Greg Ip

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

Archive for the ‘Politics’ Category

The economy: Looking better

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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.
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Written by gregip

January 24, 2013 at 10:05 am

The cloud of uncertainty: Dithering in the dark

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Quantifying the effect of political uncertainty on the global economy

Jun 16th 2012 | WASHINGTON, DC | from the print edition

[Greg Ip] EUROPE teeters at the edge of an economic abyss, its fate in the hands of political leaders at odds over how to solve the continent’s twin debt and bank crises. America may be pushed over a “fiscal cliff” at the end of the year by political dysfunction. And even China, although unlikely to take a deep dive, is hostage to the will and ability of its government to stimulate growth. More than at any point in recent history, the global economy’s fate is tied to the capriciousness of policymakers. How much does such uncertainty cost?

Anecdotal evidence suggests that it costs a lot. Customers of Cisco Systems, the world’s biggest maker of internet gear, are taking longer to make decisions, according to John Chambers, the company’s boss. Their orders tend to be smaller than before, and to require more in-house approvals. They say they are planning to buy more stuff later this year, reported Mr Chambers recently, but “then in the very next breath they say it depends on what happens on a global and macro scale.”

In Europe firms must reckon not only with recession but also with the risk that their investments may be redenominated in a different currency or locked in by capital controls. Robert Bergqvist of SEB, a Swedish bank, says that several Swedish corporate customers have put investment projects on hold because they don’t know how the euro crisis will unfold.

If America falls over the “fiscal cliff”, it would suffer a fiscal squeeze of 5% of GDP, easily enough to push the economy into recession. Last summer, as America’s government came perilously close to exhausting its legal authority to borrow, Barack Obama and Republicans in Congress could not resolve their fiscal differences. Instead, they kicked the can down the road, agreeing on huge automatic spending cuts that would start on January 2nd, just as all of George Bush’s tax cuts are due to expire, along with a separate temporary payroll tax cut. Read the rest of this entry »

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June 14, 2012 at 6:55 am

The economy: Upswing

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Many states key to November’s election are doing better; whether the president can exploit that is another matter

Jun 2nd 2012 | WASHINGTON, DC | from the print edition

[Greg Ip] ON MAY 24th Barack Obama launched a blistering attack on Mitt Romney’s business background from the state fairgrounds in Iowa. A week later Mr Romney returned the favour from a furniture warehouse in Las Vegas, Nevada. The choice of venues was hardly random. Both are in “swing” states that will help determine the outcome of this November’s election. With the economy at the top of voters’ concerns, how the recovery is seen to be faring in such states could have an outsize influence on the result.

Superficially, Iowa and Nevada are opposites. Iowa’s big manufacturing sector lost one in eight of its jobs between 2007 and 2010, yet the state had no housing bubble and its unemployment rate remains among the lowest in the country. Tourism-dependent Nevada was the state worst hit by the housing bust and still struggles under the country’s highest jobless rate.

But together with 11 other states usually considered electoral toss-ups (see table), they are, by some metrics, doing better than the nation is. Read the rest of this entry »

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May 31, 2012 at 1:38 pm

Not normal: The recovery runs out of steam

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Nov 17th 2011 | WASHINGTON, DC | from The World In 2012 print edition

 By Greg Ip, U.S. Economics Editor

If these were normal times, America’s economy would be on track for a reasonable, if restrained, expansion in 2012. Consumers and businesses are well on the way to rebuilding their finances, and the usual imbalances that presage a downturn are absent. But these are not normal times. The economy is hostage to policymakers in America and Europe who are all too capable of the wrong decision at the worst possible time. The resulting outlook is binary: either the economy beats the 2% consensus of private forecasters, nudging ­unemployment below 9% and Barack Obama to victory in the November election; or, less likely, bad luck and bad politics tip the economy back into recession and doom Mr Obama’s chances.

Recoveries after financial crises are typically subdued as banks, households and firms pay down the debts accumulated during the boom years (“deleveraging”). Even so, that permits many possibilities. Carmen and Vincent Reinhart, two economists, found that median per-head growth in the decade following five major crises was only about 2%. But the range was considerable: in Norway growth averaged 2.7%, in Japan just 0.6%..

America starts with one big disadvantage. In past crises, other countries filled the vacuum of shrinking private and government spending with increased demand for their exports. This time, though, most of the rich world is depressed. Read the rest of this entry »

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January 2, 2012 at 10:47 am

The payroll-tax row: Backfiring brinksmen

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The “tea party” loses a fight over economic stimulus

Dec 31st 2011 | WASHINGTON, DC | from the print edition

 [Greg Ip] SINCE the 2010 mid-term elections, “tea party” Republicans have enjoyed influence out of proportion to their numbers. They forced Barack Obama and congressional Democrats to accept spending cuts without any tax increases to keep the government from shutting down in April, 2011, and from defaulting on its bills in August.

