How Do We Get Out of This?

Yesterday, we saw some much welcomed news of a big drop in the national unemployment rate. Earlier in the week, we also saw a strong early start to the Holiday Shopping Season. Yet even though we received all this good economic news this week, folks here still sound like they're in the dumps. Even as Nevada's business leaders feel more optimistic...

Indeed [...], sales tax revenue has been up on a year-over-year basis across the state for at least 14 consecutive months, and fiscal 2011 finished well ahead of budget. “What that tells us is that business has shown some moderate improvement in activity, and we think that’s a positive note,” [said Jeff Mohlenkamp, Director of the Department of Administration for the State of Nevada.] Gaming tax revenue has been “a bit more volatile, a bit more up and down.”

Applied Analysis, the Las Vegas-based business advisory services firm, sees the state revenue coming in above expectations in terms of both sales and gaming taxes. “I think we will beat the Economic Forum’s expectation, which will leave them with what I think is going to be a relatively healthy overage,” says Principal Analyst Jeremy Aguero. “However, the state will still have a deficit when going into 2013.”

“People are consuming,” [Brian Bonnenfant, Project Manager for the Center for Regional Studies at the University of Nevada, Reno] confirms. “You’re seeing visitation numbers popping in Vegas and that’s real good, although that’s not really reflecting in the gaming side, which shows there are still some limitations on how much they’re willing to spend.”

The people aren't feeling it so much.

Donna West could once name the homeowners on her affluent Las Vegas street. Then came the recession, the vacant homes, and the parade of anonymous renters.

"To me, the recession hasn't ended," said West, a 55-year-old retired state worker. "We have more foreclosures happening in my neighborhood than a year ago."

Across this hardest-hit Western state, a battle of perceptions is being waged over whether Nevada is on the edge of recovery, or still falling four years after the collapse of its mighty housing, tourism and construction industries.

Looking objectively at the economic data, we ARE in recovery. But because we fell so far so fast, this slow recovery still feels like recession to those that haven't yet felt the better times for themselves. We may be seeing progress now, but there's still so much more that needs to be made.

So how have we been able to start getting out of this hole in the first place? Take a closer look at that second statistical point I noted at the top. When consumers re-enter the market and spend, the whole economy is all the better for it. Desert Beacon explained this in greater detail yeaterday. Here's the big takeaway:

A lack of demand is associated with several of the common factors for small business failure. Small businesses don’t fail because of “government regulations,” or because of “the Bank;” they fail because their numbers don’t add up. The number one reason for small business failure: “There is not enough demand for the product or service at a price that will produce a profit for the company.” This covers a host of other issues: Did the start-up try to compete with a company that can operate with economies of scale? Did the business open up in a declining market? Did the business over-expand?

Even a cursory review of the typical lists of reasons for start-up and small business failure will yield evidence that the owner failed to initially understand demand levels, failed to physically locate in areas of high demand, or became overly optimistic about the overall level of demand and over-expanded the operations. Failure to do proper budgeting and accounting within the firm means that there was no accurate way to determine if the demand was sufficient to keep the company floating above the profit line. These elements return us to the starting point: The business failed because there wasn’t enough demand to produce a profit for the company.

So conversely, businesses can't succeed on "LOW TAXES!!!" alone. It ultimately takes demand from consumers, and especially working class consumers that form the vast majority of our population, for businesses to succeed.

Because tourists are slowly trickling back onto The Strip and spending more (than they did in 2009, if still not nearly as much as they did in 2006) on everything from dining out to big ticket shows to shopping, our overall economy is rebounding off our lowest of lows. But because the real estate market is still weak and there's still no replacement yet for the real estate-construction bubble that propped up our artifically inflated economy last decade, many locals are still suffering.

So what can we do about it? It's simple, really. We need policies that improve consumer demand. And as we talked about earlier this week, the most effective ways to boost the economy is to put money in the pockets of people who need it the most. This is why the extreme austerity measures being pursued by the likes of Joe Heck and Dean Heller only serve to hurt their own constituents by ripping money out of their hands and throwing even more Nevadans into worse poverty.

