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The Recession is Over - Let The Good Times Roll?

By Gary Starr for the Neville Awards
Sept, 27, 2010

It's official: The 2007-2009 recession, which wiped out 7.3 million jobs, cut 4.1% from economic output and cost Americans 21% of their net worth, marked the longest slump since the Great Depression.

And now it's over - in fact, it ended in mid-2009 so says the National Bureau of Economic Research (NBER), the outfit that everyone relies on to say when recessions start and stop. So is it champagne and caviar time? Can we finally focus on what's really important -- Paris Hilton and Lindsay Lohan?

A little sidenote here -- David Romer is on the recession dating committee of NBER. His wife is Christina Romer, the recently departed first chair of Obama's Council of Economic Advisers. The date of the NBER study was June 2010. Ms. Romer announced her resignation from Obama's administration in August 2010.....hmmmmm.

At the White House they think it's party time. In fact the party has been going on since January 2009. And our Fraudinator-in-Chief recently went out on a mini-tour to pump up ObamaCare and the economy. At a CNBC townhall Obama thought he was going to get a bunch of softball questions from a handpicked audience. Instead he got this:

"I'm one of your middle class Americans. And quite frankly, I'm exhausted. Exhausted of defending you, defending your administration, defending the mantle of change that I voted for," Velma Hart told our Fraudinator-in-Chief at a town hall.

"My husband and I have joked for years that we thought we were well beyond the hot dogs and beans era of our lives, but, quite frankly, it's starting to knock on our door and ring true that that might be where we're headed again, and, quite frankly, Mr. President, I need you to answer this honestly. Is this my new reality?

Watch the Video

Poor Barack just looked down and laughed that stupid, embarrassed laugh of his.

The article continues below.

We have assembled a number of excerpts from articles explaining just how "great" things really are.

From Mortimer Zuckerman at the Wall St. Journal:

The Recession and the Housing Drag -- The more the government tries to prevent prices from finding an equilibrium, the longer it will take for the economy to begin growing again.

SEPTEMBER 21, 2010


New home sales, pending home sales, and mortgage applications are down to a 13-year low, despite long-term mortgage rates that plummeted recently to an average 4.3% before rising slightly. New home prices have fallen by an average of 30%. According to David Rosenberg, chief economist at Gluskin Sheff, this has reduced home occupancy cost to 15% of family incomes, down from the conventional 25%.

The fall in house prices has eaten away at the equity Americans have in their homes. About 11 million residential properties have mortgage balances that exceed the home's value, notes Mr. Rosenberg. And given the total inventory of homes and the shadow inventory of 3.7 million empty (foreclosed) homes, he notes that prices might fall another 5% to 10%. That would leave an estimated 40% of American homeowners with mortgages in excess of the value of their homes.

A staggering eight million home loans are in some state of delinquency, default or foreclosure.

The most critical factor subduing the demand for housing is that home ownership is no longer seen as the great, long-term buildup in equity value. So it is not too difficult to understand why demand for housing has declined and will not revive anytime soon.

From Alan Sinai at the Wall St. Journal:

Cap Gains Taxation: Less Means More -- A new study suggests a zero cap gains rate could create millions of jobs at a fraction of the cost of the spending stimulus.

SEPTEMBER 21, 2010


Congress is deliberating on what to do about the "Bush tax cuts"-the reductions in income, capital gains and dividend taxes legislated in 2001 and 2003-currently set to expire at the end of this year. The recession may officially be over, but what Washington does on tax policy still matters for an economy that's creating very few net new jobs and is stuck with an unacceptably high unemployment rate and record-high federal budget deficits of over 9% of GDP.

The study simulated reductions and increases in capital gains taxes starting in 2011 and extending to 2016 to estimate the effects on economic growth, jobs and unemployment, inflation, savings, the financial markets and debt.

Here are a few of the relevant findings:

Hiking capital gains tax rates would cause significant damage to the economy.

