US Secretary of The Treasury Lowers US Growth Forecast

The US economic growth rate has averaged around 3%.  The Congressional Budget Office has lowered its growth rate forecast to 2.1%.  In a recent speech the US Secretary of the Treasury agreed with that forecast.  A 30% drop in the US growth rate will have serious consequences in the US and in the global economy. 

Ordinarily, recessions are followed by a faster than normal growth rate which slows down when we reach full employment.  Some economists believe that the economy will rebound after the adverse effects of the financial crisis have been subdued.  Others argue that slower growth will be the new normal.  The ability of the economy to produce output is largely determined by population growth and growth in productivity.  We do not anticipate growth in the labor force and businesses are spending less on research and development which leads to growth in productivity.  This is a supply side argument for slower growth.  Economic growth is also determined by the demand for goods and services.  Demand is bound to remain constrained in an economy with slower growth in national income.  The CBO forecast implies that income will decline by an average of $2,500 per household through 2017.

A Profile Of The Economics Professor Who Upset Eric Cantor

Dave Brat is the Chairman of the Economics and Business Departments at a small college in Virginia.  He also teaches a course on divinity.  He differs from most economists by blending economics with his brand of ethics.  He believes that economics has been corrupted by a utilitarian ethic which holds that the object of the market economy is to maximize utility for the largest number of people.  He is free market fundamentalist with an unusual twist.  He believes that markets work best when they are operated by good people.  He defines a good person as a Protestant Christian.  In other words, the best of all possible worlds is a world comprised of Adam Smith and people like himself.  That is, a unique blend of market fundamentalism and Christian fundamentalism.  Brat is a true believer whose faith is consistent with that of many true believers in the Tea Party.  He will be a force to be reckoned within the Tea Party wing of the GOP dominant House of Representatives.  The 7th District in Virginia elected the perfect person to represent them in government.  They believe what he believes. 

Conservative Media Stars And Bloggers Paved The Way For Primary Upset In Virginia

The major Tea Party organizations did not support the candidate who upset the House Majority Whip in the GOP primary.  They were not unhappy with Eric Cantor.  Several conservative media personalities, along with conservative bloggers who reach millions of conservatives each month successfully backed the unknown professor who trounced Eric Cantor in the primary.  They were a more effective weapon in the campaign than the expensive TV ads that Eric Cantor used in his campaign. 

How Rising Student Debt Affects The Economy

This editorial describes the executive order by President Obama, that will make it easier for students to service their debt.  Student loan debt has doubled over the last seven years.  The 10% growth rate in student debt is due to rising costs at state universities, which educate 70% of our students, and the lack of family resources to meet the rising costs of education.  This has created two problems that have a serious impact on the economy.  Students who default on their debt lose access to credit and  find it more difficult to find jobs.  But graduates who are able to service their debt also have problems. They have less money to spend on other things.  Household formation is less rapid than it has been in the past, and spending on consumer durables has also declined.  The student debt burden has been bad for the economy.

The efforts to ease the student debt burden are worthwhile but it does not address the real problem.  The cost of attending college has been rising and median family income growth has been stagnant for decades.  Many families are caught in a trap.  A college degree has become a necessary, but not sufficient ingredient for a career,  but it has become less affordable for many families.

House Majority Leader Loses In GOP Primary To Tea Party Candidate

Eric Cantor's loss in the GOP primary ranks as one of the biggest upsets in electoral history.  He was ahead in the polls, and he outspent his opponent by a wide margin.  Its hard to understand how one of the most conservative leaders in the House could lose a primary to a relatively unknown candidate who claimed that Cantor was not conservative enough.  Immigration reform appears to be the issue that decided the outcome.  Cantor was accused of supporting amnesty for illegal immigrants.   Cantor denied the accusation but he did not convince the Republicans in his district.  This upset in the US was as surprising as the performance of protest parties in the European elections.  They also campaigned against immigration.

Larry Summers Reviews "House Of Debt"

The House of Debt was warmly reviewed by Larry Summers because it illustrated the harmful effect of rising household debt on the recovery from the Great Recession.  Over leveraged households reduced their consumption and that has been a more significant factor in the recovery than the ability or willingness of banks to make loans.  Summers agrees with that point, but most of his review was used to justify the response of the administration to that problem.  In essence, the administration introduced programs which did little to reduce the mortgage debt burden faced by over leveraged households, even though many, including Summers, realized that it would have an impact on the recovery.

There were many reasons, offered by Summers, for not introducing programs that would enable households to use the bankruptcy process to reduce the principle on their mortgage debt.  He argues that it would have impossible to get the votes needed to pass the necessary legislation.  He recognizes that this would have required troubled banks to take write downs of the mortgage debt. that might have made it more difficult to prevent their collapse, but he argues that other factors were more important.  He cites regulatory issues, legal issues and implementation problems as the major reasons for ignoring that option.  This article, provides an analysis of Summer's defense.

The Rise Of Market Fundamentalism In US Is A Republican Thing

Daniel Little compared the change in public opinion about market fundamentalism in the US with the change in Sweden.  Public opinion in the US about the role of government in providing basic support for the needy has been relatively constant among Democrats.  However, it has declined dramatically for those who identify themselves as Republicans.  Public opinion in the US has become polarized.  The gap between Democrats and Republicans on social policy issues has increased enormously since the 1980's.  The widening of the gap is almost totally the result of changing attitudes among Republicans.  The gap widened most significantly on the attitude towards public debt.  Republicans and Independents have become less supportive of public debt.  That explains why the GOP has focused so much attention on the growth in public debt.  Its base does not want to pay taxes to fund social programs that the GOP has identified as the major factor in the rise of public debt.  The public debt issue has also been effective among independents.  Their concerns about the rise in public debt has also grown over time.  This result is illustrated in the following graph (click to enlarge).  It makes sense for the GOP to build its campaign strategy on amplifying the attitudes that exist within the GOP base, and by justifying the attitude change by an appeal to fiscal responsibility. This also helps them to win support among independents who have grown more concerned about public debt.

Daniel Little found that support for public programs that benefit the less affluent has increased in Sweden over the same time period.  Public support for social diversity has also increased in Sweden despite the growth in immigration.  The forces that shape public opinion in Sweden and the US must be very different.  The Republican Party in the US has its own news network, and the owner of that network also owns the Wall Street Journal.  They get a lot of ideological support from the plethora of GOP think tanks that are funded by wealthy ideologues.  Their contributions to these organizations are generally tax deductible.