Last Friday, the Peter G. Peterson Foundation held an event called “The Fiscal Cliff and Beyond.” The event both highlighted the results of the Solutions Initiative II (in which EPI took part) and convened discussion panels around the topic of the fiscal cliff as well as longer-term fiscal and economic issues.

I found a few comments from two different panels interesting. In one panel, Erskine Bowles, who co-chaired the 2010 fiscal commission and now is a big supporter of the Fix the Debt campaign,  said that if we go over the fiscal cliff, U.S. credit will be downgraded by rating agencies—for example Moody’s or Fitch. On a different panel, Douglas Holtz-Eakin, former John McCain adviser, CBO head, and now director of the American Action Forum, said that if we go over the fiscal cliff (a terrible metaphor), financial market reactions will be severe.

FULL ANALYSIS FROM EPI: Budget battles in the lame duck and beyond

Since “financial market reaction” to fiscal developments is going to be a big theme in coming months, it’s worth thinking a little more carefully about statements like these. Read more

Piggybacking on my earlier post, this post outlines the five job creation proposals in our new paper, Navigating the fiscal obstacle course, which offers policymakers a realistic blueprint for moderating the pace of deficit reduction to boost growth and employment. These job creation policies are also adopted in a comprehensive federal budget proposal that EPI will release on Friday as part of the Peter G. Peterson Foundation 2012 Solutions Initiative.

FULL ANALYSIS FROM EPI: Budget battles in the lame duck and beyond

Relative to current policy, our paper recommends investing roughly $600 billion over the next decade, mostly over the next three years, in emergency unemployment benefits, aid to state governments, infrastructure investment, investing in teachers and school modernizations, and a one-year targeted tax rebate.1 These are all cost-effective ways to boost demand, and EPI endorsed variations of each of these proposals in our Sept. 2011 paper Putting America back to work: Policies for job creation and stronger economic growth. Note that any purported “resolution” of the fiscal obstacle course (e.g., a “grand bargain”) that omits these or similar proposals for increasing near-term budget deficits relative to current policy unequivocally fails the challenge actually facing policymakers, which is to sustain and accelerate the recovery.

Emergency Unemployment Compensation

We propose restoring the Emergency Unemployment Compensation program to again support up to 99 weeks of benefits in high unemployment states Read more

Yesterday, my colleague Josh Bivens and I released a paper, Navigating the fiscal obstacle course, intended to offer a realistic blueprint—one that accounts for the constraints regrettably imposed by the current political climate—for how policymakers should navigate the so-called “fiscal cliff” of legislated spending reductions and expiring tax cuts scheduled for 2013. At its core, the fiscal cliff reveals the macroeconomic reality that budget deficits closing too quickly—thus public debt accumulating too slowly—will, if left unaddressed deep into 2013, push the U.S. economy into an austerity-induced recession. Contrary to the misplaced but pervasive inside-the-Beltway hand-wringing of recent years about rising public debt, this outlook implies that big budget deficits and rising public debt have been sustaining growth and economic recovery in recent years. The only way for policymakers to successfully navigate the scheduled fiscal restraint is to substantially moderate the pace of deficit reduction while the economy remains depressed—meaning for several years at minimum.

FULL ANALYSIS FROM EPI: Budget battles in the lame duck and beyond

Our recommendations build on our analysis from a recent paper, A fiscal obstacle course, not a cliff, which argued that “cliff” is a terrible metaphor because it implies Read more

Today, the Census Bureau released new data from the Research Supplemental Poverty Measure (SPM) that showed that more Americans are likely in poverty than is reflected by the official federal poverty line. The SPM estimates for 2011 show a poverty rate of 16.1 percent, or roughly 49.7 million people, which is higher than the official poverty rate of 15.1 percent, or 46.6 million people.

First introduced last year, the SPM attempts to make a more holistic appraisal of household well-being by incorporating greater detail on real household expenses and additional resources available to households through government programs. The SPM also takes into account individuals’ residence type (renters, homeowners, homeowners with a mortgage), and regional differences in consumer prices.

With this inclusion of more detailed data on government assistance, the SPM allows for some interesting back-of-the-envelope calculations on the poverty-fighting effects of these programs. Read more

Here’s some reading material for you from items EPI’s research team skimmed through today:

• “Help Wanted: Regulatory Czar with Commitment to Protecting Public Health, Worker and Consumer Safety, and the Environment” (Center for Progressive Reform)
• “Offsetting a Carbon Tax’s Cost on Low-Income Households” (Congressional Budget Office)
• “How to Bridge the Hiring Gap” (New York Times)

The normally-useful Wonkblog potentially leads some readers this past weekend to the wrong by pointing to a recent study on the effects of NAFTA and concluding:

“This is the pattern generally with trade liberalization. All else being equal, all parties tend to benefit, but developing countries benefit most.” [Emphasis added]

If by “parties” they mean “countries,” then this is roughly right. If by “parties” they mean “people,” then this is really wrong.

