mr. Obama is planning to undertake a tricky two-step of convincing wavering supporters being aggressively courted by Mr. Romney that they made the right decision in choosing him four years ago and that he has the country on its way to a sustainable recovery even if they do not always feel it. He will make the argument in an outdoor stadium again, on Thursday night under the threat of rain, but aides say there will be no Greek columns.

Obama campaign aides indicated they were moving into a new phase, applying their case that Mr. Romney has no history of looking out for the middle class to the question of what the next four years would look like under a Romney presidency.

But Republicans showed that they were not going to give Mr. Obama a free ride this week, with Mr. Romney’s running mate, Representative Paul D. Ryan, coming to North Carolina to keep the focus on the last four years.

“The president can say a lot of things, and he will, but he can’t tell you that you’re better off,” Mr. Ryan said on Monday at a rally in Greenville, N.C. “Simply put, the Jimmy Carter years look like the good old days compared to where we are right now.”

Mr. Obama’s aides initially appeared to stumble when television interviewers asked them to respond to Mr. Romney’s charge in his nomination acceptance speech Thursday night that Americans were not better off under Mr. Obama.

On Fox News Channel, Mr. Obama’s top strategist, David Axelrod, said, “We’re in a better position than we were four years ago in our economy.” But Gov. Martin O’Malley of Maryland, a Democrat, answered “no” on CBS’s “Face the Nation,” though he blamed Republicans. Other aides equivocated.

Mr. O’Malley provided another answer on Monday on CNN: “We are clearly better off as a country because we’re creating jobs rather than losing them. We have not recovered all that we lost in the Bush recession. That’s why we need to continue to move forward.”

In fact, on Monday the campaign settled on a definitive answer of, as the deputy campaign manager Stephanie Cutter put it, “Absolutely.”

Followed down a hallway by a local news crew asking the “better off” question in the convention center here, Ms. Cutter described the economic scene four years ago — the auto companies teetering near bankruptcy, bank failures — and said, “Does anyone want to go back to 2008? I don’t think so.”

Speaking in Detroit on Monday, Vice President Joseph R. Biden Jr. said during a union rally, “You want to know whether we’re better off?” He answered: “I’ve got a little bumper sticker for you: Osama bin Laden is dead and General Motors is alive.”

Aides said that over the next three days they would show video testimonials of people who have been helped by Mr. Obama’s policies, hammering home the success of his auto bailout and the benefits of his health care overhaul.

“We’re not running from our record, which we’re proud of,” Mr. Axelrod said in an interview.

But, he added, “We’re also going to burnish the choice — it’s fair to say there will be more discussion of their ideas at our convention than there was at theirs.”

While Democrats pointed to polls showing that Mr. Romney appeared to get little polling “bounce” out of his convention, some Democratic strategists here conceded that Republicans had succeeded in muddying the waters on a traditional Democratic strong point, Medicare.

Mr. Romney and Mr. Ryan support a plan that would change the program into one in which beneficiaries would get a fixed amount of money from the government each year to use to purchase private health insurance or traditional Medicare, a shift that Democrats say would leave the elderly vulnerable to rising health care costs. Many Democrats had assumed the issue would be a major political help to them, but some Democratic strategists said Republican claims that Mr. Obama had cut $716 billion from the program had at least partly neutralized the Democratic advantage and constrained their ability to emphasize Medicare in their campaign message.

In a brief interview, the minority leader in the House, Representative Nancy Pelosi of California, seemed to acknowledge as much when she said of Republicans, “Confusion is the name of their game,” though she added that the Democrats could regain the advantage. “We don’t agonize over that, so we’re organized to make sure the truth is known by the public.”

Democrats here expressed relief that Mr. Obama took some potentially contentious issues out of the intraparty debate here — supporting gay marriage, ending the military policy known as “don’t ask, don’t tell,” and easing the threat of deportation for many young immigrants in the country illegally — and those were expected to be highlighted here, as well.

Produced by the same team that put on Mr. Obama’s last convention — the strategists Jim Margolis and Erik Smith — the program this week will include a video version of Mr. Obama’s logo, now overlaid with silhouettes of people, which loomed over the empty Time Warner Cable Arena on Monday. The theme emblazoned on the hall is “Americans Coming Together.”

In a nod to austerity, there will be no band, but, rather, a DJ — more specifically, Deejay Cassidy, a favorite of the Obamas.

Where the main priority for Mr. Obama’s team four years ago was to prove he could be president, this year it is to show that he is connected to the middle class.

So, organizers said, the stages in the arena and the Bank of America Stadium, where Mr. Obama speaks Thursday night, will be smaller and “intimate,” allowing speakers “to be surrounded by delegates,” Theo LeCompte, the chief operations officer of the convention, said in a statement.

But this convention will be less about stagecraft than about the argument Mr. Obama will make to woo back straying supporters and recast his presidency in a light of accomplishment amid often gloomy monthly job reports. The next report is to come out Friday, less than 10 hours after Mr. Obama finishes speaking.

Jackie Calmes contributed reporting.

    Democrats Say U.S. Is Better Off Than Four Years Ago, NYT, 3.9.2012,
    http://www.nytimes.com/2012/09/04/us/politics/democrats-say-us-is-better-off-than-4-years-ago.html

Stuck in Place

August 3, 2012
The New York Times

With 163,000 new jobs created, July’s employment growth topped both analysts’ expectations and the meager job gains in May and June. While that growth was not enough to reduce the jobless rate — now 8.3 percent — it was enough to boost the stock market. For investors, the job tally was just high enough to be a pleasant surprise and low enough to give them hope that the Federal Reserve would soon intervene to juice the economy.

The market’s reaction aside, the report actually shows how bad things are and highlights what needs to be done to improve conditions.

July’s job-growth figure brings the monthly average tally for 2012 to 151,000, compared with a monthly average in 2011 of 153,000. At that tepid pace, it would take roughly 10 more years to regain the jobs that were lost — or never created — as a result of the Great Recession.

The month’s jobless rate brings the average for 2012 to 8.2 percent, compared with an average in 2011 of 9 percent, though most of the “improvement” is because of a shrinking labor force, not more hiring. The average hourly wage in 2012, adjusted for inflation through June, has been $23.39; the average in 2011 was $23.44.

The picture that emerges is of a job market that is stuck. Broader measures reinforce that conclusion: In the first half of this year, economic growth averaged 1.7 percent; in 2011, it was 1.8 percent. For all the up and down of monthly and quarterly economic data, the economy lacks forward momentum.

When consumption and investment are not powering the economy, the government sector has to fill the gap with stimulus to boost consumer demand. Much of the economy’s flat performance since 2011 reflects insufficient stimulus, reinforcing insufficient demand. That means sluggish job growth, lackluster pay and persistently weak demand. It’s not a downward spiral, but it is self-reinforcing stagnation.

Politics, however, has gotten in the way of even basic moves to push the economy upward.

Responding to the latest employment report, the White House noted correctly that major areas of job weakness — including positions in construction and teaching — are precisely those that would have been the subject of the jobs bill proposed in 2011 by President Obama. That legislation was blocked by Congressional Republicans.

Mitt Romney responded to the July report by saying that the numbers reflect the failure of Mr. Obama’s policies when, in reality, they reflect the success of the Republican obstructionism.

That leaves the Federal Reserve to try to boost the economy. But what’s needed is direct intervention in the form of more federal spending on education, infrastructure, clean energy, basic research and job training. Until then, we’re stuck.

    Stuck in Place, NYT, 3.8.2012,
    http://www.nytimes.com/2012/08/04/opinion/the-economy-is-stuck-in-place.html

A Budget Crisis Averted, for Now

August 1, 2012
The New York Times

Members of Congress used to be embarrassed when they could not perform their basic job of passing spending bills and instead had to finance the government with a series of short-term resolutions. But such patchwork has now become commonplace, and it is a sign of Washington’s profound dysfunction that the short-term agreement reached on Tuesday came as a relief to both sides.

