The Budget Brigade would like to wish you all a great holiday season and a super New Year.

We would also like to thank all of our readers for following our work supporting us in 2008. We will be on vacation until January, but will return in 2009 to continue keeping an eye on things.

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We're on the verge of the holidays this Monday and the Associated Press reported yesterday that bank executives around the country received an early present this year, courtesy of Joe and Jane Taxpayer:

Banks that are getting taxpayer bailouts awarded their top executives nearly $1.6 billion in salaries, bonuses, and other benefits last year, an Associated Press analysis reveals.

The rewards came even at banks where poor results last year foretold the economic crisis that sent them to Washington for a government rescue. Some trimmed their executive compensation due to lagging bank performance, but still forked over multimillion-dollar executive pay packages.

Benefits included cash bonuses, stock options, personal use of company jets and chauffeurs, home security, country club memberships and professional money management, the AP review of federal securities documents found.

The total amount given to nearly 600 executives would cover bailout costs for many of the 116 banks that have so far accepted tax dollars to boost their bottom lines.

We reported earlier this year about bank and financial institution executives who were receiving outrageous salary, bonus, and retirement packages after running their companies into the ground. John Thain, CEO of Merrill Lynch, who received the largest compensation for 2008 in the AP study, made headlines earlier this month when he lobbied for at least a $10 million bonus (he argued he was brought in after the risky decisions were made and managed to sell the company off to Bank of America. Hmmm...).

It's bad enough that the leaders of these institutions are being rewarded with unimaginable amounts of money for horrible performance, but the fact they are being paid with taxpayer dollars is enough to make anybody say "good grief." Happy Holidays!

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On Friday, the Bureau of Labor Statistic reported the largest job loss numbers since 1974 as the economy lost 533,000 jobs and the unemployment rate pushed higher to 6.7 percent. This news, combined with last week's pronouncement that the U.S. economy is officially in a recession shows that we are now in deep trouble.

On Friday, The Center on Budget and Policy Priorities released a statement on the job loss numbers that underscores the bleak economic outlook, focusing on in impact this downturn will have on individuals and families living in poverty and those who are about to fall into such dire economic circumstances:

Today's report also makes it more likely that unemployment will reach 9 percent by the end of 2009, as Goldman Sachs has predicted. The Center on Budget and Policy Priorities estimates this could swell the number of Americans living in poverty by up to 10 million and the number of Americans in deep poverty, with incomes below half the poverty line, by up to 6 million...

This week the National Bureau of Economic Research determined that a recession began in December 2007. In the ensuing 11 months, employers have shed jobs each month and the losses have accelerated sharply in recent months. Overall labor market trends are grim.

CBPP also points out that the current recession is already one-month longer than the post-World War II average. Yet it feels like we are just getting started with this one. Yikes!

CBPP: STATEMENT ON THE NOVEMBER EMPLOYMENT REPORT
NY Times: U.S. Loses 533,000 Jobs in Biggest Drop Since 1974

It's felt like it for a while, but the Business Cycle Dating Committee of the National Bureau of Economic Research announced today that we are in a recession and it began in December 200.

The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.

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While we here in the Budget Brigade are thankful that our respective alma mates are poised to clinch BCS bowl berths (hook 'em, Horns!), we are even more thankful that President Elect Obama has serious concerns about the current BCS system. That's change we can believe in!

The Budget Brigade will return to the BudgetBlog on Monday.

Have a great Thanksgiving and enjoy the day.

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When going to Washington to ask Congress for $25 billion to help you out of jam because your company is going bankrupt, it's probably best to leave the private jet at home.

...the chief executives of the Big Three automakers opted to fly their company jets to the capital for their hearings this week before the Senate and House -- an ill-timed display of corporate excess for a trio of executives begging for an additional $25 billion from the public trough this week.

"There's a delicious irony in seeing private luxury jets flying into Washington, D.C., and people coming off of them with tin cups in their hands," Rep. Gary L. Ackerman (D-N.Y.) advised the pampered executives at a hearing yesterday. "It's almost like seeing a guy show up at the soup kitchen in high-hat and tuxedo. . . . I mean, couldn't you all have downgraded to first class or jet-pooled or something to get here?"

The Big Three said nothing, which prompted Rep. Brad Sherman (D-Calif.) to rub it in. "I'm going to ask the three executives here to raise their hand if they flew here commercial," he said. All still at the witness table. "Second," he continued, "I'm going ask you to raise your hand if you're planning to sell your jet . . . and fly back commercial." More stillness. "Let the record show no hands went up," Sherman grandstanded.

Image by Flickr user kilobar used under a Creative Commons license.