Again, when consumers re-enter the market and spend, the whole economy is all the better for it. Because President Obama and Congress were able to pass the Recovery Act in 2009, and because he got Congress to agree to a payroll tax cut late last year, we're now seeing the economy pick up. But if we don't renew these policies and don't go all in on improving consumer demand, we will all suffer for it.

This is why we can't afford any more "tea party" preferred austerity. We need to empower consumers, NOT disembowel them. If we want a healthier economy, we know what we need to do.

Memo to GOP: Don't You Know What the Definition of "Stimulus" Is?

Ah... Another week, another day, another chance for the GOoPers to bash the federal stimulus. Yes, that's right, they still don't like economic recovery. So what would happen if Johnny Casino, Suzy Lowdown, and Lil' Tark Shark were to get their way and Nevada were forced to let go of unspent stimulus funds?

It's not a pretty picture, to say the least.

Were that to happen, Dennis Freimann has perhaps the best vantage point on the potential effect. The No. 2 in charge at Nevada’s Recovery Act office, Freimann said if leftovers from the state’s $2.1 billion share of the money were returned, “Then we’re talking about a lot of people losing their jobs.” [...]

The Recovery Act is bringing $2.1 billion to Nevada — $1.2 billion in direct aid to residents, including unemployment benefits, a $250 one-time check to seniors, income tax cuts, COBRA health insurance subsidies and an expansion of Medicaid health insurance for the unemployed.

Another $924 million went to Nevada agencies to pay for teachers’ salaries, highway repairs, housing rehabilitation, forestry improvements and other programs. [...]

The Nevada Recovery Act office tallies 2,500 jobs saved or directly created by the $924 million sent to state agencies.

But economists put the actual number at 20,000 by factoring in the $1.2 billion in direct aid programs and the multiplier effect: If folks keep their jobs and have money to shop, store clerks keep their jobs, too.

“The idea that we’d be returning money we desperately need is ridiculous,” said Democratic Rep. Shelley Berkley, who voted for the bill.

“We’re going to keep every penny that Nevada gets,” Berkley said. “Every senior in Nevada got a $250 check. Every disabled vet — I have 18,000 of them — got a $250 check. We also received a good amount of money for transportation and infrastructure. That’s creating jobs. We are spending that. There are good, important programs being paid for by the stimulus.”

Thank goodness Shelley Berkley, along with Harry Reid and Dina Titus, gets it. We'd be foolish to let go of money that can continue to be used to save jobs, create jobs, provide direct aid to those most in need, and fuel what's looking like a promising start to economic recovery in this country and here in Nevada.

And it's just hilarious to read about all these Republicans supposedly "concerned about fiscal responsibility". Really? So they forgot about what they did when George W. Bush was President? I don't remember them crying "fiscal responsibility" when he started two wars, passed loads of ridiculous tax cuts for the super-rich, and green-lighted tons and tons of the very "pork barrel spending" that Republicans claim the stimulus is (even though it isn't "pork", it's actual help).

And what's their solution now? More tax cuts for the super-rich, of course. Remember how that worked out? Desert Beacon does.

In the wake of the 2001 and 2003 tax cuts we got a gross domestic product increasing by 13.9% over 19 quarters, for an average annual rate of 2.8%, well below the 3.4% GDP growth rate of the previous four cycles. The gross domestic income statistics weren't any brighter either: "activity expanded at only a 2.3% rate, more than a full percentage rate slower than the 3.6% GDI rate of past cycles." [EPI] And that job growth? As of 2004 the U.S. had only 1.6% more jobs than at the last business cycle peak 58 months previously. "At this stage of previous cycles jobs had grown by an average of 9.1% and never less than 6.5%. Private sector jobs were only 1% higher than in March 2001, compared to 9.1% in previous cycles, and the lowest previous employment gain was 6.9% in the private sector.

