« July 16, 2006 - July 22, 2006 | Main | July 30, 2006 - August 05, 2006 »
Carl Hulse reports in the New York Times on negotiations over a minimum wage bill. I love this bit at the end:
Many House Republicans have for years opposed bringing a wage measure to the floor, saying it was not the government’s role to set pay rates and that requiring a higher minimum wage would discourage employers from creating new jobs. They have been backed by lobbying groups like the National Restaurant Association and the National Federation of Independent Business.Republican moderates used a closed party meeting on Thursday to make their case for a vote, saying it was crucial for helping to dispel the party’s antiworker image.
The moderates ran into opposition from conservatives who said the wage proposal could turn off campaign contributors with the elections looming and drive away the party’s business base. But some lawmakers said opponents also recognized the political necessity of giving moderates some political cover, a prospect more appealing than potentially losing their majority in the House.
The moderates aren't really interested in helping workers, they're just interested in dispelling the party's antiworker image. And the conservatives are making the tremendous concession that it would be better to throw a sop to the moderates they usually ignore than to lose power entirely.
Posted by dan at 09:51 AM
Stephanie Saul reports in the New York Times that Big Pharma is trying to influence physicians' prescription writing practices by rolling out the big guns: wraps, focaccia, and panini.
Posted by dan at 09:48 AM
Eric Dash reports in the New York Times that the IRS is investigating companies that have backdated options. See, if you account for options improperly, it's likely that you recorded your tax obligations improperly. All the more astonishing that some nutty apologists have argued that there was nothing improper with backdating
Posted by dan at 09:43 AM
A truly, truly bizarre op-ed by Rep. Jim Kolbe in today's Financial Times. The headline reads: Baby-boomers threaten the war on global poverty. His argument: Baby Boomers will demand their Social Security and Medicare as they retire, and as a result there won't be money left in the budget for foreign aid. As a result, the poor will suffer.
Reality-based translation: because the Republican Congress (of which Kolbe has been a member) and President Bush have recklessly cut taxes while massively increasing spending, including a new Medicare prescription drug entitlement, the U.S.'s long-term fiscal balance sheet has been seriously damaged in recent years. Because they are unwilling to take the steps necessary to align revenues with spending commitments, they're now telling us that Social Security and Medicare (remember, that program whose scope they vastly increased) must be sharply scaled back.
The funniest bit in the piece:
"George W. Bush, US president, has shown crucial leadership on both entitlemente reform and foreign aid, but we need to be more explicit about the links between them. Above all, he has to present Americnas with the trade-offs that government is making, year for year. Far more people would confront the need to rein in entitlements if they understood how they are putting our foreign aid budget in a straitjacket."
Given that spending on foreign aid numbers in teh low billions, and that the long-term shortfalls in Social Security and Medicare number in the trillions, it's astonishing that anybody could make such an argument with a straight face. And this guy's supposed to be one of the comparatively reality-based moderates.
Posted by dan at 12:33 PM
Apparently, the eating is not so good in the neighborhood. Applebee's is a huge purveyor of sweet food to middle America and middle-class Americans. (See Brendan Koerner's excellent take on Applebee's in Slate.) Yesterday, it reported disappointing earnings.
Net income: way down.
Same-store sales for the quarter: down 1.8 percent.
Same-store sales for the five weeks ended June 25: down 3 percent. Guest traffic in June: down 5 percent.
Same-store sales for the four weeks ended July 23: down 3.6 percent.
Guest traffic in July: down 5.5 to 6 percent.
Estimates same store sales for the rest of the year: flat to down 4 percent.
I can't wait to hear again how well middle income consumers are weathering successive years of stagnant wages, rising inflation, and higher energy costs.
Posted by dan at 12:23 PM
Douglas Holtz-Eakin, the former head of the Congressional Budget Office, looks into the future and sees a huge cram-down, although he doesn't describe it as such. David Wessel reports in today's Wall Street Journal:
"Douglas Holtz-Eakin, freed of the constraints of heading the Congressional Budget Office and now offering budget predictions for a fee at forecasting firm Macroeconomic Advisers, takes another approach: a guess at what Congress will do.He expects Congress to make Mr. Bush's tax cuts permanent, and assumes that Republicans will, at the very least, have enough seats to prevent increases in tax rates from today's levels. (That may not be realistic, but it's an illuminating assumption, because it shows what would have to be done to spending.) He figures something will be done to keep budget deficits below 2% of gross domestic product, a tad beneath this year's level, because that's what usually happens.