The National Journal has been reporting this week that current Congressional Budget Office (CBO) Director Peter Orszag is in line to head up the Office of Management and Budget in the upcoming Obama administration. Orszag formerly served as a senior economic adviser during the Clinton administration and held a post in the economics studies program at the Brookings Institution.

Orszag has been impressive in his two year stint as the head of the CBO, which he began in January, 2007 and I think he would be an excellent choice to run the OMB for Obama. BudgetBlog readers will certainly know that we have high esteem for Dr. Orszag.

It's up from 6.1 percent in September to 6.5 percent in October. Also according to the Bureau of Labor Statistics, the economy lost 240,000 jobs in October, as the year-to-date number of jobs shed rose to 1.2 million.

October's drop in payroll employment followed declines of 127,000 in August and 284,000 in September, as revised. Employment has fallen by 1.2 million in the first 10 months of 2008; over half of the decrease has occurred in the past 3 months. In October, job losses continued in manufacturing, construction, and several service-providing industries. Health care and mining continued to add jobs.

The unemployment rate rose by 0.4 percentage point to 6.5 percent in October, and the number of unemployed persons increased by 603,000 to 10.1 million. Over the past 12 months, the number of unemployed persons has increased by 2.8 million, and the unemployment rate has risen by 1.7 percentage points.

A paper released last month by tax guru Joel Slemrod and Andrew Johns of the IRS analyzing "newly available data from the IRS's most recent comprehensive study of individual income tax noncompliance, the National Research Program, [assesses] the distributional consequences of income tax noncompliance in the U.S. federal income tax for the tax year 2001."

Slemrod and Johns find that "the ratio of aggregate misreported income to true income generally increases with income, although it peaks among taxpayers with adjusted gross income between $500,000 to $1,000,000, and is lower than the peak ratio for individuals with income above $1,000,000."

In other words, the biggest tax cheats earn $500,000 to $1,000,000.

And yet, in 2007, over 36 percent of all individual income tax audits (see table 9) performed by the IRS were on returns of Earned Income Tax Credit (EITC) claimants. And with the income ceiling for EITC eligibility is $37,783, I'm not so sure that this is very best strategy the IRS could pursue.

Writing in The New Yorker, Steve Coll meditates on the significance of the reactions certain political élites who are now lining up in favor using the government to better the economy.

The country is fortunate in one respect: the sudden buckling of financial safeguards has put just about everyone in touch with his inner New Dealer. Even Alan Greenspan recently confessed to Congress a crisis of faith in self-regulation. Meanwhile, former free-market true believers in the Bush Administration have tossed out money from the public vault like looters...

[...]

Embedded in this festival of emergency measures, however, is an important and possibly durable ideological shift. Last week, in an op-ed in the Washington Post, Martin Feldstein, the chairman of the Council of Economic Advisers in the Reagan Administration, and, more recently, an adviser to John McCain, endorsed large-scale spending on public works as a way to stimulate economic recovery....The essay's appearance indicated that a broad coalition is emerging, where none existed a year ago, in favor of New Deal-style expenditures on roads, bridges, broadband lines, alternative energy, and the like, to support economic recovery and future growth.

If Coll's observation proves durable, then there will be greater political elbowroom -- to a greater or lesser extent depending on the outcome of today's contests, but room nonetheless -- to strengthen public investments.

If you had your say, what would you move to the top of the agenda?

Email us at , and let us know.

The Bureau of Economic Analysis (BEA) has released GDP figures for the third quarter. This "advance" number indicates that the economy contracted in the past three months at annual rate of 0.3 percent. This number, however, may change when the BEA releases the "preliminary" figure -- an estimate based on more comprehensive data -- on Nov. 25.

If you've heard or read news media reports of this number, they've probably also informed you that a recession is defined as "two consecutive quarters of economic contraction (or negative GDP growth)". This is an oversimplification. The private, nonprofit National Bureau of Economic Research (NBER), which is authoritative in declaring recessions, defines a recession as:

...a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.

In an FAQ on their recession dating procedure, NBER elaborates on the "two-quarter" rule:

Q: The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. How does that relate to the NBER's recession dating procedure?

A: Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. The most recent recession in our chronology was in 2001. According to data as of July 2008, the 2001 recession involved declines in the first and third quarters of 2001 but not in two consecutive quarters. Our procedure differs from the two-quarter rule in a number of ways. First, we consider the depth as well as the duration of the decline in economic activity. Recall that our definition includes the phrase, "a significant decline in economic activity." Second, we use a broader array of indicators than just real GDP. One reason for this is that the GDP data are subject to considerable revision. Third, we use monthly indicators to arrive at a monthly chronology.