House and Senate leaders settled on a deal to keep the government running through March, preventing it from shutting down when the fiscal year ends on Sept. 30. With Congress polarized and paralyzed by the coming election, no regular appropriations bills have been enacted, and none will be before the deadline.

The prospect of a shutdown was a real one because House Republicans broke an agreement that they had reached with the Senate last year on the size of the federal budget for the 2013 fiscal year. In settling the debt-ceiling crisis last year, the two chambers passed a measure setting discretionary spending at $1.047 trillion for 2013. But to make one of its periodic points about excessive spending, the House recklessly chopped $20 billion off that amount in March, much of which would have come out of Head Start, Pell grants and state aid.

At the time, many House conservatives said that they relished a confrontation with the Senate, hoping the threat of a shutdown would give them the cuts they wanted. After all, it worked the year before when Republicans cynically used the deadline to wring nearly $40 billion in cuts from the 2012 budget. The withdrawal of that much spending helped neutralize the stimulative effects of the previous year’s payroll tax cut, keeping the economy stagnant.

The difference this year is the November election. Wiser Republican leaders knew that a shutdown crisis in September would leave a bad taste with voters, many of whom (correctly) tend to blame these kinds of things on their party. So the lawmakers agreed on a continuing resolution that will keep the spending limit at $1.047 trillion — far lower than it should be when the economy needs a boost, but at least it’s not making things worse. The White House signed on, and the resolution is supposed to be passed after the August recess.

Both parties are hoping the outcome of the election will give them an advantage when the agreement has to be renegotiated next year. But stalemate is still the most likely outcome as long as voters keep electing Republican lawmakers who are unwilling to compromise on spending and taxes. Representative Steven LaTourette of Ohio, one of the few moderate Republicans left in the House, made that clear on Tuesday when he said he couldn’t take it anymore and would not seek re-election after nine terms.

“There are people on the right and the left who think that if you compromise you’re a coward, you’re a facilitator, you’re an appeaser,” he said, adding that “people are more interested in fighting with each other than they are in getting the no-brainers done and governing.”

That kind of common sense will be missed.

    A Budget Crisis Averted, for Now, NYT, 1.8.2012,
    http://www.nytimes.com/2012/08/02/opinion/after-budget-deal-no-government-shutdown-this-year.html

Corn for Food, Not Fuel

July 30, 2012
The New York Times
By COLIN A. CARTER and HENRY I. MILLER

IT is not often that a stroke of a pen can quickly undo the ravages of nature, but federal regulators now have an opportunity to do just that. Americans’ food budgets will be hit hard by the ongoing Midwestern drought, the worst since 1956. Food bills will rise and many farmers will go bust.

An act of God, right? Well, the drought itself may be, but a human remedy for some of the fallout is at hand — if only the federal authorities would act. By suspending renewable-fuel standards that were unwise from the start, the Environmental Protection Agency could divert vast amounts of corn from inefficient ethanol production back into the food chain, where market forces and common sense dictate it should go.

The drought has now parched about 60 percent of the contiguous 48 states. As a result, global food prices are rising steeply. Corn futures prices on the Chicago exchange have risen about 60 percent since mid-June, hitting record levels, and other grains such as wheat and soybeans are also sharply higher. Livestock and dairy product prices will inevitably follow.

More than one-third of our corn crop is used to feed livestock. Another 13 percent is exported, much of it to feed livestock as well. Another 40 percent is used to produce ethanol. The remainder goes toward food and beverage production.

Previous droughts in the Midwest (most recently in 1988) also resulted in higher food prices, but misguided energy policies are magnifying the effects of the current one. Federal renewable-fuel standards require the blending of 13.2 billion gallons of corn ethanol with gasoline this year. This will require 4.7 billion bushels of corn, 40 percent of this year’s crop.

Other countries seem to have a better grasp of market forces and common sense. Brazil, another large ethanol producer, uses sugar instead of corn to make ethanol. It has flexible policies that allow the market to determine whether sugar should be sold on the sugar market or be converted to fuel. Our government could learn from the Brazilian approach and direct the E.P.A. to waive a portion of the renewable-fuel standards, thereby directing corn back to the marketplace. Under the law, the E.P.A. would first have to determine that the program was causing economic harm. That’s a no-brainer, given the effects of sharply higher grain prices that are already rippling through the economy.

The price of corn is a critical variable in the world food equation, and food markets are on edge because American corn supplies are plummeting. The combination of the drought and American ethanol policy will lead in many parts of the world to widespread inflation, more hunger, less food security, slower economic growth and political instability, especially in poor countries.

If the E.P.A. were to waive the rules for this year and next, the ethanol industry and corn farmers, who have experienced a years-long windfall, would lose out. Wheat and soybean farmers would also lose, because the prices of those crops have also been driven up: corn competes with soybeans for acreage and is substituted for wheat in some feed rations.

Any defense of the ethanol policy rests on fallacies, primarily these: that ethanol produced from corn makes the United States less dependent on fossil fuels; that ethanol lowers the price of gasoline; that an increase in the percentage of ethanol blended into gasoline increases the overall supply of gasoline; and that ethanol is environmentally friendly and lowers global carbon dioxide emissions.

The ethanol lobby promotes these claims, and many politicians seem intoxicated by them. Corn is indeed a renewable resource, but it has a far lower yield relative to the energy used to produce it than either biodiesel (such as soybean oil) or ethanol from other plants. Ethanol yields about 30 percent less energy per gallon than gasoline, so mileage drops off significantly. Finally, adding ethanol actually raises the price of blended fuel because it is more expensive to transport and handle than gasoline.

As the summer drags on, the drought is only worsening. Last week the International Grains Council lowered its estimate of this year’s American corn harvest to 11.8 billion bushels from 13.8 billion. Reducing the renewable-fuel standard by a mere 20 percent — equivalent to about a billion bushels of corn — would offset nearly half of the expected crop loss due to the drought.

All it would take is the stroke of a pen — and, of course, the savvy and the will to do the right thing.

Colin A. Carter is a professor of agricultural and resource economics

at the University of California, Davis. Henry I. Miller, a physician,

is a fellow in scientific philosophy and public policy at the Hoover Institution.

    Corn for Food, Not Fuel, NYT, 30.7.2012,
    http://www.nytimes.com/2012/07/31/opinion/corn-for-food-not-fuel.html

Behind eBay’s Comeback

July 27, 2012
The New York Times
By JAMES B. STEWART

Remember Myspace, Friendster, eToys, Webvan, Urban Fetch, Pets.com? Like meteors, they burned with dazzling brilliance before turning shareholder dollars to ash. EBay, Yahoo and AOL, the dominant Internet triumvirate circa 2004, seemed destined for a similar fate. The conventional wisdom has been that once decline sets in at an Internet company, it’s irreversible.

But that was before eBay’s latest earnings surprise, which sent its stock soaring and had analysts scrambling to raise their projections. “Can Internet companies ever turn around? The answer has been no,” Ken Sena, Internet analyst at Evercore, told me this week. “But now, there’s eBay. The answer may turn out to be yes.”

If so, eBay’s success has big implications for struggling companies like Yahoo and AOL, not to mention more recent sensations that have already lost some luster, like Zynga, Groupon and even Facebook, whose shares tumbled this week after its first earnings report as a public company disappointed investors. “EBay has demonstrated that it’s possible to turn the corner even against long odds,” said David Spitz, president and chief operating officer of ChannelAdvisor, an e-commerce consulting company.

EBay shares hit a peak of over $58 in 2004 and made its chief executive, Meg Whitman, a Silicon Valley celebrity. But by November 2007, when she stepped down to enter politics, the telltale signs of decline had set in. Its stock was slumping. Its dominant online auction business had matured, and growth had slowed. Sellers complained about higher fees and poor support. That year, eBay wrote off $1.4 billion on its poorly conceived $2.5 billion acquisition of the calling service Skype, recording its first loss as a public company. Analysts worried that eBay had lost its quirky soul, and was abandoning the flea market auction model that had made it distinctive and dominant in online auctions. By early 2009, its stock was barely over $10, down over 80 percent from its peak.