And then he guesses what that would mean for spending; it isn't easy. Don't look to Social Security to save money. "There are lots of good reasons to reform Social Security, but no evidence that it will happen soon," he says. Count on a sharp downturn in defense spending after 2009 as troops come home from Iraq. (Who said economists are pessimists?) Restrain annually appropriated domestic spending so it grows slower than the economy. (That will be tougher than bickering over earmarks for hometown highway projects.)
That won't be enough. So he predicts Congress will turn to Medicare and Medicaid for the big money. The programs' costs are projected to rise 9.3% a year under current law. Given less-appealing budget options, he predicts Congress and the president will somehow alter the programs, or raise premiums levied on more affluent beneficiaries, to slow growth to 7.8% a year over the next decade. That sounds small; it isn't. It means changing the programs or raising premiums to the tune of $6 billion to $10 billion a year every year.
That isn't a map out of the fiscal woods. Mr. Holtz-Eakin isn't specific about substance or political tactics. But it is a compass. And we could use a compass.
Alas, leaving government service doesn't seem to have brought the straight-talking Mr. Holtz-Eakin back to reality. The deficit will be under 2 percent because that's what usually happens? Defense spending will shrink significantly after 2009 as the troops come home? Annually appropriated domestic spending will be restrained so it grows slower than the economy? Given the crowd currently running things, and their behavior in recent years, what could possibly lead him to believe that anything of these things will happen?
One element of his analysis does ring true: Congress will be happy to essentially raise taxes on the middle class and poor (increasing Medicare and Medicaid premiums)so that it can extend tax cuts overwhelmingly for the wealthy.
Posted by dan at 11:37 AM
Kimberly-Clark's diapers and tissues are good at absorbing moisture. The company itself is also turning out to be a good absorber of inflation. The company reported earnings yesterday. Sales rose 4.4 percent year over year, but operating profit fell, and so did net income. Money quote:
"Although continued top-line growth and cost savings positively impacted operating results, the company had to absorb about $100 million of cost inflation during the quarter. The total included nearly $30 million for raw materials other than fiber, driven by increases in the cost of polymer resins, superabsorbents and other oil-based materials, $10 million in higher fiber costs, $25 million in energy costs and more than $35 million in distribution costs."
Posted by dan at 11:33 AM
My latest in Slate, on the difficulties facing the big internet companies.
Posted by dan at 11:31 AM
General Motors had a bang-up quarter! It reported a net loss of only $3.1 billion. And the North American operations only lost $85 million!
Posted by dan at 11:27 AM
Very strange analysis by Peter Baker in the Washington Post on how the Lebanon crisis has affected Bush's political fortunes.
For the president, the timing could not be much worse. In a second term marked by one setback after another, the White House was in the midst of a rebuilding effort aimed at a political comeback before November's critical midterm elections. Now the president faces the challenge of responding to events that seem to be spinning out of control again, all but sidelining his domestic agenda for the moment and complicating his effort to rally the world to stop nuclear programs in Iran and North Korea. . . .At home, political strategists said, Bush faces the perception that he is presiding over one brushfire after another, hindered in his efforts to advance a positive agenda at a time when Republican control of Congress appears at risk. His most prominent domestic priority of the year, a comprehensive immigration plan, already seemed stalled until after the elections. The escalation of killing in Iraq may have unraveled any chance of major U.S. troop withdrawals before the elections. And the conversation is now dominated by rockets flying in and out of southern Lebanon.
Rebuilding effort? Political comeback? Positive agenda? It makes you wonder whether Baker has spent any time in Washington in the last several months. Prior to the escalation of war, Bush's only domestic achievements were: crowing about the fact that the huge deficit didn't meet the massive projections his administration had earlier put put and vetoing a popular stem cell measure. Oh, and there was the whole gay marriage thing. And the flag thing. The polls, the action on the ground, and the activity in Washington over the past several months don't show anything except continued drift.
