Greg Ip

Articles by The Economist’s U.S. Economics Editor

Archive for the ‘Obama policy’ Category

Raising the minimum wage: Trickle-up economics

leave a comment »

The president proposes a hefty increase in the minimum wage

Feb 16th 2013 | WASHINGTON, DC |From the print edition

[Greg Ip] BARACK OBAMA has long made income inequality a central theme of his second-term agenda. He has already tackled inequality from the top by preserving tax cuts for everyone but the rich. In his address to Congress on February 12th, he dealt with it from below, proposing to raise the federal minimum wage by 24%, benefiting, so the White House claimed, 15m low-wage workers.

America’s minimum wage has long been low by international standards, equalling just 38% of the median wage in 2011, close to the lowest in the OECD (see chart). Congress changes it only occasionally, and in the interim inflation eats away its value. The wage was last raised, to $7.25 per hour, in 2009. Since then its real value has slipped back to where it was in 1998. Twenty states now have minimum wages above the federal rate, compared to 15 in 2010, according to the Economic Policy Institute, a liberal research group.

Mr Obama’s proposal would boost the nominal wage to $9 per hour by 2015, restoring it, in real terms, to its 1979 level, though relative to median wages it would still be lower than in many other rich countries. Thereafter, it would be indexed to inflation. He would also raise the minimum wage for workers who receive tips for the first time in over 20 years.

The proposal drew the predicted response: labour and liberal groups said it would reduce poverty and raise the spending power of the poorest workers, while businesses and Republicans (whose co-operation is needed if the proposal is to become law) said it would cost low-skilled workers jobs.
Read the rest of this entry »

Written by gregip

February 14, 2013 at 9:53 am

The economy: Deficit-reduction disorder

leave a comment »

Austerity and economic recovery are bringing down the deficit, but the long-term problem has not been fixed

Feb 9th 2013 | WASHINGTON, DC |From the print edition

[Greg Ip] WITH the financial crisis over and the recovery gaining momentum, one big piece of unfinished economic business hangs over Barack Obama’s second term: arresting the relentless rise in America’s already sky-high debt. He is turning to the task with what seems an improbable claim: that the job is closer to completion than people appreciate.

There is, however, some truth to it. On February 5th the Congressional Budget Office (CBO) forecast that for the fiscal year ending on September 30th the deficit will clock in at $845 billion, or 5.3% of GDP, the lowest figure since 2008 and down by nearly half from its peak of 10.1% in 2009, Mr Obama’s first year in office.

To be sure, that projection assumes that Mr Obama and Congress do not override planned spending cuts and tax rises, most importantly the “sequester”. The sequester mandates $1.1 trillion of additional spending cuts over the next ten years, including $85 billion-worth this year that are due to begin on March 1st after being put off for two months. Even if those measures are overridden, the CBO still predicts that the deficit will fall to 5.5% this year and 3.7% of GDP by 2015. Thereafter, though, it will start to rise again.

The drop has been caused both by the improving economy, which boosts revenues and reduces the cost of safety-net programmes, and the expiry of the few remaining stimulus measures. It has also occurred, as Mr Obama now often reminds listeners, because in spite of their acrimonious relations he and Congress struck two deals in 2011 that cut spending and one at the start of this year that raised taxes. Cumulatively, these three deals have already cut a projected $2.4 trillion from deficits over the coming decade, or a little over 1% of GDP, according to the Committee for a Responsible Federal Budget (CRFB), a watchdog group (see table).

Read the rest of this entry »

Written by gregip

February 7, 2013 at 9:59 am

The economy: Looking better

leave a comment »

Some risks, but less fear, as the second term gets under way

Jan 26th 2013 | WASHINGTON, DC |From the print edition

[Greg Ip] WHEN Barack Obama took office four years ago, the economic figures were terrifying. A financial crisis and a savage recession were in full swing, and house foreclosures were soaring. As he was sworn in, panic about the banks sent the Dow Jones Industrial Average down more than 300 points. At the start of his second term, by contrast, the Dow hit a five-year high, while a widely followed index of investor fear called the VIX reached a near-six-year low (see table).

This change in mood is understandable. The financial crisis and recession ended more than three years ago. The housing market is firmly on the mend. Employment is growing. The euro zone, though feeble, is no longer about to collapse. And the threat of home-grown crisis appeared to recede when Republicans in the House forbore to use the threat of default to extract spending cuts. This week they voted to raise the Treasury’s statutory ceiling until May 18th; previously, the Treasury had expected to run out of borrowing authority as early as mid-February.
Read the rest of this entry »

Written by gregip

January 24, 2013 at 10:05 am

The next treasury secretary: Jack be nimble

leave a comment »

A successor to Timothy Geithner in the economic hot seat

Jan 12th 2013 | WASHINGTON, DC | from the print edition

[Greg Ip] TREASURY secretaries are best picked to fit the circumstances. Barack Obama chose Timothy Geithner, a central banker and an experienced crisis manager, in late 2008 when the global financial system was in free fall. The crisis and recession are past; Mr Obama’s priority now is dealing with the deficit they left behind. And so, as The Economist went to press, he was expected to name a budget technocrat, Jack Lew, to succeed Mr Geithner.

