State of the Union: State of the Economy

The Progress Report

The Progress Report examines the state of the economy in the week before the President's State of the Union address.


The House voted last night to “rescind $14 billion worth of tax breaks and subsidies for oil drillers and channel the money into a fund that would finance renewable energy projects and new technologies for conserving energy.”


CALIFORNIA: State lawmakers are “swapping gas-sucking sport utility vehicles for gas-sipping hybrids as their official state cars.”

WASHINGTON: According to a new report, “nearly a third of Washington’s school districts do not allow teachers to discuss condoms” in their sex education classes.

EDUCATION: Skyrocketing costs prevent students from attending first-choice colleges and universities.

IRAQ: Progressive States partners with, Sen. Ted Kennedy (D-MA) for campaign to contact state officials on Iraq escalation.


THINK PROGRESS: Attorney General Alberto Gonzales backs away from administration’s previous attacks over eavesdropping.

POLITICAL RADAR: Senate Majority Leader Harry Reid (D-NV) to challenge Bush on Iran.

RAW STORY: Stephen Colbert goes toe-to-toe with Bill O’Reilly. See parts one and two.


“There is no expressed grant of habeas in the Constitution.”
— U.S. Attorney General Alberto Gonzales, 1/19/07


“The Privilege of the Writ of Habeas Corpus shall not be suspended, unless when in Cases of Rebellion or Invasion the public Safety may require it.”
— U.S. Constitution, Article I, Section 9, Clause 2


Progress Report


Politics with an Attitude: Everyone from Barack Obama to Stephen Colbert talks to Campus Progress. Right-wingers seem scared of us. Find out why here.


  January 19, 2007
State of the Economy
Go Beyond The Headlines
Coffee and Donuts Not Included
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State of the Economy

Yesterday, White House Press Secretary Tony Snow showed “a tiny bit of leg on the State of the Union address.” Snow said that President Bush “will address major issues” the country faces, “including the war on terror, energy, health care, immigration, and education.” “There will be areas that do not get extensive discussion,” Snow added. One of those areas appears to be the economy. Bush will likely call for the permanent extension of his tax cuts and a balanced budget — even though the tax cuts “have been the single largest contributor to the reemergence of substantial budget deficits” — and avoid other ways to stimulate the economy. Last year marked a slowdown period for the economy. “The Gross Domestic Product, consumption, net worth, non-residential investment, wages and salaries, and employment all have grown less rapidly than during other comparable expansionary periods.” The slowdown in economic growth and job growth came “as consumers saw rising debt payments on the record debt built up in past years.” The federal government’s budget deficit remains large and the trade deficit is widening. Despite the economy’s weakened state, the White House continues to neglect it.

SLOWING ECONOMIC GROWTH: Economic growth fell to 2 percent in the third quarter of last year, following 2.6 percent growth in the second quarter and a surprisingly strong first quarter growth of 5.6 percent. “This was the first time in more than three years that the economy registered two consecutive quarters of growth below three percent.” “For six of the seven indicators,” the Center for Budget and Policy Priorities found, “the growth rate over the current period is below the average growth rate for the comparable periods of other post-World War II economic recoveries.” The economy has underperformed relative to other expansions “with respect to both overall economic growth and growth in fixed non-residential investment.” In addition, consumption growth has slipped and retail sales have been weak.

WEAK JOB AND WAGE GROWTH: Yesterday, a bit of good news emerged for workers — “inflation-adjusted wages rose at the fastest clip in nearly a decade.” The increase “followed three straight years in which wages, after adjusting for inflation, had fallen even as many businesses posted record profits.” The increase was helped along by the slowest inflation in three years. Yet there is still a long way to go to make up for three years of declines. Last year, wages “made up a record low share of national income. In the third quarter, wages and salaries made up 51.4 percent of national income, the smallest share since the U.S. government began to collect this data in 1947. Total compensation, which includes benefits, dropped to the lowest share in nine years.”  Job growth continued to slow in 2006. The economy added 149,000 jobs per month, compared to 165,000 new jobs in 2005 and 175,000 in 2004. “Both employment growth and wage and salary growth have been especially slow relative to the average for post-World War II recoveries.” 

A POPPED HOUSING BUBBLE: 2006 was the year the housing bubble popped. Nationwide, home prices are down between 4 percent and 5 percent from their levels at the same point in 2005, adjusted for inflation, and “price declines in some of the most over-valued areas, like Washington, DC, and parts of Florida and California, have been considerably sharper.” The glut of unsold homes “is the highest since 1993 and the year-over-year price decline is the biggest since 1990.” Families are having a harder time selling their homes. “The supply of homes for sale each month averaged 6.9 months of supply for the six months ending in October 2006 — the largest average supply since 1991.” The economic effects of a the housing collapse is “likely to be far more severe than the downturn from the stock bubble” because “housing construction and sales directly account for more than 6 percent of GDP, and housing wealth “is far more evenly distributed than stock wealth.” “With home prices falling, millions of homeowners will soon lose the ability to borrow against their homes,” which have lost their value. That means less money spent on cars, travel, appliances, and other goods. With this engine of economic growth now broken down, America faces a potential future of “rapidly falling house prices, rising default and bankruptcy rates,” lost jobs, fewer consumption, even a possible recession. (Read “The End of the Great American Housing Boom,” a report by American Progress Senior Economist Christian Weller, to learn more about the popped housing bubble.)

