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Here's a question you don't hear asked much: Why is our economy doing so well?
Traders work on the floor of the New York Stock Exchange, in this Sept. 28 file photo. (BRENDAN MCDERMID - REUTERS) Not in absolute terms, of course. Unemployment remains high. Growth remains anemic. Markets remain shaky. But Europe has been doing something very close to imploding for months now. So just as our financial crisis sent Europe into a tailspin three years ago, you might expect that the possibility of a partial or complete break-up of the Eurozone would have American businesses taking a chainsaw to their workforces and households stuffing their paychecks under the mattress in the expectation that 2012 will be a lot like 2009. And yet none of that is happening.
Initial unemployment claims have fallen for four of the past five weeks. They're at their lowest point since April. Fourth-quarter growth is tracking, according to Macroeconomic Advisers, at 3.2 percent. Mortgage-purchase applications are above their October levels, vehicle assembly is coming in above expectations, industrial production is rising, and this quarter's retail sales are off to a strong start. As Neil Irwin writes, "despite it all, the U.S. economy has entered a strong patch." Is that really what you'd expect in a month where the largest economy on earth -- the Eurozone -- is in an acute state of crisis?
“I was expecting to see some weakening of the trends that were prevailing over the summer in response to the crisis in Europe, and we’ve not seen any of that,” Alan Levenson, chief economist at T. Rowe Price, told Irwin.
You can look at this one of two ways. One way is that Europe has mattered a lot: If not for Europe, we would be growing much faster. We'd really be recovering. Another way is that Europe hasn't mattered very much at all. We're simply more insulated from them than you would expect. Analysts I talked to said it was a bit of both -- and that further deterioration in Europe was still to be feared.
"The strength reflects an expected bounce due to lower commodity prices and getting Japan back up and running," says Mark Zandi, chief economist at Moody's Analytics. "Growth would be measurably stronger if not for fallout from the debt ceiling debacle and European debt crisis. The economy's fundamentals (balance sheet) are much improved, but growth will slow sharply early next year unless U.S. and European policymakers get a number of things roughly right in the next few weeks."
Joel Prakken, of Macroeconomic Advisers, is similarly cautious. "While the growth effects to date have been relatively modest, something (much) worse happening out of Europe does, in my opinion, remain the single biggest risk to our forecast," he says.
Another possibility is that we're not recovering for the same reason we're not faltering: we're already hunkered down for a crisis. In a previous piece, Irwin argued that businesses are so lean and households have put off so many purchases that it's actually hard for the U.S. economy to slow much more than it already has. I find that convincing. At the same time, you could argue that that crisis mentality is part of the reason that pent-up demand isn't translating into a quick recovery, too. Until businesses and households are willing to make themselves vulnerable to things getting worse, they won't take a chance on spending, hiring and investing as if things are getting better. And the tremors in Europe clearly aren't helping with that.
Nevertheless, the fact remains that the American economy has been curiously resilient over the past few months. Things are getting better when you could imagine them getting worse. How often have we been able to say that lately?
Top stories
1) The US economy is actually picking up steam, reports Neil Irwin: "Despite it all, the U.S. economy has entered a strong patch. The outlook in Europe is increasingly gloomy, with the risk rising daily that a financial crisis will cross the Atlantic. Financial markets have remained unsettled, with a 2 percent drop in the Standard & Poor’s 500-stock index on Thursday. Yet following a year of one economic disappointment after another, a variety of economic indicators are pointing in a more positive direction. The question is whether the U.S. economy has built enough momentum to withstand new shocks from overseas. On Thursday, the Commerce Department said the number of permits to build new housing units rose 10.9 percent in October, compared with the 2.4 percent gain analysts had expected, suggesting that home-building may be finally picking up."
2) Supercommittee update: 'Hope for an agreement appeared all but lost Thursday,' report Lori Montgomery and Rosalind hederman: "If the congressional 'supercommittee' cannot agree on a plan to tame the federal debt by next week’s deadline, as now appears likely, here’s what will happen: nothing. The automatic spending cuts that were supposed to force the panel to deliver more palatable options would not take effect until January 2013. That leaves lawmakers a full year to devise alternatives. The absence of an imminent crisis helps explain the lack of urgency on Capitol Hill this week, despite a Thanksgiving deadline approaching....An impending government shutdown forced the first budget deal, in April. The risk of the nation’s first default on its debt forced the second deal, in August. The supercommittee, created as part of the debt-limit agreement, was designed to avoid that kind of cataclysmic backstop. As a result, hope for an agreement appeared all but lost Thursday.
