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These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

Americans should be thankful that the values that define America–personal liberty and individual pursuit of happiness–are increasingly embraced around the globe.

The Arab Spring and upheavals in Russia are affirmations that even more of humanity finds hope in democracy. The remarkable economic progress of Brazil, China and others are tangible proof of the power of individual enterprise and ambition.

For much of the last century, America has used its wealth to promote those values and build international institutions supporting them, and we are succeeding. That is American exceptionalism. Now we must ask is America exceptional enough to prosper in a world it did so much to create?

The Great Recession and halting recovery teach that America’s special place in the world cannot be taken for granted. To enjoy extraordinary prosperity–and the freedom of purpose it enables–America must be more than home to visionary innovators like Steve Jobs. Americans must build an exceptionally competitive society, anew. Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

America’s finances are headed for a train wreck.

By Nov. 23, the Supercommittee in Congress must come up with a package to cut the federal deficit by $1.2 trillion over ten years or draconian cuts in defense and discretionary spending follow.

Something still may be cobbled together but the federal deficit would remain too large, and could easily fly out of control. Genuine progress is not possible, because the principals won’t even accept the facts.

Democrats harp that Bush tax cuts, wars and the prescription-drug plan for seniors caused the deficit to swell to $1.3 trillion in 2011. Yet, with all those at play, the deficit was only $161 billion in 2007.

Spending is up $847 billion, and additional temporary tax cuts–such as the payroll tax holiday–account for the rest of the increased deficit. Only $62 billion was necessary to accommodate inflation, and social security, health care and other entitlements account for 78% of the rest.

Most economists agree GDP growth is likely to be in the range of 2% over the next several years, and such slow growth and high unemployment will accelerate spending on entitlements, while retarding the growth of tax revenues. Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

President Obama and Congressional Republicans are tabling proposals to balance the budget, and Americans have a right to be skeptical.

Since 2007, spending has increased $1.1 trillion and the deficit has jumped from $161 billion to $1.6 trillion. The President’s February budget projects the deficit will fall to $772 billion by 2022. However, that forecast is dubious because it assumes 4% growth over the next four years, which few economists would endorse, and cuts in Medicare payments to physicians and hospitals, which few political observers believe will materialize. More likely, deficits will exceed $1 trillion, or even $1.5 trillion, for many years to come.

The president will propose higher taxes on the wealthy and plugging some corporate tax loopholes but that simply won’t do it. His budget already assumes repeal of the Bush tax cuts for those earning over $250,000. Even raising income taxes by 50% on all families earning more than $200,000 would not yield much more than $250 billion a year. The resulting capital flight would reduce taxable income, and job losses would drive up federal social spending; net deficit reduction would not be large.

Although some loopholes could be plugged, moderate Democrats and Republicans agree U.S. corporate taxes are too high for American companies to be competitive. Most revenue that might be found fixing abuses will eventually have to be put into lower corporate taxes for those firms bearing more than their fair share of the burden.

At the core of the fiscal mess are the rapidly growing bills for Medicaid, Medicare and Social Security.

On health care, the fundamental problem is that federal and state governments pay 55 cents of every dollar spent on health care. A private market for health care no longer exists, and government reimbursements set most prices for health care services.

Continue reading…

(These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission.)

Federal finances are in shambles, and Americans should be amused if not disgusted by the explanations and solutions both political parties offer.

President Obama’s budget plan issued in February projects a $1.6 trillion deficit for 2011 and a cumulative shortfall of $11 trillion through 2021.

Things may get worse, as additional revenue and cost savings from health care reforms don’t materialize and the 4% growth assumed by the president’s budget for the next four years proves Pollyanna.

Time and again, Obama and House Democratic leader Nancy Pelosi have demagogued the problem, blaming two wars and tax cuts instigated by President Bush and the Great Recession.

Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

The Labor Department reported Friday that the economy added 216,000 jobs in March. After adding 194,000 jobs in February, this indicates the economy is finally gaining momentum. First-quarter growth will likely be a bit higher than 3%.

Unemployment ticked a notch lower to 8.8% on the strength of jobs growth. Unlike past months, this improvement could not be attributed to adults leaving the labor force.

These gains are in sharp contrast to weaker gains the previous 13 months, and largely resulted from stronger, potentially self-sustaining private-sector jobs growth.

As measured by gross domestic product, the economic recovery began in July 2009; however, the economy did not begin adding jobs until January 2010, and gained only 76,000 jobs a month through January 2011. Too many of those job gains were created by stimulus spending, temporary business services, and health care and social services, which are heavily subsidized by federal and state governments. Job gains in the core private sector–private employment less temporary business services, and health care social services and temporary business services–averaged only 47,000 a month.

Core private-sector jobs are so important, because those have the potential to set off a virtuous cycle of hiring, consumer spending and more hiring. In March and February, this barometer of private sector vitality gained 183,000 and 157,000 new positions, respectively. Similarly strong core private-sector gains will be needed to continue adding 200,000 or more new jobs each month going forward.