Ms. Whitman was succeeded by a former Bain & Company managing director, John Donahoe. “One of the unique things about the Internet is a company can be a white-hot success and become a global brand and reach global scale in just a few years — that’s the good news,” he told me this week. “But then somebody can turn around and do it to you. There’s constant disruption. One of the first things I had to do here was face reality. EBay was getting disrupted.”

Little more than four years after taking charge, a buoyant Mr. Donahoe sounded like the chief executive of a surging start-up when he announced eBay’s latest results on July 18. So thoroughly has eBay been transformed that he didn’t even mention its traditional auction business. “Our multiyear effort is paying off,” he said. Profit more than doubled and revenue jumped 23 percent. “EBay is revitalized. We believe the best is yet to come.” In a stock market struggling with recession fears and the European debt crisis, eBay stock this week hit a six-year high.

How has eBay done it when so many others have failed?

Excitement about eBay’s prospects has little to do with its traditional auction business, or even its core e-commerce operations, although its marketplace division posted solid results and had its best quarter since 2006, the company said. Most of its growth came from mobile retailing and its PayPal online payments division, a business it acquired in 2002 for what now looks like a bargain $1.5 billion.

As consumers embrace shopping on their smartphones, “mobile continues to be a game-changer,” Mr. Donahoe said. He noted that 90 million users had downloaded eBay’s mobile app and that 600,000 customers made their first mobile purchase during the most recent quarter. “A woman’s handbag is purchased on eBay mobile every 30 seconds,” he said. “Mobile is revolutionizing how people shop and pay.”

“It’s hard to think of many companies that benefit from mobile,” Mr. Sena said. “Usually it means more competition. But clearly, eBay is one of them. EBay is offering a one-click payment solution. You don’t have to type in a credit card number or PIN. It’s just one click on your mobile phone.”

Mr. Spitz said he was recently stopped at a traffic light and the sun was bothering his eyes. By the time the light turned green, he had used his phone to order and pay for sunglasses. “This is what commerce anytime, anywhere means,” he said. “It’s here.”

Mr. Donahoe deserves credit not only for recognizing that smartphones would change the shopping experience, but for acting on it, Mr. Spitz said. “EBay under Mr. Donahoe pivoted hard in this direction,” he said.

Mr. Donahoe confirms that, saying: “We saw the mobile revolution early and we made a big bet across the entire company. We saw that mobile was an important factor for our customers. It was becoming the central control device in their lives. We didn’t worry if it cannibalized our existing business, because we knew it was what our customers wanted.”

The smartphone “has blurred the line between e-commerce and off-line retail,” Mr. Donahoe continued. “Four years ago, you had to be in front of a laptop or desktop to shop online. Now you can do it seven days, 24 hours. We’re going to have to drop the ‘e’ from e-commerce.”

Retailers have warmed to the new eBay. “They’re a great partner,” Gerald L. Storch, chairman and chief executive of Toys “R” Us, told me this week. “In an omni-channel retail world, mobile, social, Internet, physical stores — they’re all linked. Customers want to interact with our brand at every level. EBay is especially strong in mobile and payment systems, but they address all those areas and help us compete. We do everything with them.”

Amazon was supposed to have crushed eBay by now with its bigger scale and state-of-the-art inventory and delivery systems. That didn’t happen, but Amazon remains eBay’s biggest competitive threat. Amazon continues to invest in its delivery systems and it, too, has an effective mobile app and one-click payment system.

Even so, many analysts see plenty of room for both Amazon and eBay, and perhaps even more competitors. “When you look at e-commerce as a share of overall consumer spending, it’s not even 10 percent worldwide,” Mr. Spitz said. “There’s plenty of room for growth.”

Mr. Donahoe agreed. “We’ve never viewed the world as a zero-sum game with Amazon,” he said. “There’s plenty of room for multiple winners.”

Moreover, eBay is likely to benefit from its global reach and scale as e-commerce expands. “Consumers aren’t going to download 30 apps from individual retailers, but they will download both eBay and Amazon,” Mr. Spitz said. EBay and PayPal apps already rank among the top 10 mobile apps, eBay said.

And it’s obviously in retailers’ interests to prevent Amazon from becoming an e-commerce monopoly. EBay stresses, without mentioning Amazon by name, that it doesn’t compete with its retail customers. Some sellers have complained that when Amazon spots a hot product, it starts promoting and selling it itself at lower prices.

As Mr. Storch put it: “We do sell Kindle Fires and other Amazon products, but when it comes to retail, eBay helps us succeed. Amazon is the competition.”

The dynamics of e-commerce aside, several broad themes emerge from eBay’s turnaround:

¶ EBay had to break with its past and seize new opportunities. “It was clear the world had innovated around eBay and eBay had stayed with the same formula,” Mr. Donahoe said. “Saying that was considered heresy. With any company that’s been this successful, there’s enormous momentum to keep doing what you’ve been doing and hope the world will go back to what it used to be.”

At the same time, EBay didn’t entirely abandon its roots — it’s still an e-commerce company. But “we had to make changes that were unpopular with subsets of our customers and other people. You have to have the conviction to do what you know is right,” Mr. Donahoe said. “We spent three years fixing the fundamentals and tried not to worry about what everyone else was saying.”

¶ Technological innovation is critical. “We stepped on the gas with innovation,” Mr. Donahoe said. “We’re more technology- and innovation-driven than we’ve ever been. Mobile gave us the opportunity to start with a clean slate from a technology perspective.” Less than two years ago, eBay acquired Critical Path Software, which was helping to develop eBay’s mobile apps. “We thought they were the best, so we bought them and got a couple hundred of the best software developers in the world working exclusively for us,” Mr. Donahoe said.

The resulting mobile apps have been hugely successful with customers. “They’re a nice, clean, elegant solution, a very pleasant experience,” Mr. Spitz said. “Many people are encountering eBay on a mobile device and coming away with a great first impression.”

New products are in the pipeline. Mr. Donahoe said PayPal Here, a new payment system, would allow customers to “check in” in advance at a shop, be greeted by name when they arrive, complete transactions without a mobile device or credit card and get a text message as a receipt.

¶ Management change is necessary and inevitable. Mr. Donahoe has been chief for just over four years, and has replaced most of eBay’s top management. “A significant change in senior leadership was necessary to take eBay to the next level,” he said. He built a team of managers who shared his dedication “to building a great and enduring company, a company that will last,” as he put it. “No one else has really done that on the Internet, and we’re excited by the possibility.” At the same time, he said, “We can’t take anything for granted. We’re almost paranoid. We get up every morning and we’re focused on delivering for our customers and continuing to innovate. It’s a fast-changing world.”

    Behind eBay’s Comeback, NYT, 27.7.2012,
    http://www.nytimes.com/2012/07/28/business/ebays-turnaround-defies-convention-for-internet-companies.html

Amazon Delivers on Revenue but Not on Profit

July 26, 2012
The New York Times
By DAVID STREITFELD

SAN FRANCISCO — Leaping revenue, little profit.

That is the long-established Amazon story, and those who expected to hear it again Thursday were not disappointed.

The company reported sales of $12.8 billion, up 29 percent, in the second quarter while it eked out net income of $7 million, or a penny a share.

Those results essentially matched expectations. Analysts had estimated the Seattle-based retailer would earn 2 cents a share, down from 41 cents a share in the second quarter of 2011.

In what is becoming a routine warning, Amazon said that profit in the current quarter would remain elusive. Revenue might grow as much as 31 percent, the company said, but it was expecting a loss. Losses at Amazon were routine in its early years but in recent years it has made a profit, albeit a small one.

