Last Christmas my father-in-law asked for investment advice. Folks he’d been reading were recommending gold. “Gold?” I responded. “No, I’d definitely stick with the stock market. Gold is up 30% since the start of 2010—hard to believe it’s going to keep rising. Corporations are profitable. And they’ve got cash. Besides, Congress just passed that payroll tax cut. I’m not placing any bets on 2012 or 2013, but 2011 should be a decent year.” Good thing I’m spending THIS Christmas with MY family. If you’ve been hiding under a rock, the stock market hasn’t had a good couple of months (although prices were stable or rising until May)—As I write this, the Dow Jones Industrial Average is down 4% since Christmas. And gold? Up 34%.
Growth in employment—already anemic—ground to a halt in August. GDP growth for the second quarter was first estimated at 1.3%, which was mildly depressing this long into a “recovery.” Then it was revised down to 1.0%. Although few indicators have slipped into reverse, none have shifted out of first gear and many, like employment, are slowing, not accelerating.
For most of 2009, Rochester ranked in the Top 20 in the Brookings Institution’s regular reports on the impact of the recession. Indeed, for 2009, Rochester had the 15th best job report among the nation’s 100 largest metros. New York’s job creation record was the best of the 15 largest states.
By the end of last year, Rochester had slid to #41 and New York State to #11. What happened? Well, not much. In Rochester, at least. Our job performance over the last decade has been quite consistent from year to year: We lost jobs, but never more than 2% in a year. The Great Recession was triggered when the real estate bubble burst, the construction and real estate sectors suddenly cooled and millions found their jobs gone or at risk. Having missed the boom, Rochester also missed the bust and continued the trend of the early part of the century—slow shrinkage as the economy struggled to absorb cuts at Kodak and other large employers. Read more »
The fiscal crisis club has a new member: the City of Harrisburg, Pennsylvania. Faced with staggering debt payments it simply can’t afford, the capital city is weighing its options. And none of them are particularly pleasant. Does the city file for bankruptcy? Does it make use of Pennsylvania’s Act 47 fiscal emergency program and avail itself of state oversight? Does it raise the property tax levy to an unimaginable level to resolve its structural budget gap?
The unfortunate reality is that Harrisburg isn’t alone. Hardly. Local governments across the country, many of which were struggling long before the economy collapsed, have witnessed their fiscal wherewithal stripped to the bones in the past year. Just Google “city fiscal emergency” and watch the lights dim as you click the search button. Los Angeles has proposed closing all non-public safety operations two days per week. The word “receivership” has been uttered in Detroit and Toledo. And layoffs and programmatic cuts are pending in cities from coast to coast.
The financial problems of the nation and many large states—California, Illinois, New Jersey and certainly New York—present a problem that is challenging economically and hazardous politically. Since it’s impossible to separate the economics from the politics, it is truly a Gordian knot – rather than untying the knot, Alexander the Great sliced the Gordian knot in two with a single, bold stroke of his sword.
The Congressional Budget Office forecasts the federal deficit to decline from about $1.5 trillion in 2009 to $608 billion in 2014, then rise to nearly $800 billion in 2020. This is a hefty deficit, particularly when you consider that we had a surplus as recently as 2000. Then consider that the cumulative public debt, which currently stands at $7.5 trillion, is expected to nearly double by 2020 to $14 trillion.
The Center for Governmental Research has begun a partnership with the Rochester City School District. We’ve been invited to support implementation of Superintendent Jean-Claude Brizard’s Five Year Strategic Plan.
I’m a planning skeptic. Often the process of planning is so exhausting that we declare, “It’s done!” when the ink is dry. We forget that the plan serves only to lay out the course and load the starter pistol. The plan is too-often ignored. We continue going about our tasks as though nothing had changed. To the Superintendent’s credit, many of plan’s strategies codify activities already underway. In fact, the first of the five years was 2008-09. Like all good leaders, Brizard is impatient about his plan.
Congress is edging closer to passing legislation that restructures health insurance. The Senate and the House are debating compromise bills within their houses, after which a conference committee will seek to reconcile differences between them. With these details still under debate, we conclude our six part series on health reform with a few observations.
Public Option. If private insurance plans are part of the problem, then one solution may be to offer another option, a health insurance plan that is run by the government. At this writing, a “public option” seems likely to survive and become part of the final legislation. The debate over the public option has highlighted a fundamental social tension between those who fear too much government and those who fear too little (discussed in the first column in this series). Like Goldilocks, each of us wants the balance to be “just right.”
In this column, we address the challenge of expanding health insurance coverage. First, we explore why our employer-based system leaves gaps in coverage, even for people with jobs. Second, we discuss the challenge of relying on the individual insurance market, which has to fill these gaps.
Remember “mutual assured destruction?” MAD was the dominant principle of the Cold War: The Soviet Union would not attack us as long as we retained the ability to retaliate. They might surprise us and obliterate New York, Chicago, Los Angeles, and Washington, but our nuclear subs and hardened silo-based missiles would respond in kind, turning Moscow, Leningrad, Kiev and Vladivostok into historical footnotes (if mankind survived to write any more history).
A kind of financial “MAD” became our consolation in the 1990s as China continued to accumulate foreign exchange, the vast majority of which was in dollars (or financial assets like bonds that were priced in dollars). At present, China’s holdings of dollar assets top $1.5 trillion, says the Peterson Institute for International Economics.
When I was a child, my grandparents hosted a gift orgy on Christmas Eve—the whole family gathered in Chicago and every aunt & uncle brought something for ME. My cousins and I had eyes only for the pile of gifts under the tree.
Remind you of the American Recovery and Reinvestment Act (ARRA)? The ARRA orgy begins with the reasonable assumption that the economy needs a healthy dose of Christmas cheer. Congress and the Administration joyfully decreed that we could save the world and spend money, too. Every lobby and interest group joined in the happy chorus. Presto! Christmas in February.
Yet “killing two birds with one stone” only works if you’re a very good shot. ARRA is riddled with Congressional multitasking, using the occasion of the stimulus (and its virtually unlimited spending) to implement specific social goals.
I’ve been in a funk since the 2009-10 state budget passed. The state’s elected leaders entered the budget negotiations confronting a potential $20 billion deficit, up from the $14 billion estimated when the Governor released his original budget proposal. That is, the state would have run a $20 billion deficit in 2009-10 if spending and revenue continued without changing anything structural (like tax rates or spending formulae). The faltering economy could no longer satisfy the state’s addiction to ever-greater spending.
Given such a dire forecast, we all wondered how the state would manage to find the money to avoid a major reduction in spending. Imagine our surprise when the Legislature and Governor pulled a rabbit out of the budgetary hat and increased budgeted spending by $12 billion, nearly 9% more than in 2008-09.
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Good thing I’m spending THIS Christmas with MY family. If you’ve been hiding under a rock, the stock market hasn’t had a good couple of months (although prices were stable or rising until May)—As I write this, the Dow Jones Industrial Average is down 4% since Christmas. And gold? Up 34%.
The fiscal crisis club has a new member: the City of Harrisburg, Pennsylvania. Faced with staggering debt payments it simply can’t afford, the capital city is weighing its options. And none of them are particularly pleasant. Does the city file for bankruptcy? Does it make use of Pennsylvania’s Act 47 fiscal emergency program and avail itself of state oversight? Does it raise the property tax levy to an unimaginable level to resolve its structural budget gap?