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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:

As President Obama campaigns for more government spending–a.k.a. his jobs plan–new unemployment claims provide fresh evidence the economy is stalling and in danger of slipping into a second recession. Big government could easily take unemployment above 15% and create a hole too big to ascend.

New jobless claims for the Sept. 10 week rose to 428,000, up from a revised 417,000 the previous week. Having slipped below 400,000 last spring, these are trending upward. Generally, weekly jobless claims below 350,000 are associated with a healthy economy and above 450,000 with recession. Recent data indicates the economy is at the precipice of a second Great Recession–perhaps worse.

Recent data on car sales and broader retail sales, personal consumption and consumer attitudes indicates Americans are scared. Other than high-income folks in the luxury category, a general lack of confidence in the president to adequately get the U.S. economy going is becoming a self-fulfilling prophecy of economic decline.

Bad leadership equals bad outcomes. 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 the economy added 185,000 jobs in April, after adding 192,000 in February and 216,000 in March. While stronger than in prior months, jobs growth remains too weak, and the economy is in danger of slipping into a second recession. Longer term, the nation faces fundamental structural problems that neither political party seems willing to address in a comprehensive and systemic fashion.

In the first quarter, bad weather slowed construction activity, rising gas and health-care prices tapped off consumer dollars and weakened demand in other sectors, and defense and state and local government spending slowed. GDP growth was a paltry 1.8%–much less than economists forecasted in January and well below the minimum sustainable rate.

Growth less than 2% to 2.5% is not sustainable, because many businesses can meet such modest growth in demand by improving productivity and laying off workers to maintain margins in the face of rising energy and other commodity prices. Layoffs slice household income, and a negative cycle of reduced spending begins.

Indeed, the four-week moving average for new unemployment claims moved up to 408,000 for the week of April 23 from 390,000 the week of April 2. A rate below 350,000 is consistent with a strong economy and above 400,000 is perilously close to recession levels.

Without stronger growth in the second quarter, the economy will cycle down into recession–it can’t likely continue to drag along at about 2%.

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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:

President Obama’s plan to balance the budget was a brilliant political speech–highlighting weakness in the Republican deficit reduction proposal drafted by Congressman Paul Ryan–but it offered little new or encouraging that would correct Washington’s troubled finances.

Once again, President Obama blamed President Bush for the mess–citing two wars and tax cuts that were not funded–when his own political party is more culpable.

In 2007, the last year before the financial crisis and when former Speaker Nancy Pelosi and the Democrats took control of Congress, the deficit was a quite manageable $161 billion. Over the next four years, spending has increased $1.1 trillion and the deficit jumped to $1.6 trillion.

The President’s February budget projected the deficit would 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 few political observers believe will materialize. More likely, deficits will exceed $1 trillion, or even $1.5 trillion for the next decade, without further action.

In his speech the president claimed to be tabling $4 trillion in additional cuts over twelve years, but there was little new from his February budget.

Obama proposed higher taxes on families earning more than $200,000 a year. While that may be good populist politics, those tax increases were already in his February budget, and presenting those as additional deficit reduction is deception not worthy of his high office.

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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:

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.

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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:

If the U.S. government shuts down, the Republicans will likely get the blame but the American people will be the losers.

Federal finances are in a shambles and in need of radical overhaul. President Barack Obama’s budget ignores this; however, with a shutdown, he will be able to tar Republicans as ideologues, steal the initiative on spending and taxes, and leave his successor with a mess.

From 2007, the last full year before the financial crisis, to 2011, the second year of recovery, spending has jumped $1.1 trillion–40%. The president’s budget plan would trim the deficit to $774 billion by 2022, but his projections have been rejected as too optimistic by private economists and political analysts of all stripes–he assumes cost savings and new revenues from health-care reforms that are unlikely to materialize and a 4% economic growth through 2014, which few private economists endorse.

Most legitimate deficit reductions the president’s budget accomplishes are through higher taxes on the wealthy, and a new interest and dividend tax that will likely drive business investment and personal wealth offshore.

Higher taxes are not the answer. In 2011, spending is projected at $3.8 trillion and revenues at $2.2 trillion. A 50% increase in all taxes and fees–personal income, Social Security, Medicare, and corporate taxes, entry fees into national parks and the like–would leave the deficit at $560 billion. Even if phased in over several years, such a dramatic increase in taxes and fees would send the economy into a depression from which it would never recover.

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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:

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 expect the Labor Department will report the economy added 200,000 jobs in March. After adding 192,000 jobs in February, this would indicate the economy is finally accomplishing momentum.

The February gain was 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 GDP, the economic recovery began in July 2009, but the economy didn’t begin adding jobs until January 2010.

Through January 2011, the economy only gained 77,000 jobs a month, mostly thanks to 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 45,000 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 February, this barometer of private sector vitality gained 170,000 new positions. A similarly strong core private sector gain will be needed to add 200,000 new jobs overall in March. If that is accomplished, we may finally be getting someplace. 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 U.S. government is broken, failing under promises it can’t keep.

From Medicare and Medicaid to fixing the environment and potholes, governments face huge deficits. Taxes must go up and services curtailed dramatically, or massive borrowing will create hyperinflation.

The private economy is growing too slowly for taxes to keep up with spending. Innovations in product design, customer service and problem solving that swept through most private industry in recent decades have largely bypassed private health care and government agencies, much as they did General Motors.

In the trenches of writing budgets, health-care reform, environmental regulations and policies to create jobs, Democrats and Republicans remained hued to ideology. They spend ever more on failed programs and tax breaks, and impose burdensome rules rather than embrace radical renewal in the spirit of Alexander Hamilton, Franklin Roosevelt or Ronald Reagan.

The U.S. can’t turn to prescriptions that worked for another age, but it can adopt the mindset retired British Prime Minster Tony Blair called finding a “Third Way.”

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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:

Government is broken. Nothing demonstrates this better than health care.

Federal, state and local governments are broke because spending on Medicare, Medicaid and other health programs is rising faster than the economy is growing and than politicians can raise taxes.

Health care is too expensive.

In the U.S., health care swallows 18% of the $15 trillion GDP, and the government foots nearly half the bill. In nations with comparable per-capita incomes–France, Germany and Canada–health care eats 12%.

The U.S. system, emphasizing a regulated private market, does some things better–quicker access to specialists, for instance–but other systems, with more state participation, have strengths, including better access to general practitioners and citizens that don’t fear losing their homes to illness.

The even bigger, hidden costs are the high-quality jobs businesses can’t create.

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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:

Scott Brown’s Massachusetts victory serves notice that Americans don’t want big government policies championed by liberal Democrats.

It is not a mandate for Republican tax cuts and deregulation. Rather, from health care to the economy, Democrats should stop accusing critics of deceiving the public and ask what voters would embrace.

To cover the uninsured, Americans would support reforms that made Medicaid and similar programs less expensive and lowered health insurance premiums for the middle class.

Real reform would reduce drug and administrative costs to those in other advanced countries, like Germany or Holland, and end waste imposed by malpractice suits those countries don’t endure.

Reform should not impose higher taxes but rather lower costs–the president should apply that yardstick, not budget neutrality.

Regarding unemployment, the $789 billion stimulus package will not deliver the 4 million jobs promised. Fanciful dreams of creating million jobs in green industries are just that–fanciful dreams.

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