3) Both houses passed a spending bill, reports David Fahrenthold: "This is what a smaller government will look like: There will be less money for local cops, but more money for FBI agents. Less to repair public-housing complexes. More to feed hungry children. There will be less to fix polluted rivers. But more to fix crowded prisons. On Thursday, the House and Senate passed a bill that provided a detailed vision of the federal government on a diet. Lawmakers approved a $130.4 billion measure to fund five Cabinet departments, the first big budget bill since this summer’s promise of greater austerity. It was a guide to what this Congress cares about, now that it can’t care about everything. The bill favors law enforcement agencies and programs that funnel money directly to voters. And it cuts programs that send cash to local government agencies."
4) Spain's the latest country hit by the Euro crisis, report Victor Mallet, Richard Milne, and David Oakley: "Spain was thrust on to the frontline of the eurozone’s debt crisis on Thursday as investors forced its borrowing costs sharply higher just three days ahead of a general election that opinion polls predict will topple the ruling Socialist party. The Spanish Treasury issued €3.6bn of 10-year bonds at an average yield of 6.975 per cent, their highest level since 1997 and one regarded as unsustainable. In another day of bond market records, the premium demanded by investors for 10-year Spanish debt over German Bunds - a measure of perceived risk - reached 499 basis points. France’s premium exceeded 200bp before heavy buying by the European Central Bank eased tensions."
5) Occupy Wall Street moved to the streets, reports Shannon Bond: "Hundreds of union members and university students joined Occupy Wall Street protesters at a rally in downtown Manhattan as part of a national 'day of action' to mark the two months since the movement began. The march to Foley Square and across Brooklyn Bridge on Thursday evening followed clashes with police earlier in the day in Zuccotti Park and near the New York Stock Exchange. Protesters had blocked streets in the financial district but failed to shut down the exchange. About 200 people were arrested, the police told the Financial Times. Dozens more protesters in plastic handcuffs were loaded into police buses near the Brooklyn Bridge on Thursday evening. The evening rally attracted students who had participated in a strike, walking out of classes during the day."
Top op-eds
1) It's for the best if the supercommittee fails, writes Paul Krugman: "History tells us that the Republican Party would renege on its side of any deal as soon as it got the chance. Remember, the U.S. fiscal outlook was pretty good in 2000, but, as soon as Republicans gained control of the White House, they squandered the surplus on tax cuts and unfunded wars. So any deal reached now would, in practice, be nothing more than a deal to slash Social Security and Medicare, with no lasting improvement in the deficit. Also, any deal reached now would almost surely end up worsening the economic slump. Slashing spending while the economy is depressed destroys jobs, and it’s probably even counterproductive in terms of deficit reduction, since it leads to lower revenue both now and in the future."
2) Lobbyists can own Congressional staff, writes Jack Abramoff: "Staff members who thought they might be hired by our firm inevitably began acting as if they were already working for us. They seized the initiative to do our bidding. Sometimes, they even exceeded the lobbyists’ wishes in an effort to win plaudits. From that moment, they were no longer working for their particular member of Congress. They were working for us...During my years as a lobbyist, I saw scores of congressional staff members become the willing vassals of K Street firms before soon decamping for K Street employment themselves. It was a dirty little secret. And it is a source of major corruption in Congress. There is only one cure for this disease: a lifetime ban on members and staff lobbying Congress or associating in any way with for-profit lobbying efforts."
3) The Euro mess is a failure of technocracy, writes David Brooks: "On a superficial level, the fault lies with the current European leadership, their addiction to inadequate patches and fudges. But the real problems emerge from the technocratic mind-set, from the arrogant gray men who believe they can engineer society, oblivious to history, language, culture, values and place...In the short term, the European Central Bank, the stable European nations and even the U.S. will have to take extremely big and painful action to stabilize the situation. But, after that, it’ll be a time for chastening. It’ll be time to discard the technocratic mind-set that created this inherently flawed architecture and build a Europe that reflects the organic realities of those diverse societies."