This would be devastating news from some Internet companies. But Amazon bulls were unfazed, saying the retailer was investing, as always, in the future.

“If they keep this up, there’s a good possibility that you’re looking at shopping malls going the way of the record store and the bookstore and the video rental store,” said Jason Moser, who covers Amazon for the Motley Fool investment site.

Amazon shares Thursday were up $3 to $220 during regular trading. The stock is trading only about 10 percent below its record high, with a stratospheric price-to-earnings ratio of about 170. In after-hours trading, shares continued rising.

Since its founding in 1994, Amazon has been focused on broadening its product and customer bases, not pumping up its profit margins. And the growth has been tremendous — it is now one of the country’s largest retailers. Even in North America, its most established market, it has been growing consistently more than twice as fast as the e-commerce market as a whole, a Forrester Research report released Thursday noted.

Amazon is building 18 new fulfillment centers around the world this year. In the United States, many of them are close to major cities, including New York City, San Francisco and Los Angeles. In a conference call with analysts, Thomas J. Szkutak, Amazon’s chief financial officer, said, “We’re investing certainly for the long term.”

In the past, Amazon declined to build warehouses in states where it had many customers, because it would then have to collect sales taxes from them. Now the promise of offering these areas even faster delivery seems to be more of an imperative than continuing to fight the tax issue.

Amazon fans probably dream of ordering books or bagels and getting them the same day. But Mr. Szkutak indicated this would remain a dream. “We don’t really see a way to do same-day delivery on a broad scale economically,” he cautioned.

Six of the new warehouses are already open. Getting some of the others ready for the all-important holiday season helps explain the predicted absence of profit in the third quarter. The centers are a large factor in Amazon’s accelerating head count, which is up 60 percent over the last year to 60,000 employees.

One word that was little mentioned during the call by either Mr. Szkutak or the analysts: Kindle. Amazon’s tablet, the Kindle Fire, was introduced last fall in an ocean of hype. New models are seen by some as overdue.

“We’re excited about the road map we have” for e-readers and e-books, Mr. Szkutak said. He declined to say what that map was.

    Amazon Delivers on Revenue but Not on Profit, NYT, 26.7.2012,
    http://www.nytimes.com/2012/07/27/technology/amazon-delivers-on-revenue-but-not-on-profit.html

Anna Schwartz,

Economist Who Collaborated With Friedman,

Dies at 96

June 21, 2012
The New York Times
By ROBERT D. HERSHEY Jr.

Anna J. Schwartz, a research economist who wrote monumental works on American financial history in collaboration with the Nobel laureate Milton Friedman while remaining largely in his shadow, died on Thursday at her home in Manhattan. She was 96.

Her death was confirmed by her daughter Naomi Pasachoff.

Mrs. Schwartz, who earned her Ph.D. in economics at the age of 48 and dispensed policy appraisals well into her 90s, was often called the “high priestess of monetarism,” upholding a school of thought that maintains that the size and turnover of the money supply largely determines the pace of inflation and economic activity.

The Friedman-Schwartz collaboration “A Monetary History of the United States, 1867-1960,” a book of nearly 900 pages published in 1963, is considered a classic. Ben S. Bernanke, the Federal Reserve chairman, called it “the leading and most persuasive explanation of the worst economic disaster in American history.”

The authors concluded that policy failures by the Fed, which largely controls the money supply, were one of the root causes of the Depression.

Mr. Bernanke acknowledged as much when he spoke at a 90th birthday celebration for Mr. Friedman in 2002. “I would like to say to Milton and Anna: Regarding the Great Depression, you’re right, we did it,” he said. “We’re very sorry, but thanks to you we won’t do it again.”

Mrs. Schwartz was widely known in the profession as the co-author of much of the work that led to Mr. Friedman’s Nobel in economic science in 1976. Her supporters thought the prize might have justly been awarded jointly.

“Anna did all of the work, and I got most of the recognition,” Mr. Friedman said on one occasion.

After Mr. Friedman’s death in 2006, Mrs. Schwartz “became the standard-bearer” of Friedman monetarism, said Michael D. Bordo, a professor of economics at Rutgers University and for decades a Schwartz collaborator himself.

Though “not a deep theorist,” he said, Mrs. Schwartz was “probably the best woman economist of the 20th century.”

During the financial collapse that began in 2008, she was one of the few economists with a firsthand recollection of the Depression. After praising early moves by Mr. Bernanke, she wrote, at age 93, a bitingly critical Op-Ed article for The New York Times in July 2009 opposing the reappointment of the Fed chairman who had been so influenced by her work.

She contended that Mr. Bernanke had erred in producing “extreme ease” in monetary policy and in failing to warn investors that new financial instruments were difficult to price.

Mrs. Schwartz also held that the government had been a bigger contributor to the crisis than had been widely realized. By her measure, the government had oversold the benefits of homeownership, pushing Fannie Mae and Freddie Mac, the government-backed mortgage finance giants, to lend increasingly to lower-income borrowers and fostering exceptionally low mortgage rates.

A leading financial historian, Mrs. Schwartz was also an expert on the monetary and banking statistics of Britain and the United States. Besides her collaborations, she had a large body of work in her own name.

Her most visible public role was in 1981, when she agreed to be executive director of the 17-member United States Gold Commission, a Washington panel that was charged with recommending the future role of gold in the nation’s monetary system.

With little interest in a return to any form of gold standard, she and most other members of the panel, consisting mostly of political appointees, limited their recommendations to urging the government to mint gold coins.

Mrs. Schwartz was born Anna Jacobson on Nov. 11, 1915, in the Bronx, the third of five children of Hillel Jacobson and the former Pauline Shainmark, Jewish immigrants from Eastern Europe.

She was drawn to economics while still at Walton High School in the Bronx — “I found it more exciting than literature or foreign languages,” she said — and graduated from Barnard College at 18.

She worked for the Agriculture Department in 1936, the year she married Isaac Schwartz, whom she had met at a Hebrew summer camp. The couple raised four children. Mr. Schwartz, who was the financial officer for a Manhattan import company and had earned a master’s degree in classics from Columbia, died in 1999.

Besides Ms. Pasachoff, Mrs. Schwartz is survived by another daughter, Paula Berggren; her sons, Jonathan and Joel; seven grandchildren; and six great-grandchildren.

After five years at Columbia University’s Social Science Research Council, Mrs. Schwartz joined the National Bureau of Economic Research in New York in 1941 and continued to work there for more than 70 years. But she maintained her ties to Columbia, earning a Ph.D. there in her middle years.

It was at the National Bureau, a private, nonpartisan research organization that has been the nation’s semiofficial arbiter of business cycles, that Mrs. Schwartz met Mr. Friedman and his wife, Rose Director Friedman, who was also an economist. Rose Friedman had heard from mutual friends that the Schwartzes might have a baby carriage to lend.

Arthur F. Burns, the president of the National Bureau and a future chairman of the Federal Reserve, suggested that Mrs. Schwartz and Mr. Friedman work together.

The two of them — she in New York and he at the University of Chicago — formed a close relationship based on exchanges of drafts and ideas by mail. “I’ll write something and send it to him, and he’ll criticize it, and he’ll do the reverse,” she told a reporter for The Times in 1970 on the publication of their second major work, “Monetary Statistics of the United States: Estimates, Sources, Methods.” “The wonderful thing about this relationship is that neither of us takes offense if the other says it’s no good.”

Mrs. Schwartz did take offense, however, when Paul Krugman, an economist and an Op-Ed columnist for The Times, attacked the Friedman legacy in an article in The New York Review of Books in 2007.

She responded angrily that Mr. Krugman had mischaracterized the work and made “inaccurate forays into economic history” by attributing the Depression to a liquidity trap, a situation in which monetary policy fails to stimulate the economy by either lowering interest rates or expanding the money supply.

“She went ballistic,” Mr. Bordo said.