See here (and here if you really have some time to kill), but the rough story is simply that for the U.S., expansions of trade with poorer trading partners should be expected to raise national income while still lowering wages for most American workers. Even worse, the higher the national gains from trade, the larger the losses are for most American workers.

Lastly, it’s important to note that the vast majority of economic gains from an agreement like NAFTA for poor countries like Mexico could actually be obtained by Mexico unilaterally. That is, most gains come from countries reducing their own tariffs, not in gaining market access abroad. So, Mexico didn’t need NAFTA to achieve these gains—they could have had them on their own.

After serving our country, many of our nation’s veterans come home to low-wage jobs. In fact, of the more than 9 million veterans in the workforce today, over a million would see their wages go up if Congress were to pass the Fair Minimum Wage Act of 2012. The bill, introduced by Iowa Sen. Tom Harkin in the Senate and Calif. Rep. George Miller in the House, would raise the federal minimum wage from $7.25 per hour to $9.80 per hour in three increases of 85 cents, and then index it to inflation.

A few months ago, we released an analysis of the Harkin/Miller bill that showed that more than 28 million workers nationwide would see a wage increase as a result of the legislation (including the parents of more than 21 million children). Of these 28 million affected workers, roughly 1.1 million are veterans (655,000 directly-affected; 417,000 indirectly-affected)1. Here’s a full demographic profile of affected veterans.

The veteran population that would be affected by raising the minimum wage to $9.80 is similar to the overall population of workers who would be affected by the increase, yet there are a few noticeable differencesRead more

Piggybacking on my colleague Josh Bivens’ previous post regarding the unfounded but pervasive political view that any near-term stimulus be conditioned on long-term deficit reduction, I want to clarify that Speaker of the House John Boehner (R-Ohio) isn’t even talking about this “knife-edge” tradeoff between near-term stimulus and long-run deficit reduction—he’s only talking about the misplaced deficit-reduction plunge. Recent reporting (e.g., the New York Times) has described Boehner as striking a “conciliatory” tone in pledging to resolve the so-called “fiscal cliff,” but there’s a huge difference between professed willingness to compromise and talking policies to address the actual economic challenge facing Congress. Here’s Boehner at a press conference on Friday:

“Now, 2013 should be the year we begin to solve our debt through tax reform and entitlement reform, and I’m proposing that we avert the fiscal cliff together in a manner that ensures that 2013 is finally the year that our government comes to grips with the major problems that are facing us … [and later in Q&A:] Clearly the deficit is a drag on our economy.”

As I explained recently, the only way a deficit reduction “grand bargain” could successfully navigate the fiscal obstacle course is Read more

The Congressional Budget Office (CBO) issued a new report yesterday, Economic Effects of Policies Contributing to Fiscal Tightening in 2013, confirming the major findings of a recent EPI report.

But, since they have a much larger megaphone than us, it’s useful to use this to reiterate the main points people should know about in discussions over the “fiscal cliff” or, as we call it (for reasons explained below), the “fiscal obstacle course.”

FULL ANALYSIS FROM EPI: Budget battles in the lame duck and beyond

First, the problem posed by the fiscal obstacle course is that budget deficits are falling too quickly in the next two years, and public debt is not rising quickly enough. This is thankfully becoming a bit clearer in discussions about all of this, but it’s always useful to reiterate. Often the fiscal problem—too often referred to as a looming “crisis”—is (mis)represented as the U.S. economy being poised on some knife-edge, where the (clear and present) danger of overly rapid deficit reduction in the next couple of years must be solved only if the (speculative and not imminent) danger of projected long-run structural budget deficits crowding out private investment (by increasing borrowing costs) is also simultaneously addressed. This idea that the U.S. economy is poised between these two roughly equal dangers is why the assumption is often made that the fiscal obstacle course can only be solved with some “grand bargain” Read more

This piece originally appeared on Huffington Post

The American public has repeatedly indicated that the health of the economy is their biggest concern. An Associated Press election-day exit poll found that 59 percent of voters considered the economy to be the most important issue facing the country while only 15 percent considered the deficit to be the number one issue. And when voters say “the economy” they mean jobs and the rising cost of living.

President Obama’s re-election depended significantly on America’s growing numbers of racial and ethnic minorities. For these groups too, the economy is the number one issue. An October CNN poll found that 44 percent of Latinos considered the economy to be the most important issue. Only 6 percent mentioned the deficit. Immigration reform ranked second at 14 percent. A survey of black voters in battleground states also found that jobs and wages were top issues for blacks.

Obama received an impressive 11 percentage-point gain in his share of the Asian-American electorate in the 2012 election relative to 2008. This increase in Asian votes helped him win the swing state of Virginia. For Asian-American voters as with other groups, the economy is the number one issue. Read more