I have been writing a lot about America's quarter-century economic boom. Now CNBC's Larry Kudlow and former Labor Secretary Robert Reich both give their two cents on the long-term performance of the economy from very different perspectives. Here is a bit of how Kudlow sees the past 25 years:
A significant paradigm shift has taken place in the U.S. economy over the last quarter century. During that time, the U.S. economy has been in prosperity 95 percent of the time and in recession only 5 percent. That is, the United States has had a grand total of only five negative GDP quarters in the past 25 years. In the prior two decades, the U.S. economy was mired in recession about a third of the time. This earlier period was a time marked by high inflation, high taxes, and overregulation of the economy. This caused the U.S. to look weak, while the Soviet Union looked strong. Clearly, things have changed. Prosperity has become the rule, not the exception...
Now it's Reich's turn:
According to new polls, the economy is the number 1 issue for American voters. But that's not just because the economy is slowing and mortgages are harder to come by. The real reason is middle-class families have exhausted the coping mechanisms they've used for over three decades to get by on median wages that are barely higher than they were in 1970, adjusted for inflation. Male wages today are actually lower than they were then; the income of a young man in his 30s is now 12 percent below that of a man his age three decades ago... The underlying problem began around 1970. And any presidential candidate seeking to address it will have to think bigger than stimulating the economy with tax cuts or spending increases. The fact is, most Americans are still not prospering in the high-tech, global economy that emerged three decades ago. Almost all the benefits of economic growth since then have gone to a relatively small number of people at the very top.
My take: Not surprisingly, perhaps, I think Kudlow plays A-Rod on this one and hits a moon-shot home run. One problem with Reich's argument is that government stats have been overstating inflation for years. Many economists on the left and right believe this. If you slightly tweak the inflation numbers for the past two decades or so, you see that real wages and income have gone up by 40 percent rather than slipped. I call this the "myth of stagnant wages." From another vantage point, a recent study from the Federal Reserve Bank of Minneapolis finds that wages for the median worker went up by 20 percent between 1975 and 2005.
What's more, critics of the economy tend to ignore benefits when figuring how well or poorly workers are being paid. By that measure, according to the Fed bank, total compensation has gone up by 28 percent. Common sense also leads one to believe Reich is wrong. If he were correct, one would expect to have seen a massive populist political backlash years ago. Instead, people keep electing presidents with fairly conservative economic views who focus on growth rather than redistribution. Where are Presidents Mondale, Dukakis, and Gephardt? But where Reich, Kudlow, and the Fed study would all agree is that America can do even better in the future if we focus on policies that enhance economic growth.
How can automakers make more fuel-efficient cars, as Congress is aiming to force them to do? The best rundown of the technology, and an analysis of how much it's going to cost you—or more likely, how much it will benefit you—is in a 244-page decision handed down this past September by a federal judge in Vermont.
Judge William K. Sessions was not ruling on the Corporate Average Fuel Economy law that Congress is about to overhaul, but on a parallel development that could become just as significant: California's effort, which could turn out to have the force of law across the country, to force carmakers to limit their greenhouse gas emissions. The easy way carmakers can cut carbon dioxide is by getting more miles per gallon, so the judge's look at the technology is relevant to CAFE.
The short version is that the judge agreed with California's expert witness, who estimated that the initial increased vehicle cost for consumers would be about $1,500. Not only would this be offset by about $5,000 in fuel savings over the car's lifetime, if fuel is $3 per gallon, but the judge said it is likely the premium would be only temporary. "The automobile industry has historically been very effective at improving the quality of necessary technology while decreasing its cost," he said. Sessions said the estimate by the automakers' expert witness, that more fuel efficiency would cost consumers $5,000 per car, was inflated because he had not considered these already available technologies:
• Gasoline direct injection/turbo. Allows a four-cylinder to replace a six-cylinder engine without significant sacrifice of power. Already popular in Europe. About 12 percent fuel economy improvement possible.
