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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

February 18, 2010 at 10:05 AM

The only thing we have to fear is (irrational) fear of the deficit

Top of the News: President Obama has named a bi-partisan panel to make recommendations about cutting the federal deficit. This should be interesting in an era where the Senate is broken, the old GOP that held moderates and even liberals is gone, and the Democrats are running away like hysteric teenagers in a slasher film despite their majority.

It is not an original thought but one worth repeating: FDR, contrary to popular myth, didn’t like deficits and was dismissive of Keynes (who returned the feeling). So when the Depression seemed to be easing in 1936-37, Roosevelt pulled back on the New Deal. The economy predictable fell into serious recession. Despite today’s electronic sound machine, the Obama stimulus has worked to prevent another Depression, and the non-partisan Congressional Budget Office says it was responsible for 800,000 to 2.4 million jobs last year. It wasn’t perfect: Given the lost GDP from the crash, it should have been bigger.

New-born deficit hawks, of course, want to tap into the rage and fear of average Americans who face joblessness, foreclosures and are at the mercy of ever-rising costs from for-profit health insurers. But unless the government acts with energy to stave off depression, including helping struggling states, the deficit will only grow. This is the real danger of deficit hysteria.

Long-term, the current deficit isn’t sustainable — but it won’t continue at these levels unless Washington makes a 1937-style mistake. Yes, reforms are needed. Two that are rarely discussed: raising taxes on the rich (since they obviously aren’t creating jobs, a la the conservative argument, and they created more jobs when rates were higher), and the unsustainability of our military commitments. Obama said everything will be on the table. Really?

The Midweek Briefing: Washington State University’s Greg Royer, vice president for finance, is the nation’s best university endowment manager, according to a 24/7 Wall Street survey. The endowment lost only 9 percent for the year ending in mid-2009. National Association of College and University Business Officers reports that the average endowment lost 18.7 percent between July 1, 2008 and June 30, 2009. Harvard: Down 30 percent.

— The indispensable tax investigative reporter David Cay Johnston looked at IRS records for last year, finding that while incomes for the top 400 richest Americans soared, their tax rates hit new lows. Gee, where are the deficit hawks?

— Rail and transit did well in the large TIGER grants announced this week by the federal government. They ranged from $105 million for the Crescent Corridor Intermodal Freight Rail project in Alabama and Tennessee to $63 million for Tucson’s new streetcar. Seattle, of course, will receive Mercer Mess money, but got squat for rail and transit. It’s not just a lost opportunity to extend light rail, but a failure to address some of the freight rail issues we’ll need to keep the Port of Seattle competitive. Only a third of the stim has been allocated, so I hope local leaders will get on this.

— Good news for Weyerhaeuser: The Wall Street Journal reports that lumber prices in the futures market have jumped 32 percent this year. Unless, that is, Weyerhaeuser sees itself as a house-building company and a land bank for exurban sprawl, both of which will be hurt by the price spike.

— Industrial production is slowly recovering — but what a plunge it took. Check out this chart from the St. Louis Fed.

— County health rankings are out from a survey done by the University of Wisconsin. In Washington, San Juan ranks first, King sixth, Snohomish 10th and Pierce 25th in outcomes. Ferry is the least-healthy county. Washington ranks as America’s 11th healthiest state; Oregon 13th and Idaho 14th. (Note to Boeing: South Carolina ranks 46th, but the grits are good).

Today’s Econ Haiku:

Wholesale prices up

A short-term fluke or is it

A whale of trouble?

Comments | More in Deficit, Midweek Economic Briefing


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