Even after breaking a hip in 2009 and having a stroke, Mrs. Schwartz, by then using a wheelchair, collaborated with Mr. Bordo and Owen Humpage, an economist at the Cleveland Fed, on a project tracing the history of governmental intervention in currency markets. “Anna never stopped,” Mr. Bordo said.

She often spoke about her successful collaboration with Mr. Friedman on their “Monetary History of the United States,” expressing elation that they had taken on an economic establishment with little regard for theories based on the importance of money.

Decades afterward, writing in The Cato Journal, a publication of the Cato Institute, the conservative public policy research organization, she quoted Wordsworth:

“Bliss was it in that dawn to be alive,/But to be young was very heaven!”

    Anna Schwartz, Economist Who Collaborated With Friedman, Dies at 96, NYT, 21.6.2012,
    http://www.nytimes.com/2012/06/22/business/anna-schwartz-economist-who-worked-with-friedman-dies-at-96.html

Economy’s Mixed Blessing: Commodity Prices Fall

June 13, 2012
The New York Times
By CLIFFORD KRAUSS

HOUSTON — Mark Juull, a construction contractor for public and residential housing, has something to be thankful for in this sluggish economy: With global commodity prices falling, he’s saving $200 a week on fuel for his three trucks and finding deals on aluminum, lumber and roof shingles, which are typically made from petroleum.

But he says he thinks prices for his raw materials could easily shoot right back up, so he is not passing any of his savings on to his customers. “When the economy hit me bad, I actually lost money,” he said. “So with prices going down, I am recouping.”

Businesses big and small are getting a break these days as the European financial crisis and slowing growth in China, India and the United States have pushed down the prices of a wide array of commodities in recent weeks. If the trend continues, businesses and consumers are likely to reap benefits through cheaper prices for goods ranging from cotton shirts to copper wiring and coffee beans. So far, however, businesses seem to be benefiting a lot more than their customers.

Over the last month, global oil prices have declined by about 12 percent, while corn, copper, lead, cocoa and coffee have all dropped by 5 percent or more. Prices of corn, cocoa, oats, cotton, rubber, coffee, aluminum, silver, zinc and nickel are all more than 20 percent lower than a year ago.

Gasoline prices are falling precipitously, too, down nearly 20 cents over the last month alone, to a national average of $3.54 a gallon on Wednesday. That is nearly 45 cents below the high for the year reached in early April. The average household consumes 1,200 gallons of gasoline a year, so every dime shaved off the price of gas translates into a $120 annual savings, according to the Oil Price Information Service.

“The world economy is in risk of a recession and on that possibility, commodity prices weaken,” said Allen L. Sinai, chief global economist for Decision Economics, a consulting firm. “Lower inflation comes with weakening economies.”

Oil is among the commodities that have fallen in price the fastest despite continuing tensions in the Middle East and the tightening sanctions on Iran. OPEC production has been soaring in recent months because of mushrooming crude exports from Iraq, an almost total resumption of exports from Libya since the fall of the Qaddafi dictatorship, and a concerted drive by Saudi Arabia to push up production. At a meeting in Vienna on Thursday, OPEC is expected to decide to keep production steady despite weakening prices.

In the United States, a glut of natural gas has led to a price drop of about 10 percent over the last month and more than 50 percent over the last year. Since much of the nation’s electricity is produced by burning natural gas, that should ease summer air-conditioning expenses for consumers. It will also help manufacturers, especially those who make plastics, fertilizers and other products that use natural gas as a feedstock.

But while consumers are pleased by lower fuel prices, they say they have yet to see much relief in the prices of other products linked to commodities.

“I don’t feel food is going down,” said Connie Shanley, a homemaker shopping at a Whole Foods store this week in West University Place, Tex. “Paper towels, deodorant, soap, cleaning products seem to be going up. The total bill seems to be more.”

Libba Letton, a Whole Foods spokeswoman, conceded that there were limited benefits for consumers in the short term.

“Typically these market fluctuations do not immediately affect Whole Foods Market because we have long-term contracts with our suppliers,” she said.

Other businesses also acknowledge that prices for raw materials go up and down far faster than the prices their customers pay for finished goods. Clothing retail executives have said they need to sell off inventory purchased when textile prices were higher before consumers can take full advantage of falling cotton prices, while car parts retailers say they are still paying high shipping costs that have not fallen along with lower fuel costs.

Paul J. Chakmak, executive vice president and chief operating officer of Boyd Gaming, a national chain of hotels and casinos, said his company was benefiting from lower jet fuel prices since it operates four weekly charter flights to shuttle tourists from Honolulu to Las Vegas. Lower natural gas prices help reduce the cost of cooking at hotel restaurants and of heating the shower water in 11,500 rooms. But he said the energy savings were marginal compared with labor and marketing costs, so customers would not see lower prices.

“It is a little soon,” Mr. Chakmak said, to predict any long-lasting impact.

More than anything else, economists say, the steep drop in prices reflects deepening worries about a global economic slowdown as Greece prepares for elections next weekend that could lead to its withdrawal from the euro currency union, with financial repercussions across Europe and beyond. A sharp drop in European consumer demand, especially in Italy and Spain, has already reduced global trade in many goods.

But economists say that while manufacturers and retailers tend to pass higher costs on to their customers, they do not always pass along their savings when wholesale prices go down.

“Producers or stores tend to keep prices the same, and take a larger profit,” said Michael P. Niemira, chief economist for the International Council of Shopping Centers.

Commodity prices are still generally high, and well above levels nearly four years ago, when the global financial panic reversed a seven-year bull market.

The decline in commodity prices varies widely depending on the raw material. Cotton prices are down nearly 50 percent over the last year, and have actually been recovering a bit in recent weeks. Copper, a metal that is viewed by many economists as a barometer for economic activity, is down by nearly 20 percent for the year. Gold, normally a commodity that soars with economic uncertainty, is higher but only by about 3 percent over the last year.

“Gold has behaved in line with risky assets, and the heightened uncertainty globally has not rallied the same support gold garnered on previous occasions,” according to a recent research note from Barclays commodities.

Some analysts say that commodities have sold off so steeply that they are bound to turn around and resume the bull market that was spurred by growing demand from emerging middle classes in the developing world.

In an investment note this week, Goldman Sachs argued that oil and some other commodities were poised for a rebound. “Although the macroeconomic backdrop still remains uncertain, particularly in Europe,” the bank said, “we believe that the price risks are now shifting more to the upside.”

Some analysts note that China is still growing and importing large amounts of oil, and can be expected to be a steady importer of raw materials.

“The fact that China is moving from an export model to an internal consumption model may be positive for some commodities such as energy and agricultural products,” said Nelson Louie, global head of commodities at Credit Suisse’s asset management division.

    Economy’s Mixed Blessing: Commodity Prices Fall, NYT, 13.6.2012,
    http://www.nytimes.com/2012/06/14/business/economy/weak-economys-mixed-blessing-falling-commodity-prices.html

Pink Slips

June 12, 2012
The New York Times

The school district in Reading, Pa. — the nation’s poorest city — laid off 110 teachers last week, along with hundreds of other employees. As elementary students watched in shock, many of their favorite teachers were pulled out of an assembly one by one and given the bad news by district officials, The Reading Eagle reported.

The layoffs will mean larger classes and an end to public prekindergarten in the city. Many special-education students will lose their mentors. A city where only 8 percent of the residents have a bachelor’s degree (compared with the national average of 28 percent) will fall further behind, largely because Pennsylvania’s Republican governor, Tom Corbett, chose not to find state money to replace $900 million in federal aid that ran out after the stimulus expired. Instead, he further drained his public coffers by cutting business taxes by $250 million this year.

Across the country, many states like Pennsylvania that happily accepted stimulus money to pay for existing employees are laying off those workers now that Congress has turned off the spigot. Over the last three years, at least 700,000 state and local government employees have lost their jobs, including teachers, sanitation workers and public safety personnel, contributing a full percentage point to the unemployment rate.