The jobs drought may finally be over but important challenges remain.

Gains in the range of 200,000 a month are not enough to push unemployment down to acceptable levels. Continued dependence on foreign oil, the growing trade deficit with China, and health care and tax policies that penalize the location of businesses in the United States are responsible for slower jobs creation than has been accomplished during past recoveries and that could still be achieved.

The economy must add 13 million private-sector jobs over the next three years–360,000 each month–to bring unemployment down to 6%. Core private-sector jobs must increase at least 300,000 a month to accomplish that goal.

The economy is expanding at a 3% annual rate and this is barely enough to hold unemployment steady, because the working age population increases 1% a year, and productivity advances about 2%. Growth in the range of 4% to 5% is needed and possible to get unemployment down to 6% over the next several years.

Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

Economists expect the Labor Department will report on Friday that the economy added 200,000 jobs in March. After adding 192,000 jobs in February, this would indicate the economy is finally gaining some flying speed; but if the jobs figure falls significantly short of 200,000, the economic recovery is in a lot of trouble.

Since July 2009, gross domestic product has been growing at a bit less than 3%–just enough to keep pace with productivity growth at 2% and population growth at about 1%.

After adding fewer than 100,000 jobs per month in the 13 months ending in January, the private sector is finally starting to create jobs in significant numbers that are not temporary or in the government-subsidized health care and social services sector.

If the March jobs figure comes in at less that 165,000, that would indicate higher oil prices and political conditions in North Africa and the Middle East, renewed weakness in the housing market, uncertainty about the federal deficit and sovereign debt crises in Europe, as well as supply-chain disruptions from the Japanese crisis are slowing growth to 2.5%, perhaps less.

Growth in the range of 2.5% is hardly sustainable–any hiccup would then cause a negative cycle of renewed layoffs, consumer pessimism, falling retail sales, more layoffs, and ultimately, recession. Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

Friday, economists optimistically expect the Labor Department will report the economy added 180,000 jobs in February. This may look like a breakthrough number but caution should be the byword.

Monthly data is erratic and February gains should be read in the context of the paltry 36,000 jobs added in January. Going forward, budget cuts and union demands will trim government payrolls, and the private sector is creating very few permanent, nongovernment subsidized jobs.

After health care and social services, which are mostly government-funded, and temporary services are backed out, the private sector added only 49,000 jobs January–not much more than the 42,000 per month since employment began climbing again in January 2010.

Simply, demand for what workers make is not growing fast enough. Fourth quarter gross domestic product growth was a paltry 2.8%. Growth above 3% is needed to significantly dent unemployment, because the working-age population expands about 1% a year, and productivity increases about 2%.

Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

Democrats are pulling up in the polls–though not doing well, they are doing less badly. Prospects for a Republican sweep seem less likely than two weeks ago, and the Republicans have only themselves to blame.

The Pledge to America is a rehash of the platform of President George W. Bush–less taxes and government–and does not address the fundamental problems that have left the U.S. growth machine broken.

Banks can’t lend because President Barack Obama’s bank reforms boosted bonuses on Wall Street but left Main Street banks to the wolves. Businesses can’t sell, because the trade policies of Bill Clinton, Bush and Obama have permitted China’s manufacturers a huge unfair price advantage in U.S. and global markets through currency manipulation, mega subsidies and high barriers to U.S. exports.

Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

Americans may be dissatisfied with the economy but don’t look for Republicans to sweep control of the House and Senate.

Voters have good reason to be disenamored of both parties.

Democrats have pushed through President Barack Obama’s agenda. With more than $800 billion in stimulus spending, health care reform, and new financial regulations, the economy remains sluggish and Treasury Secretary Timothy Geithner tells us unemployment will linger near 10% for many months.

The Republican chant of less regulation and lower taxes is just not credible after the Wall Street meltdown of 2008 and with a $1.5 trillion budget deficit.

Voters want a clear plan to balance the budget and create decent jobs, and to win their confidence, one or the other party must come clean about what that takes.

Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

Washington in the Obama era seems bent on imposing “solutions” that not only fail to solve Americans’ problems, but make us poorer in the bargain.

In a direct attack on Wall Street, the president and his ally, Sen. Blanche Lincoln (D., Ark.), are bent on imposing the “Volcker rule,” which would prohibit banks from making speculative investments with their own funds, and on requiring banks to divest their derivatives trading desks, or at least put them in a separate subsidiary owned by a parent holding company. Five major banks–Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and Morgan Stanley–do 90% of U.S. derivatives trading.

This may ultimately make banking less stable, while forcing a good deal of securities trading out of New York to offshore locations.

The recent credit crisis was caused by: 1) banks (small and large) writing shoddy mortgages, and 2) inadequately backed derivatives, called swaps, that insured the mortgage-backed securities that financed those loans.

Money was lent to homeowners who simply did not have the ability to repay their debts–and instead relied on a continuous cycle of refinancing, borrowing more and more as housing prices rose. Continue reading…