4) Republicans have really become more reasonable during their time on the supercommittee, writes Ruth Marcus: "Consider: As the supercommittee began its work, House Speaker John A. Boehner (R-Ohio), despite his earlier revenue-raising flirtation with President Obama, decreed that tax increases 'are off the table.' Senate Minority Leader Mitch McConnell (R-Ky.) made the same blanket pronouncement. Flash-forward a few months, and — just in time for Thanksgiving — the table has suddenly become more crowded. Amazingly, Sen. Pat Toomey (R-Pa.), the former head of the rabidly anti-tax Club for Growth, proposed a deal that included — gasp! — a net increase in tax revenue from the current level. Just as amazingly, he was joined by Rep. Jeb Hensarling (Tex.), the former head of the ultra-conservative Republican Study Committee. When Hensarling served on the Simpson-Bowles debt reduction commission, he voted against its recommendations, declaring that 'further tax increases on the American people should be off the table.' I don’t mean this in a disrespectful way, but pigs are flying here, folks."
North Carolina rock interlude: Mac McCaughan of Superchunk performs, discusses "Digging for Something".
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Still to come: Spain's been hit by the Euro crisis; the supercommittee might deal with Medicare/Medicaid "dual eligibles"; the administration is escalating its immigration battle with Alabama; Steven Chu went to Congress to defend his Solyndra conduct; and the woman who voices 200 airports.
Economy
The head of the NY Fed is open to more easing, reports Michael Derby: " In a broader call to action for the whole government, William Dudley, president of the Federal Reserve Bank of New York, said 'monetary policy must do its part,' which could include a new round of bond buying by the central bank, aimed at the mortgage-backed securities market, in a bid to help the housing sector. 'I am deeply unhappy with the current forecast of prolonged high unemployment, and will continue to review whether there is more that we could do that would bring more benefit than cost,' Mr. Dudley said in a speech at the United States Military Academy. 'We are not out of ammunition.'...The remarks also are significant because he is part of Fed Chairman Ben Bernanke's inner circle."
The maximum home loan size the federal government will guarantee is increasing, reports Alan Zibel: "U.S. lawmakers moved Thursday to increase the maximum size of loans that can be guaranteed by the Federal Housing Administration. Congress passed a broad spending bill that included a provision to restore to $729,750 the maximum size of mortgage that can be backed by the FHA, giving some borrowers the option of putting less money down to obtain a mortgage in expensive cities. FHA-backed loans currently account for a third of new mortgages for home purchases and can be made with down payments of as little as 3.5%, compared with the 20% industry standard. The bill goes next to President Barack Obama to be signed into law. The loan limits fell to $625,500 on Oct. 1 in expensive markets like New York, San Francisco and Washington."
Background voices interlude: Meet the woman who is the voice of over 200 airports.
Health Care
The supercommittee might tackle "dual eligibles", reports Phil Galewitz: "State Medicaid directors and health insurers’ trade groups are urging the super committee to give states the option to mandate that most or all dual eligibles be enrolled in private plans that can closely manage their care. As a group, dual eligibles cost state and federal governments a combined $300 billion annually. They comprise 16 percent of Medicare's enrollees but account for 27 percent of its spending. They make up 15 percent of Medicaid beneficiaries but draw 39 percent of its spending, according to the Centers for Medicare and Medicaid Services. Medicare covers their basic acute-care services such as physician, hospital and prescription drug costs. Medicaid pays for most of their long-term care...it pays for Medicare's deductibles, co-payments and other cost-sharing."
Newt Gingrich earned millionaires from health care interests, reports Dan Eggen: "A think tank founded by GOP presidential candidate Newt Gingrich collected at least $37 million over the past eight years from major health-care companies and industry groups, offering special access to the former House speaker and other perks, according to records and interviews. The Center for Health Transformation, which opened in 2003, brought in dues of as much as $200,000 per year from insurers and other health-care firms, offering some of them 'access to Newt Gingrich' and 'direct Newt interaction,' according to promotional materials...The health center advocated, among other things, requiring that 'anyone who earns more than $50,000 a year must purchase health insurance or post a bond,' a type of insurance mandate that has since become anathema to conservatives."
Mitt Romney's original health care ideas weren't so much like the Affordable Care Act, reports Kate Nocera: "Mitt Romney has spent a lot of time defending himself over the Massachusetts health care law. But there's another way to judge his health care record: Look at what he wanted to do...Romney wanted a lighter mandate, with a way to get out of it if people were willing to pay something upfront to cover them in catastrophic events. He didn’t want to cover as many benefits. And he didn’t want to expand Medicaid at all. His vision was never going to fly in the liberal state -- so he signed a much different version into law, often described as a framework for what was to come. But his original plan shows that his own ideas were more market-driven, with fewer required benefits for health plans and no mandate for small businesses to offer health insurance."
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