That seems to be just fine with Mitt Romney, who, like many Republicans, does not consider a job to be economically significant unless it is in the private sector. Last week, he attacked President Obama for proposing to help states hire more teachers and other workers, saying the president doesn’t understand that Americans don’t want to hire “more firemen, more policemen, more teachers.” Only right-wing ideologues make that distinction; most Americans know driving a bus or picking up trash is just as important economically as working in a big-box store.

Mr. Romney tried to retreat from those comments on Monday, saying that local-government hiring was not a federal issue, but obviously it is. The federal government provided about 10 percent of K-12 education budgets before the stimulus, and that share increased in the last three years. The stimulus money helped save 400,000 education jobs. Since the stimulus began in 2009, Washington has provided more than a third of state budgets, supporting as many as half-a-million other jobs, but that wasn’t enough to prevent layoffs, which have only increased since the money began running out.

There have been at least 100,000 education employees laid off nationwide in the last three years; the White House puts the figure at 250,000. California has lost 32,000 teacher jobs — 11 percent of the work force. Pennsylvania laid off nearly 9,000 teachers and other school workers last year, largely because of Governor Corbett’s cuts.

In some cases, states have been forced to cut public employees because of unduly high pension benefits, and we have supported state efforts to reduce those pensions. But putting educators and others back to work ultimately depends on Congress, where Republicans are blocking vital legislation to bolster a faltering economy. For desperate cities like Reading, time is running out.

    Pink Slips, NYT, 12.6.2012,
    http://www.nytimes.com/2012/06/13/opinion/the-beleaguered-middle-class-pink-slips.html

Sunday Dialogue: Financing Social Security

June 9, 2012
The New York Times

More income should be taxed, a writer says. Readers react.

The Letter

To the Editor:

In a nation that prides itself on fair play and equal opportunity, it seems incongruous that people with wealth-based income — interest, dividends, capital gains, rent — are excused from paying Social Security (traditionally 12.4 percent) and Medicare taxes (2.9 percent) on that income. Equally odd, they do not pay Social Security tax on wages above $110,100. Shouldn’t these taxes be paid on all income? Taxing the “earned” and not the “unearned” seems rather un-American, doesn’t it?

The two preferences hark back to Social Security’s 1930s groundbreaking origins. Without these exclusions, would there have been a political consensus to create Social Security? Maybe, maybe not, but no decision is fixed forever.

If these preferences were eliminated and the economy recovered to mirror a positive year like 2007, the Social Security Trust Fund would nearly double its annual revenue. We could expect to see an additional $500 billion for Social Security and $100 billion for Medicare. The additional Social Security inflow would almost cover the annual outflow, leaving most of the current revenue as a surplus to accommodate the baby boomers.

Virtually all income of the bottom 50 percent is “earned” and fully taxed for Social Security and Medicare. Many people are unaware that wealthy taxpayers are entitled to exempt much, if not most, of their wages, as well as investment income. Ending those exemptions would allow a major reduction in Social Security and Medicare tax rates.

Alternatively, if tax rates stayed at or near current levels, Congress could use half the new revenue to strengthen Social Security, Medicare, food stamps, unemployment and other support programs. The other half could be used to abolish the corporate income tax, which has averaged about $224 billion in annual revenues over the last decade.

Such a “grand bargain” would make the funding of the safety net fairer and eliminate the double taxation of dividends. Abolishing the corporate income tax would also make American companies more competitive internationally.

JAMES ABERT
Lancaster, Pa., June 4, 2012

The writer is a retired faculty member at the McDonough School of Business, Georgetown University.

 

Readers React

Mr. Abert argues for imposing Social Security taxes on all income on the grounds that this nation prides itself on fair play. But the people of this nation also pride themselves on self-reliance.

Social Security gained its great popularity precisely because it is not a welfare program. People pay into it from the money they earn during their working years. The amount of benefits they receive is calculated based on lifetime earnings. No one feels guilty about getting Social Security because “it’s my own money I’m getting back.”

Mr. Abert’s proposal would change all that. While the amount of income taxed would no longer be capped at $110,100, or at all, the maximum payments presumably would be limited. Thus, many Americans would pay taxes on income not included in the calculation of the benefits they will receive on retirement. In short, wealthier Americans will be subsidizing the retirement of the less wealthy. No one would any longer be able to say, “I’m just getting my own money back.”

Franklin D. Roosevelt believed that Social Security could never be repealed because all workers invested in it and all shared an interest in its continuation. Breaking the link between taxes and benefits would destroy that sense of self-reliance that has long sustained the program. Turning Social Security into a welfare program would be the first step on the way to its eventual demise.

CHARLES W. SNYDER
Savannah, Ga., June 6, 2012

The writer is a lawyer.

 

I agree with some things Mr. Abert says and disagree with others. The most upsetting is using the excess revenues for things other than Social Security.

Revenues from the payroll tax do not go into the general fund. Sure, the surplus is invested in Treasury bonds, with proceeds going toward financing general government spending until the bonds mature and get paid back, but no Social Security money is used for anything other than Social Security. That is one key factor that gives Social Security such widespread support.

Increasing or abolishing the ceiling on earned income subject to Federal Insurance Contributions Act, or F.I.C.A., contributions would alone finance Social Security in perpetuity, and the rate may even be lowered after the baby boom generation passes through the system.

The biggest problem Social Security has is that most Americans do not understand it. Participants (involuntarily, I’ll grant you) make contributions to the fund while they are working, then withdraw from it when they retire. If the money just sat there, there would be no accumulation for population bulges, like the baby boom, and no increase for inflation. Therefore, it is invested in Treasury bonds, where it collects interest and allows the government to borrow domestically from its own citizens instead of sending interest payments to foreigners. The money is completely accounted for, and the government is obliged to pay the promised benefits.

It is an ingenious system, and we must do everything we can to preserve it.

SCOTT KOCHMAN
Brooklyn, June 6, 2012

 

Mr. Abert’s letter points out the enormous inequity in our tax system that is heavily skewed in favor of the wealthy. I also agree with him that a tax code that treats “unearned income” more favorably than “earned income” is toxic in a society that still professes to have at least a modicum of commitment to equal rights and equal opportunity.

What I don’t understand is the rationale for his proposal to abolish corporate income taxes. Don’t the laws of the United States already treat corporations more favorably than ordinary mortals?

During the 1950s, corporations paid about 49 percent of their profits in taxes, yet the economy grew and the middle class expanded and prospered. By 2011, corporations paid taxes at about half that rate, as they outsourced American jobs, destroyed unions, deindustrialized the economy and hollowed out the middle class. Corporations should not be rewarded for their irresponsible behavior.

More important, Mr. Abert’s proposed “grand bargain” needs to be viewed in the context of current political realities. The enormous concentration of wealth in a minuscule income group has spawned an incredibly influential elite who have gamed this country’s dysfunctional political system and are able to shape it to serve their needs. Until this problem is addressed, no proposals that compel the wealthy to pay higher taxes, however meritorious, have a chance of ever being enacted into law.

PAUL L. NEVINS
Boston, June 6, 2012

The writer is a lawyer.

There are several points I take issue with in Mr. Abert’s letter.

There is a limit on Social Security payments in retirement. So if we raise the current cap on F.I.C.A. taxes from $110,100 to infinity, should we also raise the maximum Social Security retirement benefit? If not, then where is the “fairness” in that?

Mr. Abert’s references to a “positive year like 2007” would be more accurately translated as “bubble year.” The economy in 2012 is most likely the new normal, so the additional revenue Mr. Abert cites is highly suspect.

There are many retirees who, after working 30 to 40 years, have amassed a “golden years” nest egg. As the Federal Reserve maintains record low interest rates, many retirees have found their income decimated. To add an F.I.C.A. tax on the earned interest, even at a reduced level, would add insult to injury.