THE RISING TIDE OF BUDGET DEFICITS: “When he takes the House rostrum next week for the State of the Union address, President Bush will list among his goals a balanced federal budget, a shift for a president who has presided over record deficits while aggressively cutting taxes.” Earlier this month, Bush practiced a bit of “me-tooism” as he promised to submit a plan to “balance the federal budget by 2012,” despite the fact that he has “never proposed a balanced budget since it went into deficit, never vetoed a spending bill when Republicans controlled Congress and offered little sustained objection to earmarks until the issue gained political traction last year.” Bush and Congress took an inherited surplus and have transformed it into a mountain of debt — the Center for Budget and Policy Priorities (CBPP) reports that legislation enacted over the last six years increased the national debt by $2.3 trillion, including $633 billion in interest payments alone. Foreign investors have financed 77.9 percent of the budget deficit since March 2001. “Interest payments by the federal government to foreign lenders grew to $37.3 billion in the third quarter of 2006, up from $36.4 billion in the second quarter, and $32.8 billion in the first quarter.” Moreover, the President’s bloated budgets have reflected skewed priorities and have not stimulated economic growth.

NO LEADERSHIP ON TRADE DEFICITS: Bush has done little to address record trade deficits. The United States is projected to have imported over $750 billion more goods and services than it exported in 2006 — a record. “By the third quarter of 2006, the difference between imports and exports had grown again to over six percent of Gross Domestic product, a feat only accomplished once since the Great Depression (in the fourth quarter of 2005).” As long as these record trade deficits continue, the country remains open to an economic shock that could cause a loss of confidence in the dollar and an explosive increase in prices and interest rates. “The trade deficit has continuously widened throughout this current business cycle and has exceeded 5 percent of gross domestic product (GDP) since the middle of 2004 (figure 1). Most economists consider trade deficits that are above this threshold unsustainable in the long run.” Our dependence on foreign oil is responsible for much of the trade deficit’s growth. On trade policy, the President neglected several opportunities to forge a new bipartisan consensus on US trade policy. The administration ignored an advisory amendment to the US-Oman Free Trade Agreement — a measure which passed unanimously by the Senate Finance Committee in May 2006 — that would have prohibited US importation of goods made using slave labor. Bush has also failed to demonstrate sufficient leadership in reviving the Doha round of global trade negotiations.

LEAVING THE POOR BEHIND: 37 million Americans are living in poverty. The percentage of Americans in poverty rose from 11.3 percent in 2000 to 12.6 percent in 2005. The current economic recovery is reinforcing income inequality. A recent Congressional Budget Office (CBO) study found “a greater share of this capital income goes to the richest households than at any time since the CBO began tracking such trends.” “Families earning more than $1 million a year saw their federal tax rates drop more sharply than any group in the country as a result of President Bush’s tax cuts.” The tax cuts, which Bush wants to make permanent, “offered the biggest benefits by far to people at the very top — especially the top 1 percent of income earners.”

Under the Radar

NATIONAL SECURITY — ADMINISTRATION STONEWALLS RELEASE OF NSA ORDER: Testifying before the Senate Judiciary Committee yesterday, Attorney General Alberto Gonzales offered few explanations about the administration’s recent decision to submit the illegal National Security Agency (NSA) domestic spying program to judicial supervision, claiming that disclosing details of the program would expose sensitive security information. In a letter addressed to Judge Colleen Kollar-Kotelly — the presiding judge of the Foreign Intelligence Surveillance Court — Sens. Patrick Leahy (D-VT) and Arlen Specter (R-PA) asked that she make public “copies of the orders and opinions” and the Court’s decision concerning the domestic surveillance program. Kollar-Kotelly responded that she would have “no objection to this material being made avaialable,” but she could not do so because the Department of Justice had deemed the documents classified information. Leahy asked Gonzales, “Are you saying that you might object to the court giving us a decision that you publicly announced? Are we a little Alice in Wonderland here?” The public does not yet have a good understanding of the compromise that has been reached on the NSA program. Yesterday, President Bush denied there had been any change in the program, other than to receive a court’s blessing of it. “Nothing has changed in the program except the court has said we’ve analyzed it and it’s a legitimate way to protect the country,” he said. The New York Times reports that while details about the Bush administration’s shift on warrantless spying remain “sketchy,” critics believe “one goal of the new arrangements was to derail lawsuits challenging the program in conventional federal courts.”

IRAQ — SNOW CLAIMS THINGS WERE ‘GOING OKAY’ IN IRAQ A YEAR AGO, NO ONE ANTICIPATED SECTARIAN VIOLENCE: In yesterday’s press briefing, White House Press Secretary Tony Snow argued that the “picture” in Iraq “constantly changes,” and that while the future looks bleak now, a year ago “Democrats

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