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If anything, the collapse of the nation's financial markets has forced even the staunchest of believers in the Free Market^® to consider the possibility that sometimes the "market" doesn't know best.

Testifying before the House Oversight and Government Reform Committee, free market high priest Alan Greenspan expressed "shock" at the current economic situation.

Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief....I've found a flaw [in my ideology]. I don't know how significant or permanent it is. But I've been very distressed by that fact.

Good on Greenspan for admitting flaws in his ideology. Hopefully the frame of the debate will shift from whether or not the government has a role in the economy to what kind of role the government should play.

But revealing is this statement:

I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms.

It shows precisely why Free Market^® policy usually ends up not really working out as planned. Organizations do not have self-interest. The people that run corporations, however, do. And when executives are rewarded handsomely (AIG, Lehman, Merrill Lynch, etc.) even when their leadership ruins the firm, then one should hardly be shocked when executives engage in the sort of risky behavior that ultimately destroys the business and trashes shareholder equity.

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While the monthly number is an important component in summarizing the state of economy, it's an incomplete indicator. For example, at the state level in August, 20 states had unemployment rates greater than the national average of 6.1 percent, while 31 states had unemployment rates below the national average. Yet, the trend is unmistakable: compared a a year ago, 48 states have seen their unemployment rate increase with 34 percent increasing more than one percentage point.

The Economic Policy Institute reminds us that there are more dimensions to employment than the unemployment rate. In a slowing economy, millions of workers are forced to take lower-paying or part-time jobs, squeezing family budgets. This aspect of the jobs market rarely makes headlines, but it results in real hardships for millions of families.

At 11%, the underemployment rate in September was at its highest in more than 14 years. The underemployed currently includes about 9.5 million unemployed workers, 6.1 million involuntarily part-time workers, and 1.6 million workers only marginally attached to the workforce.1 The fact that one out of every nine U.S. workers is now either unemployed or underemployed is clear evidence of the need for a second stimulus package targeted at job creation.

Pushing back against Democratic congressional leadership's call for another stimulus package, White House spokesperson Dana Perino told reporters:

A lot of their discussions yesterday, as I understood it, are not necessarily items that we think would stimulate the economy. Additional benefits to individuals who may need support during an economic downturn aren't necessarily stimulative.

And yet, about three weeks ago, the non-partisan Congressional Research Service issued a report on the economic slowdown saying just the opposite.

...different proposals could get modestly more "bang for the buck" than others if they result in more total spending....The primary way to achieve the most bang for the buck is by choosing policies that result in spending, not saving....Presumably, recipients in economic distress, such as those receiving unemployment benefits, would be even more likely to spend a transfer or tax cut than a typical family.

Simple ignorance or blind devotion to ideology or a toxic mixture of the two?

Following a closed-door meeting with economic experts, Speaker of the House Nancy Pelosi (D-CA) said that she is instructing various committee chairs to begin holding hearings on what should be included in an economic stimulus package that could be voted on in November should the House return to Washington for a lame-duck session. No price tag has been placed on a potential, a backtrack from statements made last week an adequate stimulus package would cost $150 billion.

The package would likely include funds for infrastructure projects, an unemployment insurance extension, a boost to the Food Stamp program and Medicaid, and financial aid to states. While Pelosi stated that tax cuts were "in the mix of consideration," she emphasized that other components would be prioritized.

But first we want some of the issues that were not dealt with in the last package, because we want this to truly be a recovery package.

And therefore we have to make the investments in rebuilding America, and in doing so in a green way, with innovation and job creation; and to, again, recognizing the unemployment in our country, have an extension of unemployment benefits and some improvement on that policy, as well; to have emergency food assistance, recognizing the dire straits of many people in our country; and to do, also, in this very strong component of aid to the state to meet the health needs of our children and our seniors, to name a few.

Those would be our priorities. We'll look at what else we might do, in terms of tax cuts.

The Democrats' push for economic stimulus comes days after the president signed the $700 financial rescue plan. But, as we noted in The Watcher last week, the Wall Street bailout would do nothing to mitigate the effects of the impending recession. Quick action on such a stimulus indicates that Congress believes more action is necessary to protect millions of American families.

Photo: REUTERS/Hyungwon Kang
U.S. House Speaker Nancy Pelosi (D-CA) is flanked by former Securities and Exchange Commission Arthur Levitt (L), and Joseph Stiglitz of Columbia University (R) at a forum with economic experts to help Congress develop an economic recovery plan that focuses on creating jobs and strengthening our economy in her office on Capitol Hill in Washington, October 13, 2008.