Posted by dan at 11:22 AM
Barry Newman poses a question in the Wall Street Journal: If we clamp down on immigration, where will we get the cheap labor to care for our parents and grandparents?
Immigrants, whether legal or undocumented, make up a disproportionate share of those who care for the elderly -- and the need for such workers is set to explode in the coming years. The Department of Health and Human Services predicts that the elder-care work force, 1.9 million in 2000, must reach 2.7 million by 2010 and five million by 2050 to meet the impending rise in demand. Meanwhile, the pool of 25-to-50-year-old American-born women that has been a prime source for elder-care jobs is also shrinking.Where will the extra helpers come from?
Operators of nursing homes and home-care agencies say part of the answer lies abroad. The American Health Care Association, which represents for-profit nursing homes, and the National Association for Home Care both joined an industry coalition to lobby Congress for a new visa that they hoped would annually admit 400,000 low-skilled workers -- the grist of the home-care field -- which would be equal to the number that now arrive illegally. In May, when the Senate passed a bill aimed at granting legal status to millions of immigrants already here, it cut the proposed number of low-skill visas to 200,000. The House had earlier backed punishment for illegal immigration, with no new visas at all.
Immigration opponents in the House are unmoved by arguments that elder-care jobs will soon go begging without an influx of workers from abroad. "At some price, Americans will fill these jobs," says Will Adams, spokesman for Rep. Tom Tancredo, a Colorado Republican. "Any field related to the retirement of the baby-boom generation is expanding. Let the market do its work."
Some proponents of better pay for American elder-care workers agree. Such work may have its unpleasant aspects, they say, but filling vacancies with immigrants might depress wages for the lowest paid workers in the field. "Bringing in foreigners willing to put up with those circumstances may only exacerbate the problem," says Donald Redfoot, a researcher for the AARP, which hasn't taken an official position on the immigration issue. "Employers will say, well, that's the market price for the job." . . .
With poor pay, few benefits and no security, elder care is already a career many Americans flee -- the turnover is huge -- yet one that immigrants like Ms. Martinez flock to. One Census Bureau survey counted 850,000 low-skilled home-care workers in the country, 254,000 of them born abroad -- and that number doesn't count many undocumented immigrants caring for people privately.
Posted by dan at 08:50 AM
Gregory Mankiw and Robert Carroll have an op-ed in the Wall Street Journal today on the Treasury department's study on dynamic scoring and tax policy.
They posit three lessons:
1. "a permanent extension of the recent tax cuts leads to a long-run incraese in the capital stock of 2.3%, and a long-run increase in GNP of 0.7%."
2. Cutting taxes on rich people -- i.e. reducing capital gains and dividends -- juices the economy more than cutting taxes on middle-class and poor people.
3. Without actually saying so, they argue that the way the Bush administration -- of which Mankiw was a part -- and the Republican Congress have gone about cututing taxes will actually harm long-term growth.
"Lesson No 3: How tax relief is financed is crucial for its economic impact.Like all of us, the government eventually has to pay its bills. In technical terms, the government faces an intertemporal budget constraint that ties the present value of government spending to the present value of tax revenue. This means that when taxes are cut, other offsetting adjustments are required to make the numbers add up.
The Treasury's main analysis assumes that lower tax revenue will over time be accompanied by reduced spending on government consumption. But the report also shows what happens if spending cuts are not forthcoming. In this alternative scenario, a permanent extension of recent tax relief is assumed to lead to an eventual increase in income taxes.
The results are strikingly different. Instead of increasing by 0.7% in the long run, GNP now falls by 0.9%. Tax relief is good for growth, but only if the tax reductions are financed by spending restraint. One exception: Lower taxes on dividends and capital gains promote growth, even if they require higher income taxes."
Posted by dan at 08:44 AM
M-O-N-E-Y. Rachel Morarjee reports in the Financial Times on how the Taliban in Afghanistan are competing with the government for labor.
The Taliban has found a way to recruit fighters that is less about winning hearts and minds and more about the enduring appeal of cold hard cash.They are paying fighters up to $12 a day to fight the fledgling Afghan National Army, which pays only $4 a day to its soldiers in the field, according to military officials.
The Taliban are supported by Pakistan and they get money from the drugs trade so they get more pay than our soldiers,” said Colonel Myuddin Ghouri of the national army’s 205 Corp.
While the ANA has the advantage of superior equipment and the same medical treatment as British troops, its troops often have to risk their lives far from home. “If you were a lad in the hills and you were offered $12 to stay local or you could take $4 and fight miles away from home, which would you do?” said Lieutenant Colonel David Hammond, an officer with 7 Para who is training Afghan officers in the southern province of Helmand as part of a mentoring scheme.
The pay difference is making it harder to recruit soldiers to the 38,000-strong ANA, which has faced a much better equipped and funded insurgency since January. Western officials have estimated the Taliban’s forces have risen from 2,000 last year to 6,000 this year. The Taliban claims to have 12,000 men. Afghan defence ministry officials believe funds for the insurgency are flowing over the border from Pakistan and possibly from Arab countries.
Posted by dan at 08:41 AM
Altria shareholders should be thankful for the fact that foreigners haven't quite become hip to the dangers of smoking. Altria reported its quarterly results yesterday. The upshot: Americans seem to be smoking less, as unit volume for Philip Morris USA fell 4.3 percent. But Philip Morris International racked up an excellent quarter, with unit volume up 5.7 percent. Excluding acquisitions, the international unit's volume rose 0.8 percent. The international unit accounted for about $2.1 billion in operating income in the quarter while the U.S. unit accounted for about $1.3 billion in opearting income.
Posted by dan at 08:36 AM
It's tough being part of the Bush economic team, in large part because there are so many of chunks of the recent record that are difficult to defend/spin. Indeed, it's been my experience that the academic types who have served in the administration are, as a group, far more intelligent, honest, and engaging as private citizens than they were as public servants. Looks like Ed Lazear, chairman of the Council of Economic Advisors, is going to be in that same mold.
Edward Luce and Krishna Guha report in the Financial Times.
The US is now in its fifth year of growth since the last recession. Yet median weekly earnings (wage earners who are at the 50th percentile of income distribution, with half the workforce earning more and half less) have fallen by 3.2 per cent in real terms since the start of the recovery in October 2001.Translation: "We're not pissing on you. It's just raining."Similarly, average hourly earnings for non-managerial workers have fallen by 0.6 per cent since the last quarter of 2001, according to the US Bureau of Labor Statistics. This contrasts with previous US recoveries, in which wage growth started to overtake inflation at a much earlier stage in the cycle.
"What we are seeing is a major structural shift in the way the US economy works," says Rob Shapiro, head of the New Democrat Network's Globalisation Initiative, a centrist advocacy group. "The ripple effects caused by the supply shock of the entry of hundreds of millions of Chinese workers into the global economy has changed the way American workers benefit from trade." . . .
Senior administration officials believe the public's frequently expressed economic dissatisfaction - more than two-thirds of Americans believe their country is heading in the wrong direction - reflects Washington's inability to get its message across to the US heartlands. There is particular concern about declining support for trade liberalisation.
Ed Lazear, chairman of the president's Council of Economic Advisors, says the growing focus on wage stagnation is misleading for two reasons.
First, there are signs that hourly earnings growth is beginning to accelerate after an unusually long lag. And second, the measure fails to capture broader growth in worker compensation, which includes pensions and healthcare provided by employers.
"Hourly wages have grown more slowly than total compensation," Mr Lazear said in a speech last week. "The relevant measure is total compensation." Mr Shapiro disagrees: "This is not about whether the American public is hearing the right message - it is about what most people are experiencing."
Note the super-hyper conditionality attached to the discussion of wage growth: there are signs that hourly earnings growth is beginning to accelerate.