While I agree with Mr. Abert that abolishing the corporate income tax would make American companies more competitive internationally, the current political reality will keep that a distant fantasy. Until our multitrillion-dollar national debt is pared down, corporations should not be let off the hook.

JOHN LAIDO
Brooklyn, June 7, 2012

Eight decades ago it was a new notion, but Social Security has been the most popular government program for many decades. Mr. Ebert’s suggestions regarding caps and unearned income are ripe for pursuing. We should go beyond “saving Social Security” to both strengthening the Trust Fund and increasing benefits.

We could include in the proposal to increase the Trust Fund’s income some increases in benefits. This is particularly attractive nowadays as people are conscious of two new threats to their old-age security: employer-provided pensions have been eliminated or reduced, and individual savings have been crippled by the recession.

It would not be as expensive as might, at first, appear. Our Social Security income is taxable, and the proceeds circulate back to the Trust Fund. Raise our benefits and we pay a bit more taxes — to the benefit of the Trust Fund.

It is politically possible. Recall that eliminating the cap on Medicare “taxes” occurred during Bill Clinton’s presidency with barely a whimper. Few even know that it occurred.

RAMELLE MaCOY
MARTIN MORAND
Mifflintown, Pa., June 7, 2012

The writers are retired professors of industrial and labor relations at Indiana University of Pennsylvania.

Social Security was designed as a payroll tax, not a second income tax, so it is not appropriate to include unearned income in the tax base. The system is intended to partly replace earnings after retirement, not investment income.

While the income level on which taxes are levied is capped at $110,100, so too are benefits. Moreover, the benefits formula is redistributive, heavily favoring low-income earners.

In 2012, benefit recipients receive 90 percent of their first $767 of monthly earnings, 32 percent of their next $3,857 of monthly earnings, and only 15 percent of their monthly earnings in excess of $4,624 (up to the cap). It is hard to see why this is so unfair to the poor.

MICHAEL SESNOWITZ
Henrico, Va., June 7, 2012

The writer is a professor of economics at Virginia Commonwealth University.

 

The Writer Responds

Responding to Mr. Kochman, I envision that all revenues from the expanded “safety net tax” would be designated for specific safety-net-related programs. Social Security and disability insurance would grow somewhat. Other safety net programs, such as food stamps, would be swept out of the regular budget to new trust funds supported by the safety net tax. This swap allows for the corporate tax relief part of the bargain.

Mr. Nevins is right. Any legislation that raises taxes paid by the rich faces stiff opposition. But there would be considerable compensation. Elimination of the corporate tax should increase corporate profits, repatriate overseas income, increase dividends and drive up stock prices.

Mr. Laido asks if the maximum Social Security payout should increase since the amount of taxed income — earned plus unearned — would increase. No. These payments are intended to provide a safety net. They are more insurance than investment. The Social Security payout should provide a reasonable standard of living to those who have little, not a supplementary payment to those who have much.

I agree with Mr. Snyder that most Americans favor self-reliance and feel guilty if forced to seek welfare. I only wish that those who have turned “entitlement” into a code word for freeloaders would agree as well.

JAMES ABERT
Lancaster, Pa., June 8, 2012

    Sunday Dialogue: Financing Social Security, NYT, 9.6.2012,
    http://www.nytimes.com/2012/06/10/opinion/sunday/sunday-dialogue-financing-social-security.html

Forced to Early Social Security,

Unemployed Pay a Steep Price

June 9, 2012
The New York Times
By MOTOKO RICH

PALM SPRINGS, Calif. — This retirement oasis in the desert has long beckoned those who want to spin out their golden years playing golf and sitting by the pool in the arid sunshine.

But for Clare Keany, who turned 62 last fall and cannot find work, it feels more like a prison. Just a few miles from the gated estates of corporate chieftains and Hollywood stars, Ms. Keany lives in a tiny mobile home, barely getting by on little more than $1,082 a month from Social Security.

“I would rather be functioning and having a job somewhere,” said Ms. Keany, whose pixie haircut, trim build and crinkling smile suggest someone much younger than her years. “I really don’t enjoy living like this. I’ve got too much to do still.”

Even as most Americans are delaying retirement to bolster their savings accounts, the recession and its protracted aftermath have forced many older people who are out of work to draw Social Security much earlier than they had planned.

According to an analysis by Steve Goss, chief actuary for the Social Security Administration, about 200,000 more people filed initial claims in 2009 and 2010 than the agency had predicted before the recession and he said the trend most likely continued in 2011 and 2012, though that is harder to quantify. The most likely reason is joblessness.

Ms. Keany had always expected to work into her 70s and add to her retirement cushion. But after losing her job as an executive assistant at an advertising agency in 2008, she searched fruitlessly for full-time work and exhausted her unemployment benefits. For a while, she strung together odd jobs and lived off her 401(k) retirement and profit-sharing accounts. Then, this year, with her savings depleted and no job offers in sight, she reluctantly applied for Social Security.

Gazing out the window where the Santa Rosa mountains rise behind the mobile home park, she said, “It just seems a waste of a life, to be honest.”

Drawing Social Security early has repercussions that will be hard to overcome even if the economy — and her work prospects — improve. By collecting four years shy of her full retirement age, Ms. Keany will receive a reduced monthly benefit for the rest of her life. Those who collect early get 20 to 30 percent less a month than they would get if they waited until full retirement age, which varies by year of birth. People in Ms. Keany’s age bracket are expected to live an average of close to 23 more years.

“The most potent lever that individuals can pull in trying to get themselves a secure retirement income is to postpone claiming” Social Security, said Alicia H. Munnell, director of the Center for Retirement Research at Boston College.

As recently as a decade ago, half of those eligible claimed Social Security at 62. But that share has been falling because people are living longer and still want to work as well as shore up retirement funds. That makes it even more galling for those who are forced to claim early because of unemployment. Several people interviewed mentioned blows to their self-esteem along with abandoned dreams of a more comfortable old age.

According to an analysis by Richard W. Johnson, director of the retirement policy program at the Urban Institute, 37 percent of older workers who lost their jobs between 2008 and 2011 and did not return to work ended up claiming Social Security as soon as they turned 62.

Ms. Keany, who was born in Britain, was making $64,000 a year as an administrative manager for a boutique advertising agency in Santa Monica when the firm lost two of its biggest clients in one week. She has nearly three decades of experience in the United States. She has managed offices, arranged visits by foreign dignitaries, composed employee handbooks and finessed demanding bosses. She said she had also run errands for movie producers, organized home offices and coordinated the administrative details of a drug study.

Those years of experience now work against her, she thinks. “I’m overly qualified, overly skilled,” she said.

Her age is also most likely an impediment. After they lose a job, older workers tend to have a much harder time finding another than younger workers.

A Government Accountability Office report found that just under a third of those 55 to 64 who lost their jobs from 2007 through 2009 had found full-time work by January 2010, compared with 41 percent of people 25 to 54. The median duration of unemployment for those 55 and older was 34.1 weeks in May, according to the Labor Department, in contrast to 22 weeks for all jobless people over 16.

Ms. Keany, who is single and has no children, tried a change of geography. Because the economy in California was so weak, she moved in with friends in Charlotte, N.C., three years ago in hopes of having better luck there. She signed up with employment offices and volunteered, but did not find paying work.

Another friend invited her to stay on the Outer Banks of North Carolina, where Ms. Keany eventually began work at a women’s recovery house in exchange for room and utilities. Then Hurricane Irene hit last August and damaged the house. Ms. Keany could not afford to stay.

In a panic, she used the last of her savings to move to Palm Springs last October and buy a $19,000 one-bedroom mobile home in the same park where friends lived two doors down.

“I was so frantic at that point and I was at my wit’s end,” said Ms. Keany, saying she still planned to find a job. “I thought at least with Palm Springs it’s a retirement resort community and I know there’s a lot of business here as well.”