Raising the capital gains tax rate to 20%, 28% or 50% from the current 15% would reduce growth in real GDP, raise the unemployment rate and significantly reduce productivity. These losses to the economy outweigh any gains in tax receipts from the increase in the capital gains tax rate.

For example, at a 28% capital gains tax rate, economic growth declines 0.1 percentage points per annum and the economy loses about 600,000 jobs yearly. If the capital gains tax rate were increased to 50%, real GDP growth would decline by 0.3 percentage points per year, and there would be 1.6 million fewer jobs created per year. At a 20% capital gains rate compared with the current 15%, real economic growth falls by a little less than 0.1 percentage points per year and jobs decline about 231,000 a year. Smaller increases in the capital gains tax rate have smaller effects on the economy, but the effects are still negative.

Higher capital gains taxes will not substantially reduce the deficit.

The net impact on the federal budget deficit of a reduction in the capital gains tax rate to 0% is a decline in tax receipts of $23 billion per year after the positive effects of stronger economic growth on payroll, personal and corporate income taxes are taken into account. This is significantly less than the $30 billion per year static revenue loss estimate, which does not include feedback effects. A capital gains tax reduction to 0% produces new jobs at a cost of $18,000 per worker, far less than might occur from many other proposals.

The bottom line is that any capital gains tax increase is counterproductive to real economic growth. To the contrary, a reduction in the capital gains tax rate would be a pro-growth fiscal stimulus that creates new jobs and new businesses, funds entrepreneurship, reduces the unemployment rate, increases productivity, and in the long run brings in more payroll taxes. In the case of capital gains taxation, less means more.

From The Wall St. Journal:

A Very Grim Reaper

Another tax that Democrats want to raise from the dead.

SEPTEMBER 21, 2010

While Washington debates whether to raise taxes on incomes and dividends next year, another huge tax increase looms as an even grimmer reaper: The death tax, which is currently zero, but will return to a rate of 55% next year if Congress fails to act.

Some Democrats don't want to stop there. The Senate Redistribution Caucus-Bernie Sanders (Vermont), Sheldon Whitehouse (Rhode Island), Al Franken (Minnesota), Sherrod Brown (Ohio) and Tom Harkin (Iowa)-are sponsoring the Responsible Death Tax Act to take the federal rate to 65% on large estates. Why stop at two-thirds, guys? Clearly, you think the government has a right to every penny a man makes in a lifetime.

These same five plus Budget Chairman Kent Conrad of North Dakota also want to retroactively apply a death tax to January 1, 2010 on the estates of those who have already died this year. Their revenue grab gives new meaning to the phrase grave robbers. Too bad George Steinbrenner, who died earlier this year and whose family will be able to retain control of the New York Yankees in part because of the lack of an estate tax, can't come back from the dead and shout at these guys.

It's not merely the super-wealthy who will pay these rates unless they shelter their assets in foundations the way that Bill Gates and Warren Buffett have. Estates with as little as $1 million in assets would get hit at the reinstated 55% rate. That $1 million has not been indexed for inflation, so each year more and more middle class families would pay when mom or dad dies. For hundreds of thousands of families, $1 million can easily be the value of the family home, furniture, jewelry, cars, plus a 401(k). All of this would be fair game for IRS confiscation.

From The Wall St. Journal:

The Real Gulf Disaster -- The well is plugged. The moratorium drags on.

SEPTEMBER 22, 2010.

On Sunday Federal spill-response chief Thad Allen declared BP's ruptured well "effectively dead." Now if only Gulf residents weren't stuck coping with the disaster the government created after the accident-namely, the federal drilling moratorium.

The White House has been struggling to justify this ban, which was motivated by anti-drilling politics, not science. So it came as no surprise that late last week-just as the well was about to be plugged-the Administration issued an "inter-agency report" suggesting its decision to effectively shut down the Gulf's largest industry has caused little economic damage. File this one alongside the prediction of an 8% ceiling on unemployment.