Mr Lew is currently Mr Obama’s chief of staff and has spent most of his career dealing with budget issues, starting in 1979 as an aide to Tip O’Neill, then-Speaker of the House of Representatives. He ran the Office of Management and Budget for Bill Clinton from 1998 to 2001, and for Mr Obama from 2010 to 2012.

The treasury secretary is one of the most influential members of the cabinet and by default the administration’s economic spokesman. The portfolio spans currency relations with China and collecting taxes. There had been speculation Mr Obama would appoint an outsider, perhaps from Wall Street, to repair relations with business and with Republicans in Congress. Mr Lew, by contrast, is the consummate insider. The fiscal challenge he inherits is almost as daunting as the financial abyss that greeted Mr Geithner four years ago. America’s deficit, expected to be around 6% of GDP this year, should decline for a bit as the economy improves, but then head inexorably higher as the cost of entitlements such as Social Security (pensions), Medicare and Medicaid (health care for the elderly and poor) mount.  Read the rest of this entry »

Written by gregip

January 10, 2013 at 5:25 pm

Posted in Obama policy

Cliff talks: Relief in sight

leave a comment »

President and speaker draw near to a deficit deal

Dec 22nd 2012 | WASHINGTON, DC | from the print edition

[By Greg Ip] THE housing market has turned, Europe’s crisis is apparently in remission and the Federal Reserve has pressed its monetary accelerator to the floor. Yet as 2012 draws to a close, America’s economy is still growing at an annualised rate of only around 1%. That figure has been depressed by fears of the self-inflicted “fiscal cliff”: a package of tax increases and spending cuts, worth 5% of GDP in a full year, that is set to kick in on January 2nd.

That constraint may also be finally lifting. Read the rest of this entry »

Written by gregip

December 18, 2012 at 4:29 pm

Five myths about tax reform

leave a comment »

By Greg Ip, Published: December 14

As the nation’s leaders seek to keep the country from heading over the “fiscal cliff” — a set of mammoth year-end tax increases and spending cuts — nothing has proved more contentious than taxes. President Obama wants the rich to pay more; Republicans want to keep tax rates where they are. One popular proposal is to eliminate the tax code’s hundreds of loopholes and use the money to reduce the deficit without raising rates. But while tax reform is wonderful in theory, in practice it might not be as politically palatable — or economically effective — as advertised.

1. Tax reform has bipartisan support.

The night he was reelected, President Obama said “reforming our tax code” was among his second-term priorities. A few days later, House Speaker John Boehner said tax reform could help solve the national debt. Read the rest of this entry »

Written by gregip

December 16, 2012 at 4:26 pm

The fiscal cliff: On the edge

leave a comment »

What the cliff means, and why America’s deficit woes are so intractable

Dec 15th 2012 | WASHINGTON, DC | from the print edition

[Greg Ip]  WHEN the dust from November 6th’s election settled, the re-elected Barack Obama and the re-elected Republican leaders of Congress had less than two months to avert the “fiscal cliff”, a collection of tax increases and spending cuts scheduled for the beginning of the new year. They proceeded to fritter most of it away by disparaging each other’s offers. When John Boehner, the Republican speaker of the House of Representatives, met reporters on December 7th, he moaned, “This isn’t a progress report, because there is no progress to report.”Now, with less than three weeks to go, the pace has at last picked up. Mr Boehner and Mr Obama (pictured above) have talked twice in the past week, and representatives of both have exchanged offers. Publicly they say they are still far apart, but that is to be expected: serious negotiations seldom take place in front of cameras.

The absence of failure, at least so far, is seen by some as good news. That certainly goes for the stockmarket, which has recovered all its post-election losses. The outside world has long assumed that Mr Obama and Congress would strike a deal, because the alternative is too awful. Starting on January 2nd, taxes would jump for almost all taxpayers; a payroll-tax cut and enhanced unemployment benefits would expire; across-the-board cuts to federal spending would begin; and a clutch of other tax and spending measures would take effect. The total fiscal impact equals roughly 5% of GDP over a full year, easily enough to tip America’s economy back into recession.

To the rest of the world, the fiscal cliff seems like a freak of nature, the unintended consequence of America’s adversarial system of government. But that is too simplistic. Read the rest of this entry »

Written by gregip

December 13, 2012 at 4:49 pm

Follow

Get every new post delivered to your Inbox.

Join 62 other followers