She scoured Craigslist for affluent residents seeking personal assistants. She took a one-month job in Los Angeles, chauffeuring the principal actor on a movie. She applied for a job as a concierge at a Marriott Hotel, but withdrew after hearing it offered only eight hours a week.

Finally, in January, she gave in and filed for Social Security. Her monthly check covers the $336 mobile home park fee plus utilities, her cellphone bill, insurance and a satellite dish. She is also paying $100 a month in credit card debt. To save money, she has canceled the data plan on her BlackBerry and cut back on fresh fruits and vegetables.

After a wind storm blew out a window, she covered it with a tarp because she could not afford to replace the glass.

Ms. Keany is still hoping to find work. Social Security recipients younger than full retirement age can earn up to $14,640 a year without sacrificing any of their monthly benefit. At Ms. Keany’s age, for every $2 earned over that amount, Social Security deducts $1 in benefits.

This month, she flew back to the Outer Banks to stay with friends and work part time in two gift shops over the summer. If she cannot find permanent work in North Carolina, she plans to return to Palm Springs in the fall.

She is discouraged by what she sees as youth-obsessed employers. “We’re already has-beens, which is so sad,” Ms. Keany said. “Some of us are still pretty productive.”

    Forced to Early Social Security, Unemployed Pay a Steep Price, NYT, 9.6.2012,
    http://www.nytimes.com/2012/06/10/business/forced-to-retire-early-jobless-pay-a-steep-price.html

Slowdown in Growth Could Reshape Fight for Presidency

June 1, 2012
The New York Times
By JONATHAN WEISMAN and MARK LANDLER

WASHINGTON — The weak employment report on Friday held the potential to reshape the presidential campaign, members of both parties said, lifting Mitt Romney’s efforts to make the race all about President Obama’s handling of the economy and making it harder for Democrats to break through in their efforts to define Mr. Romney on their terms.

On Capitol Hill, the signs of a slowdown focused new attention on the economic implications of the partisan standoff over tax and spending policy. On the campaign trail, both sides saw the news as a potential turning point in a critical battle at this stage. The race may be a referendum on Mr. Obama, as Republicans want, or, as Democrats prefer, a choice between a president nursing the economy back to health and a challenger who represents the failed policies that caused the crisis in the first place.

Democrats in particular were left off balance, sensing that most of their policy ammunition has been spent and that Republicans have nothing to gain politically from lending a hand on a compromise that could spur economic growth this year.

“It’s going to be a close election. Everybody’s worried,” said Representative Jim Cooper, Democrat of Tennessee. “We’ve already floored the accelerator. We’ve already gripped the steering wheel. I’m not sure they’re attached to anything anymore.”

At a stop in Minneapolis, Mr. Obama renewed his call on Congress to enact measures to revive the economy, warning that they were needed not only to shake the United States out of its torpor, but to act as a buffer against storm clouds in Europe.

“Our economy is still facing some serious headwinds” from high gas prices and the financial crisis in Europe, he said from a factory floor at Honeywell International. Europe, in particular, he said, is “having an impact worldwide and is starting to cast a shadow on our own” recovery.

Mr. Romney fired back that the president was simply finding a new way to deflect blame for an economic malaise that his policies were prolonging. His campaign said that Mr. Romney’s core message that it was time for a change in economic stewardship would resonate more clearly among voters.

“This is the race that we came ready to run,” said Stuart Stevens, Mr. Romney’s chief strategist. “This is the race that we believed we would be in.”

The signs that the recovery is being derailed could further complicate maneuvering over the fiscal cliff the federal government faces at the end of the year. The government faces nearly $8 trillion in higher taxes and automatic spending cuts when all of the Bush-era tax cuts expire at the same time that $1.2 trillion of automatic spending cuts on military and domestic programs go into force in January.

Republicans have called for an extension of all those tax cuts and a cancellation of the military cuts, and said Friday that a weaker economy would make it all the more urgent to avoid tax increases this year. Mr. Obama and Congressional Democrats favor allowing tax cuts for the rich to expire and have stood firm on the automatic cuts.

“Instead of another campaign speech, the president might want to engage with Democrats and Republicans here on Capitol Hill to handle the big policies that are affecting our economy,” the House speaker, John A. Boehner of Ohio, said, citing the looming tax increases and spending cuts and the growing national debt.

Representative Nancy Pelosi of California, the House minority leader, said Friday that she saw no reason for Democrats to drop their insistence on allowing the Bush-era tax cuts to expire for upper-income households.

“Take the matter at hand and deal with it,” she said of the expiring tax cuts. “End the high-end tax cuts. They are deepening the deficit. They are not creating jobs. They have to go.”

Democrats are clearly worried. Senate and House Democratic strategists say many of their candidates in tough races cannot win if the president loses, and they said Mr. Obama’s message had drifted too often away from the economy toward issues intended to appeal to narrow groups, like the Violence Against Women Act, student loan subsidies and gay marriage.

Democrats said that Mr. Obama needed to refocus on job creation and amplify the message that much of his jobs program had been thwarted by Republicans.

“He needs to call the Republicans out,” said Representative Chris Van Hollen, Democrat of Maryland. “He needs to remind people he got zero help rescuing the economy when he came to office, and on these new jobs bills, the Republicans are simply trying to run out the clock.”

Representative Gerald E. Connolly, Democrat of Virginia, said Mr. Obama would have to work harder to make his case that the economy was recovering, even if the recovery is less robust than everyone had hoped.

“This is a contest of how we frame the economic question. The Republicans want to frame it one way; the White House wants to do it another way,” Mr. Connolly said. “There are going to be bumps along the way, no question about it. This month is a bump.”

Senate Democrats, seeking to amplify the White House message or keep it on track, have laid out their own plans to stay focused on jobs. This month, they will try to pass a tailored tax cut for small businesses that hire new workers or expand existing payrolls as a counter to a House-passed 20 percent tax cut for nearly all businesses. Then just before the July 4 recess, they will press for a measure to close off tax breaks they say benefit businesses that ship jobs overseas.

“We want to see the response by our Republican colleagues,” said Senator Charles E. Schumer, Democrat of New York. “They blame the president for not creating jobs, then they block everything he proposes.”

But some conservative Democrats are clearly shifting away from their leaders’ agenda. Representative Jim Matheson of Utah, one of the most endangered Democratic incumbents this fall, said he would press to increase oil and gas production on federal lands, a crucial talking point of Republican leaders. And later this month, he is likely to vote for extension of all the Bush-era tax cuts that are set to expire Jan. 1.

“Having more certainty would be much better for job creation,” he said.

The frustration extended beyond endangered conservatives.

“We’ve really got ourselves to blame,” said Jared Bernstein, former chief economic adviser to Vice President Joseph R. Biden Jr., referring to the gridlock between the White House and Congress. “This could have been avoided if they took out some insurance against precisely this kind of anemic, fits-and-starts recovery,” Mr. Bernstein said.

David Axelrod, a senior strategist for the Obama campaign, said Republicans risked “overplaying their hand” if they appeared to welcome bad news. But weak hiring, rising unemployment and a plunging stock market might as well have been heaven sent. Steven Law, the president of Crossroads GPS, a Republican “super PAC” working against Mr. Obama, said that in focus groups, swing voters who backed Mr. Obama in 2008 said they were already dubious about whether the president could do anything to repair the economy.

“Voters are near a point in concluding that President Obama simply can’t get it done on the economy,” Mr. Law said. “If they conclude that, it becomes very hard to erase and even harder to paint his adversary as an unacceptable alternative.”

Jonathan Weisman reported from Washington

and Mark Landler from Golden Valley, Minn.

Michael D. Shear contributed reporting from Washington.

Slowdown in Growth Could Reshape Fight for Presidency, NYT, 1.6.2012,
    http://www.nytimes.com/2012/06/02/business/weak-job-growth-could-alter-presidential-campaign.html