According to the analysis, the expected six-month ban on deep-water drilling will result in 8,000 to 12,000 jobs lost. The report crows that "these estimates are lower" than those predicted by other studies and that, moreover, the jobs will "not be permanently lost," but will return when the ban is lifted. It acknowledges the ban will result in a reduction of some $1.8 billion in spending by drilling operators over the six months and a loss of 30 million barrels of oil in 2011, but dismisses these figures as trivial.

For an Administration that loves to tout stimulus projects that create a handful jobs here or there, it takes some nerve to describe the loss of up to 12,000 high-paying Gulf jobs as a triumph. Also unmentioned in the report is that if the Administration had listened to its own outside experts-who insisted a moratorium was unnecessary-the jobs lost would have been near zero. It is the White House that handed the Gulf these pink slips-not the spill, or a poor economy.

The report's numbers also violate the very logic the White House offered earlier on the stimulus spending. According to the authors of the stimulus, every $92,000 the government injected in the economy was supposed to create one job-year. Yet according to the moratorium report, pulling $92,000 out of the economy doesn't result in the reverse. Instead, the authors offer several imaginative explanations for why it is important to "discount" that $92,000 by 40% to 60% when estimating how many jobs will be lost because of the $1.8 billion decline in spending on Gulf drilling. Thus they arrive at 8,000 to 12,000 lost jobs. Louisiana State University Professor Joseph Mason, who has penned a rigorous critique of the report, notes that if the government had not engaged in such "ad hoc" discounting, the estimate of lost jobs would be about 20,000-in line with prior estimates.

The Administration report also argues that the moratorium will merely "delay" 30 million barrels of Gulf oil production in 2011, that this is "small . . . compared to world production," and so it will have "no discernible effect on the price of oil." This may be true, but it fails to account for the billions of additional dollars America will spend now importing oil it would have produced offshore.

The report is correct that the moratorium has not resulted in wholesale job losses-yet. But the relatively stable Gulf employment figures in the report cites tell us little. The self-employed (which includes many Gulf workers) aren't eligible for unemployment insurance. And while many displaced workers have found temporary employment with clean-up operations, jobs are winding down.

Deep-water rig operators have invested billions in the Gulf and deciding to call it quits would be costly. Many are hedging their bets, hoping the millions of dollars they are daily flushing away as rigs sit idle might be recouped if they hold out awhile longer. Numerous operators are paying their crews to do menial tasks, such as painting or repair. Five deep-water crews found work helping to plug the BP well, but that too is ending. The point is that resourceful Gulf workers and operators have only succeeded in delaying the inevitable-not stopping it.

Deep-water operators are looking at what happened to shallow-water drillers, and losing hope.

The BP incident was in deep water, yet the Administration imposed a temporary shallow- water drilling ban, which has morphed into a de facto moratorium. The Bureau of Ocean Energy Management (formerly the Minerals Management Service) has gone into a regulatory lockdown. Prior to BP Horizon, the agency issued on average 12 to 15 permits for new wells per month. In the 20 weeks since BP Horizon, it has issued five new-well permits in total-less than 10% its normal rate.

Today, 15 of the Gulf's 46 shallow-water rigs are idle, due to a lack of new permits. The industry estimates that, at this rate, by Halloween 70% of shallow-water drillers will be idle. The Administration did not include any of these figures in its analysis.

And there's the rub. The real fear is that the Administration is using the oil spill as an excuse to shut down the drilling that the enviro left finds so offensive. The President stacked his oil-spill commission with antidrilling environmentalists, who will be predisposed to recommend that any lifting of the ban be accompanied by a severe regulatory regime. The result would be a moratorium in everything but name.

Five deep-water rig operators have already judged that to be the future and left the Gulf, taking hundreds of jobs with them. If the White House doesn't provide reassurance to the industry that the moratorium will end soon-and bring with it the return of profitable opportunity-dozens more will follow.

To paraphrase Mrs. Hart -- Is this our new reality?

Capital gains tax increases, a return of the death tax, more housing foreclosures, and the permanent loss of jobs in the Gulf, and who knows how many jobs lost and tax increases if ObamaCare and Cap and Trade are not derailed next year.

Unless the voters come through in November this will be our new reality.
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