Fiscal Policy

Must Reads: State of The Union, Stimulus and Austerity Economics PA Style

A blog post by Mark Price, originally published at Third and State.

Tonight President Obama will deliver his State of the Union Address to Congress. We are expecting the President to recommend an extension through the end of 2012 of extended unemployment insurance benefits and the payroll tax credit. It looks as though a major theme in the address — besides the catch phrase “built to last” — will be conventional policies aimed at reducing inequality, such as increased spending/tax credits for education and training.

Education and training are important and fruitful means of reducing inequality, but they fall well short of what's needed to reduce the degree of inequality we now face.  A more forceful step in the direction of reducing inequality would include raising the minimum wage and making it easier for workers to form and join unions. We don't expect to hear the President call for either of those changes.

The President will propose paying for his new initiatives with higher taxes on wealthy households. As with education and training, restoring some sense of fairness to the tax code is a laudable goal but longer-lasting reductions in inequality will only come from policies that allow the pre-tax wages of more Americans to rise as the size and wealth of our economy grows.

Manufacturing, energy, job training and middle-class growth will be the cornerstones of President Barack Obama's speech tonight as he takes to the nation's grandest political stage for the annual address on the state of the union, according to senior advisers.

The Standard and Poor's Downgrade

A blog post from Mark Price, originally published on Third and State.

The economic news of the past two weeks has been decidedly grim.

On July 29, new data confirmed that the economy in the first half of 2011 grew much more slowly than necessary to bring down the unemployment rate.

A few days later, the bizarre debt-ceiling fight was resolved with agreement to cut nominal federal spending over the next two years. Economic forecasts prior to this deal put the U.S. unemployment rate at 8% at the end of 2012. Cuts to federal spending mean higher unemployment forecasts are on the way.

By the way, this morning the forecasters at Goldman Sachs increased their unemployment forecast for the end of 2012 to 9.25% — and that assumes Congress will agree to extend the current payroll tax credit before January.

Unless you are living off the grid, you couldn’t have escaped news that last week was brutal for the Stock Market. Then late in the day Friday, credit rating agency Standard and Poor's — after correcting a $2 trillion math error — decided to go ahead and downgrade the full faith and credit of the U.S. taxpayer from AAA to AA+.

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