Entries for January 2007

Know what's really impressive about today's boffo 3.5 percent GDP growth number for the fourth quarter? It wasn't so long ago that Wall Street economists were wondering if the number would be a "one-handle"–meaning growth between 1.0 and 1.9 percent. And instead of a "hard or "soft" landing, investment pros are now talking about a "growth scare" where a surprisingly robust economy would push the Federal Reserve into raising interest rates.

So just what happened at yesterday's closed-door roundtable meeting between Treasury Secretary Hank Paulson and a group of prominent Wall Street economists? To find out, I rang two of the participants, both of whom did not want their names used. "I think Paulson just wanted to see how Wall Street views the economy," said one of them. "And I think he senses a benefit from trying to keep a dialogue open ... He said that he tended to agree with us that the economic backdrop is very favorable."

Laura Ingraham, the willowy, conservative radio talker, really nailed it. She was speaking last Friday night as part of a panel discussion at a "conservative summit" in Washington held by National Review magazine. Ingraham said she was impressed by Jim Webb's televised rebuttal to President Bush's State of the Union address, particularly the part that hit on economics. In his talk, the newbie U.S. senator from Virginia launched a populist attack on the Bush economic years, railing about growing income inequality, skyrocketing CEO pay, outsourcing, and the so-called middle-class squeeze. Although Webb's stern speaking manner and improbable hair are easy to mock, Ingraham urged her fellow conservatives to pay serious attention to his message. "The party that comes off as the party that represents the American worker best is the party that wins in 2008," she said, adding that the GOP will be relegated to the political wilderness if it goes back "to being the party of the elites."

To its many critics, Wal-Mart symbolizes every ruthless company that sticks it to workers with low wages and lousy benefits. The ginormous retailer is sure to be a frequent target for Democrats during the 2008 presidential election. (Back in November, Barack Obama and John Edwards took part in a conference call urging the company to "put families first.") But it gets worse.

Are slashing benefits or raising taxes really the only ways to keep Social Security in the black in the 21st century? During a recent appearance before Congress, Federal Reserve Chairman Ben Bernanke warned that stronger economic growth won't do the trick. As Bernanke put it then:

Last night, President Bush proposed to start taxing healthcare benefits but also to create a new $15,000 standard deduction, $7,500 for single people, for all taxpayers who obtain qualifying health insurance. If turned into law, the plan could accomplish a number of things.

As a fictional version of Sen. Hillary Rodham Clinton exasperatedly shouted on Saturday Night Live last weekend, "Is there anyone in the [expletive] country who didn't know I was running for president?" The genuine article finally told America, "I'm in," on Saturday via a video on the new presidential campaign website for her 2008 exploratory committee. But what does the U.S. senator from New York want to do if elected president, at least in domestic economic policy? It would hardly be a stretch to think that a first Hillary Clinton term might be, in effect, the third Bill Clinton term–you know, the one that Al Gore was supposed to preside over.

What a missed opportunity. Democrats recently chose Denver over New York as the site of their 2008 national convention. They should have picked Seattle; it would have been an apt symbolic choice. Back in 1999, the Emerald City was the site of massive antiglobalization riots outside a meeting of the World Trade Organization. Among antiglobalization groups, the clash is known as the "Battle in Seattle."

A couple of thoughts on Federal Reserve Chairman Ben Bernanke and his testimony before the Senate Budget Committee today concerning the economic dangers that Social Security and Medicare pose if the programs aren't reformed.

OK, I just got done watching Sen. Barack Obama's five-and-a-half minute campaign video on his brand new Obama Exploratory Committee website. (Obama filed papers to create a 2008 exploratory committee earlier today.)

Call it the Rocky Economy–as in Rocky Balboa. During 2006, the U.S. economy took a beating (a 38 percent rise in gasoline prices, 100 basis points in Fed rate hikes, the end of the housing bubble) and got knocked hard to the mat (gross domestic product growth fell from 5.6 percent in the first quarter to 2.0 in the third). But now it looks as if the Rocky Economy is back on its feet and throwing haymakers. (OK, a merciful end to the over-the-top cinematic boxing analogy.)

Hockey fans used to joke that Wayne "the Great One" Gretzky won so many MVP awards (nine overall) that the National Hockey League should have changed the award's name from the Art Ross Trophy to the Wayne Gretzky Trophy–and given it to the second-most-valuable player each year.

Chatted about globalization and trade with Tom Vilsack, the outgoing two-term governor of Iowa and aspiring candidate for the 2008 Democratic presidential nomination.

Don't bet on some grand compromise between President Bush and Congress to reform Social Security. There's been plenty of conjecture of late that Bush might agree to a plan that would raise the payroll-tax income limits as one way of returning the social insurance program to long-term solvency. Any reform plan would have to make its way through the Senate Finance Committee, which will be chaired in the new Congress by Montana Democrat Max Baucus. He's a guy the White House thought at one point might be a vote in favor of Bush's plan to carve out personal savings accounts as a way to make Social Security a better deal for younger workers.

Friday's great payroll and wage numbers–the economy added a better-than-expected 167,000 jobs last month as earnings rose 0.5 percent–marked a real blow to the "hard landing" economic scenario that sees the economy slowing to near-recession levels because of the housing downturn. As long as this economy keeps creating jobs and boosting wages, consumers are likely to continue spending, thus keeping the economy rolling. It's a virtuous circle, so to speak, that makes it unlikely that the Federal Reserve–on ice since last June–will feel the need to cut interest rates anytime soon. As a research note from Action Economics puts it: