Economics: How the U.S. Got $14 Trillion in Debt

For the meaning of this and more charts, click the link. Charting the American Debt Crisis, July 29, 2011 at NYTimes.com.

Great Recession: Revisions Show Deeper 2007-2009 Recession

The 2007-2009 recession, already in the record books as the worst in the 66 years since the end of World War II, was even worse than previously thought.

From the start of the recession at the end of 2007 to the end in June of 2009, the U.S. economy shrank 5.1%. That is 1 percentage point worse than the previous estimate that the recession reduced total output during that period by 4.1%.

For more, see Revisions Show Deeper 2007-2009 Recession by The Associated Press, July 29, 2011 at NYTimes.com.

California: Huge Cuts for Court

The San Francisco Superior Court announced Monday that it was laying off more than 40% of its staff and shuttering 25 courtrooms because of budget cuts. Presiding Judge Katherine Feinstein said the actions were necessary to close a $13.75 million budget deficit caused by state budget cuts. The civil justice system in San Francisco is collapsing, Judge Feinstein said.

From California: Huge Cuts for Court by The Associated Press, July 18, 2011 at NYTimes.com.

Politics: Meetings Indicate British Officials' Links to Murdochs

Cozy ...

As the phone hacking scandal struck the heart of British politics in recent weeks, one figure has been notably silent: the chancellor of the Exchequer, George Osborne, who, by several accounts, played a decisive role in bringing the former News of the World editor Andy Coulson into 10 Downing Street as a senior adviser. That move has deeply embarrassed the British government.

Pressure on Mr. Osborne mounted Tuesday as details of his extensive meetings with the Murdochs and leaders of the News Corporation's British subsidiary, News International, were released.

A diary posted on the official Web site of the Exchequer showed that his encounters continued even after a new police inquiry into hacking had begun, and as the government neared a crucial decision on the Murdochs' $12 billion bid, subsequently abandoned, to take complete control of British Sky Broadcasting, the country's dominant satellite broadcaster.

The posting of Mr. Osborne's meetings with News Corporation executives followed Mr. Cameron's disclosure that he had 26 meetings and social engagements with Rupert Murdoch, his son James and their lieutenants since taking office in May 2010. The Labour leader, Ed Miliband, has released his own list, showing 15 meetings or social contacts with News International executives over the same period.

According to the Exchequer's listing, which did not include interviews with journalists, Mr. Osborne met 10 times with the two Murdochs and their former lieutenant, Rebekah Brooks. These were among 16 meetings or social occasions Mr. Osborne attended at which News International executives were present — representing a third of all meetings he had with senior figures from all of Britain's media organizations. Mr. Coulson and Ms. Brooks, who resigned this month as chief executive of News International, are among a group of people who worked for News International and The News of the World who have been arrested in connection with the phone hacking case.

For more, see Meetings Indicate British Officials' Links to Murdochs by John F. Burns and Ravi Somaiya, July 26, 2011 at NYTimes.com.

Environment: Chinese Cleaning Up

Despite being the world's most prominent polluter, China's investments into clean technology far surpass the United States. According to Ernst & Young, China is the most attractive location to invest in renewable energy projects. The firm says that the United States slipped to second place last year on the Renewable Energy Country Attractiveness Indices, which grades countries on a 100 point scale in national renewable energy markets, renewable energy infrastructure, and suitability for individual technology.

For more, see Chinese Expansion Critical to American Superconductor and Satcon Technology's Growth by The Bedford Report, July 27, 2011 at Yahoo! Finance.

Health: Brain Shrinkage: It's Only Human

Human brains shrink as people grow old, unlike even our closest animal relative, says a new study in the Proceedings of the National Academy of Sciences that highlights what researchers call the unique character of human aging.

The human brain normally can shrink up to 15% as it ages, a change linked to dementia, poor memory and depression. Until now, researchers had assumed this gradual brain loss in later years was universal among primates.

But in the first direct comparison of humans to chimpanzees, a brain-scanning team led by George Washington University anthropologist Chet Sherwood found that chimpanzees don't experience such brain loss. From that, researchers concluded that only people are afflicted by this oddity of longevity.

For more, see Brain Shrinkage: It's Only Human by Robert Lee Hotz, July 26, 2011 at WSJ.com.

Science: Bacteria Use Limbs to Slingshot Themselves Across a Surface

Bacteria are known for sprouting spindly limbs and pulling themselves along surfaces like miniature octopi. But a new study shows that by tacking down one limb, pulling it till it's taut, and then letting go, bacteria can also use the limbs to slingshot themselves around.

For more, see Bacteria Use Limbs to Slingshot Themselves Across a Surface by Veronique Greenwood, July 19, 2011 at 80beats.

Regulation: After Long Battle, Safer Cribs

The Consumer Product Safety Commission has issued new regulations for cribs that the authorities say are the toughest in the world. The most pronounced change is that drop-side cribs, long a nursery staple, are prohibited from being sold. But manufacturers must also strengthen the crib slats and mattress supports, make crib hardware more durable and subject their products to tougher testing.

But even as the new standards took effect on June 28, some manufacturers had not had all of their cribs certified by testing laboratories, frustrating some retailers who have been stuck with cribs that they are not permitted to sell.

The whole crib standard saga is a good illustration of how not to regulate, said Commissioner Nancy A. Nord, a Republican. We rushed the standard out without doing the hard work upfront to understand the impact of the regulation. But the commission's Democratic chairwoman, Inez M. Tenenbaum, dismissed her Republican colleagues' complaints.

After dozens of babies had tragically been entrapped and died, and millions of defective cribs had been recalled, the actions of this commission to ensure the swift movement to market of only safer cribs undoubtedly was justified, she said in a statement.

Mr. Vieira, the Massachusetts retailer, said his complaint was not with the regulation.

It's certainly a good thing we are making cribs better, he said. We didn't have a problem with the regulation. We have a problem with how it was implemented.

For more, see After Long Battle, Safer Cribs by Andrew Martin, July 15, 2011 at NYTimes.com.

Regulation: As a Watchdog Starves, Wall Street Is Tossed a Bone

The economy is still suffering from the worst financial crisis since the Depression, and widespread anger persists that financial institutions that caused it received bailouts of billions of taxpayer dollars and haven't been held accountable for any wrongdoing. Yet the House Appropriations Committee has responded by starving the agency responsible for bringing financial wrongdoers to justice — while putting over $200 million that could otherwise have been spent on investigations and enforcement actions back into the pockets of Wall Street.

A few weeks ago, the Republican-controlled appropriations committee cut the Securities and Exchange Commission's fiscal 2012 budget request by $222.5 million, to $1.19 billion (the same as this year's), even though the S.E.C.'s responsibilities were vastly expanded under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Charged with protecting investors and policing markets, the S.E.C. is the nation's front-line defense against financial fraud. ...

But cutting the S.E.C.'s budget will have no effect on the budget deficit, won't save taxpayers a dime and could cost the Treasury millions in lost fees and penalties. That's because the S.E.C. isn't financed by tax revenue, but rather by fees levied on those it regulates, which include all the big securities firms.

A little-noticed provision in Dodd-Frank mandates that those fees can't exceed the S.E.C.'s budget. So cutting its requested budget by $222.5 million saves Wall Street the same amount, and means regulated firms will pay $136 million less in fiscal 2012 than they did the previous year, the S.E.C. projects.

Moreover, enforcement actions generate billions of dollars in revenue in the form of fines, disgorgements and other penalties. Last year the S.E.C. turned over $2.2 billion to victims of financial wrongdoing and paid hundreds of millions more to the Treasury, helping to reduce the deficit.

For more, see As a Watchdog Starves, Wall Street Is Tossed a Bone by James B. Stewart, July 15, 2011 at NYTimes.com.

Economics: How Bad Would Default Be for U.S. Creditworthiness?

First, would the United States "go into default" if the debt ceiling isn't raised?

And second, would the U.S. lose its "full faith and credit?"

On the first question, our experts largely agreed that -- contrary to Bachmann's implication -- a failure to pay any of its bills, not just interest to bondholders, would be classified as a default.

Lawrence J. White, an economist at New York University's Stern School of Business, said that "if the federal government delays payment to anyone, then certainly in a common-sense sense, the government has defaulted on its obligations."

Neil H. Buchanan, a George Washington University law professor who specializes in economics, agreed.

"If the government fails to pay any obligation on schedule, that is a default in both the common-sense meaning and in the legal sense," Buchanan said. "The person to whom money is owed has not been repaid. That's a default."

What about the second claim from Bachmann, that the U.S. wouldn't lose its "full faith and credit" in the event the debt ceiling isn't raised?

While several experts we contacted pointed out that market players are not monolithic in their views, we found strong evidence that Bachmann was wrong ....

"Foreign holders of Treasuries will understand that it is politically untenable to pay foreigners but not Americans," he said. "Can you imagine the firestorm if Americans were told that we cannot afford to pay Social Security recipients, because we have to pay foreign banks and governments first? The argument that we must do so to protect our credit rating will sound an awful lot like ‘too big to fail' -- the same argument that said that banks in 2008-09 had to be bailed out, while homeowners and unemployed workers were thrown to the wolves. No matter how strong the argument that doing so is necessary to protect our credit rating, the bottom line is that the government would be favoring foreigners over Americans. Any foreign investor would know that this is not politically sustainable. They would have every reason to dump our bonds, or at least to require much higher rates of return."

For more, see How Bad Would Default Be for U.S. Creditworthiness? by Louis Jacobson, July 16, 2011 at PolitiFact.

Economics: Are We About to Repeat the Mistakes of 1937?

It is starting to look like 1937 all over again. As the table below indicates, the economy made a significant recovery after hitting bottom in 1932, when real gross domestic product fell 13%. The contraction moderated considerably in 1933, and in 1934 growth was robust, with real G.D.P. rising 11%. Growth was also strong in 1935 and 1936, which brought the unemployment rate down more than half from its peak and relieved the devastating deflation that was at the root of the economy's problems.

By 1937, President Roosevelt and the Federal Reserve thought self-sustaining growth had been restored and began worrying about unwinding the fiscal and monetary stimulus, which they thought would become a drag on growth and a source of inflation. There was also a strong desire to return to normality, in both monetary and fiscal policy.

On the fiscal side, Roosevelt was under pressure from his Treasury secretary, Henry Morgenthau, to balance the budget. Like many conservatives today, Mr. Morgenthau worried obsessively about business confidence and was convinced that balancing the budget would be expansionary. In the words of the historian John Morton Blum, Mr. Morgenthau said he believed recovery depended on the willingness of business to increase investments, and this in turn was a function of business confidence, adding, In his view only a balanced budget could sustain that confidence.

Roosevelt ordered a very big cut in federal spending in early 1937, and it fell to $7.6 billion in 1937 and $6.8 billion in 1938 from $8.2 billion in 1936, a 17% reduction over two years.

At the same time, taxes increased sharply because of the introduction of the payroll tax. Federal revenues rose to $5.4 billion in 1937 and $6.7 billion in 1938, from $3.9 billion in 1936, an increase of 72%. As a consequence, the federal deficit fell from 5.5% of G.D.P. in 1936 to a mere 0.5% in 1938. The deficit was just $89 million in 1938.

At the same time, the Federal Reserve was alarmed by inflation rates that were high by historical standards, as well as by the large amount of reserves in the banking system, which could potentially fuel a further rise in inflation. Using powers recently granted by the Banking Act of 1935, the Fed doubled reserve requirements from August 1936 to May 1937. Higher reserve requirements restricted the amount of money banks could lend and caused them to tighten credit.

This combination of fiscal and monetary tightening — which conservatives advocate today — brought on a sharp recession beginning in May 1937 and ending in June 1938, according to the National Bureau of Economic Research. Real G.D.P. fell 3.4% in 1938, and the unemployment rate rose to 12.5% from 9.2% in 1937

For more, see Are We About to Repeat the Mistakes of 1937? by Bruce Bartlett, July 12, 2011 at Economix.

Taxes: Tax Expenditure Cuts =?= Tax Increases

I spent time digging through the federal budget this week, and I concluded that Republicans are right: There is plenty of spending to cut. For instance, we've got one government program that hands people money to buy houses that, in most cases, they would buy anyway. They get even more money if they buy a more expensive house. Over the next five years, that program alone will cost almost $500 billion.

Another federal agency will spend more than $400 billion to reward people for making money by investing and earning capital gains and dividends rather than by going to work and taking their income in wages. I like investors and I participate in the market, but is this really the sort of activity that requires a $400 billion subsidy?

Midway through my excavation, however, when I was really just getting warmed up, I realized I had made a mistake. I wasn't looking at the federal budget — I was looking at the U.S. tax code. So cutting all those costly programs wouldn't count as cutting spending to Republicans in Washington. It would count as raising taxes.

Republicans say that increases in revenue are increases in taxes. It doesn't matter whether the money comes from closing loopholes or raising rates.

Some of their brightest policy lights, however, disagree. Former Federal Reserve chairman Alan Greenspan says that tax expenditures are misclassified because they are identical to outlays. Gregory Mankiw, who led President George W. Bush's Council of Economic Advisers, calls expenditures stealth spending implemented through the tax code. You can't find a serious economist on God's green Earth who thinks the economy differentiates between cutting a government program that subsidizes health insurance and cutting an equally large tax break that subsidizes the purchase of health insurance.

For more, see Expenditure Cuts Could Save Billions, but to GOP It's All Code for Tax Increase by Ezra Klein, July 21, 2011 at The Washington Post.

Mind: Taste Test: Swiss Chocolate vs. Made in China

Swiss chocolate's reputation influences how people rate it in taste tests, a new study shows.

The knowledge set up participants' expectations and seemed to change their gustatory experiences. When people learn the country of origin (or price in another study) before they sample the chocolate it influences their expectations. When they are told the chocolate is from Switzerland, they expect it to taste good and when they are told it is from China they expect it to taste bad. So they like the same chocolate more when they are told it is from Switzerland.

When some of the participants were told the "origin" of the chocolate after they had eaten it, the opposite was found: They rated the China chocolate as better tasting than the Swiss bar.

"When they learn country of origin afterwards, it tells them what the sampling experience should have been like," study researcher Keith Wilcox, assistant professor of marketing at Babson College in Massachusetts, told LiveScience. "When they are told it is from Switzerland, it is not as good as they would have expected it to be, so they like it less. Similarly, when they are told it is from China, it is not as bad as they would have expected it to be, so they like it more."

The researchers got the same results when they conducted a similar study using price instead of country of origin, with participants expecting the more expensive chocolate to taste better.

For more, see Taste Test: Swiss Chocolate vs. Made in China by Remy Melina, July 19, 2011 at LiveScience.

Government: Public Wants Changes in Entitlements, Not Changes in Benefits

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For much more, see Public Wants Changes in Entitlements, Not Changes in Benefits, July 7, 2011 at Pew Research Center for the People & the Press.

Government: Thirty Years of the Debt Ceiling in One Graph

The one caveat to this graph is that the colors on the bar showing control of the House of Representatives look to be reversed.

From Thirty Years of the Debt Ceiling in One Graph by Ezra Klein, July 15, 2011 at Ezra Klein.

Economics: Nearly 5 Workers for Every Available Job

For more, see Nearly 5 Workers for Every Available Job by Catherine Rampell, July 12, 2011 at Economix.

Lib/Con: Beyond Red vs. Blue: The Political Typology

For much more, see Beyond Red vs. Blue: The Political Typology, May 4, 2011 at Pew Research Center for the People & the Press.

Government: Moody's Suggests U.S. Eliminate Debt Ceiling

Ratings agency Moody's on Monday suggested the United States should eliminate its statutory limit on government debt to reduce uncertainty among bond holders.

The United States is one of the few countries where Congress sets a ceiling on government debt, which creates "periodic uncertainty" over the government's ability to meet its obligations, Moody's said in a report.

For more, see Moody's Suggests U.S. Eliminate Debt Ceiling by Walter Brandimarte, July 18, 2011 at Reuters.

California: Cities Feel Clobbered by Sacramento

[California] budget hits on cities are only part of the story unfolding in the Capitol this year. They must also contend with a slew of bills, mostly sponsored by unions representing city employees, that, if passed and signed by Brown, would interfere with how they manage municipal affairs.

The most obvious is this year's version of legislation that would make it more difficult for all local governments — but particularly cities — to file for bankruptcy, sparked by the 2008 bankruptcy filing by Vallejo.

Union-sponsored Assembly Bill 506 passed the Assembly but is stalled in the Senate while private negotiations continue over its provisions.

Another measure raising city officials' hackles, Senate Bill 931, would prohibit local governments from hiring labor relations consultants. Still another now on Brown's desk, Assembly Bill 455, would compel them to give union representatives half the seats on local civil service commissions.

Assembly Bill 438 would make it difficult for cities to contract with private companies for library services, while Assembly Bill 710 would place restrictions on local auto parking to promote transit use. Several bills, reacting to the scandal in Bell, would impose new accounting and audit standards on cities.

The bill that really makes city officials worried, however, is Assembly Speaker John A. Pérez's measure — Assembly Bill 46 — to abolish Vernon, California's smallest city, alleging that it is hopelessly corrupt.

While no one defends Vernon's sorry record, city officials worry that if the bill becomes law, it would create an implicit threat to wipe out any city finding itself in political disfavor.

For more, see Dan Walters: California Cities Feel Clobbered by Capitol by Dan Walters, July 11, 2011 at The Sacramento Bee.

Security: Defense Spending in One Chart andTable

Apparently the USSR was a comparatively minor threat.

For more, see Defense Spending in One Chart/Table, July 6, 2011 at Ezra Klein.