In terms of employment, the case for tax cuts wasn't substantiated: "In making the case for the tax cuts of 2003, the Bush Administration acknowledged that strong job growth should be expected without tax cuts. It projected that 4.1 million jobs would be created between mid-2003 and the end of 2004 without the 2003 tax cuts, and that 5.5 million jobs would be created with the tax cuts. In fact, Congress enacted even deeper tax cuts than those on which the Bush Administration’s estimates were based. Even so, only 2.6 million jobs were created over that 18-month period. Thus, by the Bush Administration’s own analysis, the 2003 tax cuts failed to create more jobs than would have been expected without the tax cuts."

It's not like we weren't warned. In February 2003, 450 top economists, including 10 of the 20 American Nobel prize winning experts warned the Bush Administration that the 2003 tax cuts would have a negative, not positive, effect on the U.S. economy. [Letter] "Regardless of how one views the specifics of the Bush plan, there is wide agreement that its purpose is a permanent change in the tax structure and not the creation of jobs and growth in the near-term. The permanent dividend tax cut, in particular, is not credible as a short-term stimulus. As tax reform, the dividend tax cut is misdirected in that it targets individuals rather than corporations, is overly complex, and could be, but is not, part of a revenue-neutral tax reform effort. Passing these tax cuts will worsen the long-term budget outlook, adding to the nation’s projected chronic deficits. This fiscal deterioration will reduce the capacity of the government to finance Social Security and Medicare benefits as well as investments in schools, health, infrastructure, and basic research. Moreover, the proposed tax cuts will generate further inequalities in after-tax income." They were right.

If, like Senator Ensign, we adopt the notion that tax cuts, and only tax cuts, are the key to expanding our gross domestic product, increasing our own gross domestic income, and creating more employment, then in the face of statistical proof to the contrary the only way forward is more tax cuts.

And if this isn't enough for you, Desert Beacon has even more on Johnny Casino's and the GOP's hypocrisy on "fiscal responsibility". Oh, and by the way, if the stimulus were so evil why are Johnny Casino, Arizona's Johnny Mac, and other GOoPers still lining up for more stimulus funds? Isn't that just more hypocrisy coming from them?

Oh yeah, that's right, we're talking about the Republican Party. They're always pro-hypocrisy, no matter how many of their other positions change daily (and nightly, for that matter).

Yay! "Cash for Clunkers" Continues!

(Also at OC Progressive)

This is truly one of the best, if not THE BEST, single programs included in the federal stimulus package. The CARS, or "Cash for Clunkers", program has been wildly successful as people have raced to their nearest car dealerships to turn in old duds for new, fuel-efficient vehicles.

And fortunately this morning, the Senate has just approved the program's expansion.

Heavy demand is already leading to scattered shortages of some hot-selling vehicles, such as the Toyota Prius, Ford Focus and Dodge Caliber. Chrysler Group and General Motors Co., which shut down many of their factories for several weeks this summer to save money and reduce inventories, have been particularly affected.

"Business had slowed so much that a lot of dealers had reduced their inventories because it was expensive to hold on to," said Jerry Key, general manager at Capistrano Ford. "But now that we've had this surge in business, there's going to be holes in the inventory."

The prospect of $3,500 to $4,500 in government cash to trade in a gas guzzler for a more fuel-efficient vehicle has had customers jamming showrooms in Southern California and nationwide since the program began July 24. Now, the Obama administration said, the money should last through Labor Day. [...]

"This is the first piece of legislation Congress has hit out of the park in terms of something that can help the average person like us," said Evin Grant, a 32-year-old filmmaker who was doing a clunker deal at Toyota of Hollywood as the Senate vote was tallied.

"It's a triple threat: It helps out the economy, it helps consumers like us get into a vehicle we wanted but had no easy path to earlier, and it helps the environment by getting horrible gas guzzlers off the road," Grant said.

Thank goodness! This is what the stimulus is supposed to be: a timely infusion of cash to help improve consumer demand. I'm quite glad that this program can continue.

And even better, this also serves another purpose. This also helps consumers in buying more fuel-efficient cars that are better for the environment. And not only are we saving green, but we're being more green as well. Now this is a real "win-win" that we can be thankful for.