And regarding overall compensation, he must be kidding. It may be true that wages are growing more slowly than overall compensation due to increased spending on health benefits and pension. In fact, for many people, they're not growing at all. But I'd bet a lot of that growth in benefits spending has to do with inflation in health care, not in a broadening of benefits. In fact, the evidence shows that for those with insurance, co-payments and deductibles are rising--even if employers are spending more on the premiums that they pay. And with each passing year, fewer workers receive health care as part of theri compensation. As I noted in Slate yesterday, the Census Bureau has reported the percentage of people covered by employer-based plans fell to 59.8 percent in 2004 from 60.4 percent in 2003.
Lets say a worker gets no raise, and his employer spends 5 percent more on the worker's health insurance, Lazear would say his compensation has risen 5 percent. But what if the cost of health insurance rose 8 percent last year and the employer isn't willing to pay for it? The employer tells the employee he has to pay higher co-payments and take a higher deductible for the same plan, and the worker does not see any net increase in his total compensation.
And pensions? Lazear has got to be kidding here, too. Is there any evidence that workers who aren't getting wage increases are getting big pension increases? If so, I haven't seen it. We're in the midst of a massive cram-down, whereby many very large companies are freezing defined-benefit pension plans, thus slashing retirement benefits for hundreds of thousands of workers.
Ugh.
Posted by dan at 04:37 PM
In Business Week, Peter Coy says Americans can't stop guzzling gas.
Gasoline keeps getting more expensive, but Americans keep buying more of it. They bought 10% more gasoline in the first half of 2006 than in the first half of 2000 even though the price at the pump rose 75%. It isn't just essential trips, either—leisure travel remains strong. Gasoline consumption during the week of the Fourth of July holiday this summer was 2% higher than a year ago.Why the resilience? After all, when prices of most things rise, people buy less. You would think they would react to costlier gasoline by gradually making such adjustments as carpooling, switching to more fuel-efficient vehicles, or even getting a job closer to home. To an extent, they do. Energy Dept. economists say gasoline consumption, driven by an expanding population and economy, would be even higher today if prices hadn't risen.
But there is a powerful force undermining the conservation trend: Sticker shock doesn't last forever. People are getting used to high gas prices, painful as they are, and continuing with their old ways of doing things. Some are cutting back on spending in other areas, which has chilled non-gasoline retail sales growth. But a reasonably strong economy with a 4.6% unemployment rate seems to be enabling many families to fill the tank with little strain.
"We have consumers that have a lot more disposable income and are less willing to change their driving and purchase habits to accommodate the higher price of gasoline," says John Maples, an operations research analyst for the Energy Dept.'s Energy Information Administration.
Over at Barron's ($ required), Masood Farivar disagrees.
"Contrary to a widespread belief that U.S. gasoline demand has raged on unscathed by price pressure, there's now evidence that demand growth for the fuel is finally tapering off: With pump prices now at $3 a gallon--more than double what drivers paid in 2002--at least some Americans have begun reining in their gas-guzzling ways."We're saying the world is still round, and that high prices do have an impact on demand," says Doug MacIntyre, an analyst at the federal Energy Informatoin Administration. . .
"After running flat much of the year, gasoline demand picked up with the onset of the driving season this June, which saw a monthly record 9.5 million barrels of gasoline consumer per day. In the four weeks ended July 14, demand climbed to an even higher average of 9.6 million barrels a day, up 1.9% from a year go.
The year-on-year percentage gain looks impressive,in large part because last year saw virtually no growth in demand. . .
Noting that U.S. gasoline consumption has typically grown by 1.5% to 2% annually, in line with economic and population expansion, MacIntyre says that if demand had grown at a more typical rate since 2002, when prices began climbing, it would have averaged 9.7 million to 9.9 million barrels a day in June, not the 9.5 mllion barrels that was reported. "What we're trying to do is to caution people who look at the most recent gasoline-demadn numbers and say, 'We've reached our peak in demand,'" MacIntyre explains. "Gasoline demand would have been higher, had prices remained where they were in 2002."
I, too, think the world is still round.
Posted by dan at 05:48 PM
My latest in Slate, on the HCA leveraged buyout.
Posted by dan at 05:46 PM
My article in Slate, on the potential bubble in alternative energy. A version also appeared in the Washington Post "Outlook" section on Sunday.
Posted by dan at 05:44 PM