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Tag: slow economic recovery

IMF: Want To Fix The Economy? Tackle Income Inequality.

To solve our economic woes, it turns out the government should focus less on free trade and debt and more on alleviating income inequality: A new study — by the IMF, no less — found that countries with more equally distributed income tended to have longer growth spells. This information, in light of a rapidly expanding gap between rich and poor in the United States, could explain the country’s slow economic recovery. Even so, politicians wary of “class warfare” and “socialism” slurs will still probably ignore income inequality as they search for quick economic fixes.

The study appeared in Finance & Development, the quarterly magazine of the International Monetary Fund — not exactly the most progressive institution out there. Even so, the findings supported the radical idea that governments should tackle income inequality first if they want to have longer periods of economic growth. Mother Jones reports:

Comparing six major economic variables across the world’s economies, [study author Andrew] Berg found that equality of incomes was the most important factor in preventing a major downturn.

In their study, Berg and coauthor Jonathan Ostry were less interested in looking at how to spark economic growth than how to sustain it. “Getting growth going is not that difficult; it’s keeping it going that is hard,” Berg explains. For example, the bailouts and stimulus pulled the US economy out of recession but haven’t been enough to fuel a steady recovery. Berg’s research suggests that sky-high income inequality in the United States could be partly to blame.

So how important is equality? According to the study, making an economy’s income distribution 10 percent more equitable prolongs its typical growth spell by 50 percent.

So Obama has been facing unsubstantiated accusations of “class warfare” lately, but it turns out maybe tackling inequality is exactly what the country needs to fix the economy. Somehow, it’s hard to see conservative politicians jumping on this data as they develop economic recovery plans.

Clinton Exclusive, Continued: “I’m Proud” Of Obama For Resisting GOP On Debt

Praising President Obama for his willingness to confront Congressional Republicans over the debt and deficits, former President Bill Clinton warned against excessive spending cuts in a slowly recovering economy. If the Republicans and Democrats achieve a deal before the August 2 deadline for a national debt default, he told The National Memo in an exclusive interview this week, they can all be winners — even the Tea Party.

“I think there’s a real chance that austerity first, far from putting a confidence boost into the economy, will further dampen growth,” he told The National Memo in an exclusive interview this week. Drawing a contrarian lesson from the United Kingdom, where the Conservative government’s budget-slashing policies have slowed growth and depressed revenues, he added, “I think there’s a chance the British will end up with a bigger deficit because tax revenues will drop more than spending will be cut.”

The former president, who now runs the William J. Clinton Foundation and the Clinton Global Initiative, also offered his own perspectives on how to reduce federal spending over the next ten years – while doing the least possible damage to entitlement programs, infrastructure, education and health care. But he would prefer to postpone most spending cuts and tax increases until the economy is stronger than at present.

“In broad outline, a good deal would be one that combined spending cuts with revenue increases, and phased them in — in a way that didn’t start until we’ve got more growth than we’ve got now,” he said. Splitting deficit reduction more or less evenly between cuts and taxes would work best, he added, and pointed out that there are multiple possibililities within the current federal budget to save hundreds of billions of dollars, while doing little social or economic damage to the country. He pointed to a March 2011 report by the Government Accountability Office — the official Congressional auditing agency — that found dozens of examples of duplication and waste.

“If you just go through the GAO report — I did this weekend, the whole 400 pages — there’s just tons of opportunity to save money, a lot of money, maybe as much as $100 billion a year,” said Clinton, ranging from better maintenance practices in the military and more competitive bidding throughout government to more efficient collection of unpaid federal taxes:

If you could collect 25 percent, just 25 percent, of the $340 billion a year owed in taxes and not paid under the current tax system, just one-fourth of that; and if you ended these direct payments to farmers that have nothing to do with farm prices, where [they] get more if [they’re] bigger and richer, and which were supposed to be phased out; and you did a smidgen of what [GAO auditors] recommend on information technology and transportation and building management — you’d have a trillion dollars over a decade.

If you put a third of the $170 billion in no-bid federal contracts up for bid – and you had the same success that we had when [the Clinton administration] pushed contracts from no-bid to bid…Just those two things, alone — collecting 25 percent of taxes owed and not paid, and bidding out a third of the $170 billion in no-bid contracts out for bid in transparent process — would give you a hundred billions dollars [in annual savings].

In the military, 18 percent of the maintenance budget, according to the GAO, is caused by corrosion in planes, cars, weapons systems. Simple anti-corrosion measures have a return on investment somewhere between 11 to 1 and 60 to 1. Unbelievable!”

According to the former president, who achieved budget surpluses before leaving office in 2001, “a real conservative — as opposed to an anti-government, anti-tax conservative” could play a highly constructive role in the current debate by insisting that Congress thoroughly enforce the GAO findings as federal policy. But that would require the Republican majority to behave as if they are “serious about making government work instead of wanting it to fail.”

Clinton expects that the President and Congress will ultimately work out a budget deal before August 2, and that “everyone will win” as a result.

“The President will win because a terrible thing was averted,” he said. “Even if people agreed with him — just like they agreed with me on the [1995] government shutdown –the consequences of not paying our bills could be so great that [voters] could blame everybody. That was his risk. But he’s proved willing to take it and I think he should have and I’m proud of him for doing that.” Likewise, he said, both Republican and Democratic Congressional leaders will win because they helped to avoid a global economic crisis.

“And I think the Tea Party will win because they won’t be outed,” he said ruefully. “In other words, if this thing happened, you might have a successful third party candidacy for President — if our credit got down-rated and everybody’s interest rates went up. But I think the Tea Paty would be toast, because they’ve been going around telling everybody this is no big deal.”

More likely, he concluded: “They’ll all live to fight another day.”

Previously: Bill Clinton Says He Would Invoke Constitutional Option “Without Hesitation” to Raise Debt Ceiling and “Force the Courts to Stop Me”

New RNC Ad Attempts To Use Obama’s Words Against Him

The Republican National Committee is out with its latest national TV spot, hanging the economy around Obama’s neck in the context of promises made during his acceptance speech at the 2008 Democratic National Convention in Denver:

Only problem here is that most Americans, according to polls–even if they disapprove of the president’s handling of the economy–still attribute significant blame to Bush. Almost all of the horrendous economic statistics in the ad reflect the anemic period from January-March 2009, when Obama inherited the Bush economy in a tailspin.

Key to his reelection hopes is a positive message that things are improving but that also acknowledges the immense pain still being felt. Obama managed, despite journalists’ fretting to the contrary, to connect with the economically fearful in the fall of 2008; he needs to do so again in 2012.