This intransigence, however, backfired rather spectacularly just before Christmas when John Boehner, the speaker of the House of Representatives, was forced to reverse his earlier position and agree to an extension of a two-percentage-point cut in the payroll tax and to the payment of unemployment benefits for up to 99 weeks.

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December 31, 2011 at 10:51 am

Jobs figures: a gentle tailwind

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Employment is moving, ever so slowly, in Barack Obama’s direction

Apr 7th 2011 | WASHINGTON, DC | from the print edition

[Greg Ip]

ON APRIL 4th Barack Obama announced, to no one’s surprise, that he would seek a second term in 2012. The timing was auspicious. Three days earlier the job market, a key determinant of his re-election chances, took a turn for the better. On that day the government reported that non-farm payrolls rose a hefty 216,000, or 0.2%, in March, led by manufacturers, hotels, restaurants and temporary staffing agencies. Strapped state and local governments trimmed their payrolls for the fifth month in a row. But private payrolls, a better indicator of the economy’s animal spirits, have posted their biggest two-month advance since 2006, at 470,000.

Meanwhile, the unemployment rate fell to 8.8% from 8.9%. It has now plummeted a full percentage point in four months, a feat unmatched since early 1984 and a fact Mr Obama made sure to point out. No doubt he hopes it augurs for him what it did for Ronald Reagan in 1984. Like Mr Obama, Mr Reagan endured a savage recession early in his first term that crushed his approval ratings and cost his party seats in the mid-terms. But by 1984 job creation was on a roll and Mr Reagan romped to re-election. Read the rest of this entry »

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April 7, 2011 at 3:49 pm

Posted in Labor market, Politics

Demography and the Economy: As Boomers Wrinkle

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FROM the moment they entered the workforce in the 1960s, baby-boomers began to shape America’s economy and politics. They will do the same as they leave. The first of the estimated 78m Americans born between 1946 and 1964 turn 65 in 2011, the normal age for retirement. As their ranks swell in coming years, the burden of financing their retirement will mount. So will their electoral importance.

Retiring boomers will squeeze the economy from two directions. The number of people enrolled in Medicare (federally funded health care, available from the age of 65) will grow from 47m in 2010 to 80m in two decades’ time. Enrolment in Social Security (federally funded pensions, available from the age of 62-67, depending on your birth year) will grow from 44m to 73m. The cost of the two programmes will grow from 8.4% of GDP in 2010 to 11.2% by 2030. Meanwhile, as boomers retire, the workforce will grow more slowly, as will the taxes to finance their benefits. The pensioner-worker imbalance and health-care inflation, which is driving up the bill for Medicare and Medicaid, the federal health benefit for the poor, will send the budget deficit into the stratosphere.

Both Barack Obama and Republicans in Congress claim that reforming such entitlements is a priority. But a demographic snag lies in the way. In the next two decades people aged 65 and over will rise from 17% of the voting-age population to 26% (see chart 1). Since the old vote more readily, their actual share of the electorate will be some three percentage points higher, reckons Robert Binstock, a political scientist at Case Western Reserve University in Cleveland.

The entire  article is linked here.

Written by gregip

December 29, 2010 at 7:11 pm

America’s deficit: Confronting the monster

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At last, plans are appearing to cut America’s deficit. But will politicians and the public embrace them?

Nov 18th 2010 | WASHINGTON, DC | from PRINT EDITION

[Greg Ip] BARACK OBAMA and his Republican opponents have spent much of the past month sniping at each other, but on November 15th they suddenly found themselves agreeing. Mitch McConnell, the leader of the Senate Republicans, called for a ban on earmarks, the pet projects politicians like to pop into spending bills. Mr Obama, who also wants a curb on them, quickly applauded.

A cynic would say that such agreement was easy, since the stakes are so low. Earmarks attract plenty of bad press, but the money is trivial—less than 0.5% of federal spending. On the more pressing question of how to close America’s gaping deficits, Democrats and Republicans remain far apart. Only a week before, the chairmen of a bipartisan commission set up by Mr Obama in February to find ways to get the deficit down floated a proposal focused on cutting spending. Republicans liked this, but Nancy Pelosi, the Democrats’ leader in the House of Representatives, called the idea “simply unacceptable”.

This sound and fury, however, may signify something important. The two sides are no longer arguing over whose taxes to cut or which entitlements to expand, but whose taxes will rise and which entitlements will shrink. It may all come to naught; or it may signal the dawn of a new age of austerity, similar to the era of tax increases and entitlement cuts that prevailed from 1982 to 1997. Read the rest of this entry »

Written by gregip

November 18, 2010 at 3:07 pm

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