• Camless valve actuation. The valve motion is controlled by electrical or hydraulic energy instead of a camshaft mechanism. About 12 percent improvement possible.
• Tires with lower rolling resistance. A very low-cost option. Although it must be balanced with the need for traction, the National Academy of Sciences says a 1 to 15 percent improvement is possible.
• Reducing aerodynamic drag. Even the automakers' expert said it was an "almost zero cost" method, but he argued consumers would reject a more aerodynamic look. California's expert pointed out that small detail changes can make a big difference, which is why the large, square Lexus LS 460 is more aerodynamic than many cars on the market.
• Continuously variable transmission. An infinite range of gear ratios, as opposed to the usual four to six, improves power transmission efficiency. Already in use; one of the reasons the 2007 Nissan Altima has highest horsepower and fuel economy in its class. A 6 percent fuel economy increase is possible.
As environmental consultant Dan Becker said this week, "This is auto mechanics, not rocket science." Congressional vote-counters say that both the House and the Senate have the support to lift CAFE standards in votes they have planned this week, but this is Washington, after all, and the effort might still fail. It's wrapped up in a big energy bill that would also increase use of wind, solar, and other renewable energy for electricity, and the Senate GOP has vowed to filibuster and President Bush has threatened a veto. As usual, Gristmill is following this closely and has the likely veto letter here. Stay tuned to see if the Democratic leadership can hold together an effort to raise fuel-efficiency standards to an average 35 miles a gallon by 2020, the first increase in 30 years.
Over the past week, I've attended two heated discussions on the future of the credit card industry. The first, last Friday, was hosted by the Consumer Federation of America, and the second, Tuesday, was a Senate hearing on credit card interest rates.
The arguments are basically over whether credit card companies treat their customers fairly. Consumer rights groups and certain members of Congress, such as Sens. Carl Levin and Claire McCaskill, Democrats from Michigan and Missouri respectively, think credit card companies are unfair in the aggressive way they solicit customers and then raise interest rates when customers start to struggle with their debt.
As McCaskill put it, "It seems part of the problem is that the behavior you encourage is the behavior you use to raise interest rates." (McCaskill has personal knowledge of the problems with this system: Even after the senator closed one of her mother's credit card accounts, her mother received blank checks from the company in the mail.)
On the other side of the debate, credit card providers argue that without the ability to raise rates on those with high risk factors, they may have to raise rates on all customers to offset the losses from that group, or stop offering credit to some people altogether.
The thing that strikes me about this debate is how often we consumers are talked about as if our minds are barely functioning. One woman, who identified herself as an employee of the Washington, D.C., government, stood up at the Consumer Federation of America meeting and suggested that card companies put the following warning, written in large lettering, on all of their statements: "If you use credit cards, you could end up in major debt." As one woman whispered to her friend behind me, "That's like writing on candy, 'Eating sugar may rot your teeth.'"
We don't need such obvious statements. We just need some basic facts. For example, how much am I paying each month in interest? What will cause my interest rate to go up, and how will I be notified if it does? What fees am I paying, and why? Without that information, a customer can suddenly find herself paying 24 percent interest, as Janet Hard testified she did with her Discover card. Her interest rate ballooned even after she made her Discover payments on time, partly because her credit score had declined and Discover deemed her a credit risk. Had she known about the interest rate hike, she could have closed her account in advance of it. (Credit card companies do often disclose this information somewhere, but it tends to be in an unintelligible form or in small print that's easily missed.)
Customers aren't stupid. We just need to be informed of how companies plan to treat us before deciding where to spend our money.
Please leave your own comments on the credit card debate below.
When science seems to take a stand on our romantic decision-making, people tend to get excited. So it's no surprise that Google News turned up more than 400 articles about new research suggesting that divorce is harmful to the environment. The gist of the study, which appears in the Proceedings of the National Academy of Sciences, is that the average divorcée uses more resources—specifically electricity, water, and residential space—than does the typical person in a couple or a family.
But the study tells only half a story. By focusing on people's decisions to stay married or get divorced, it comes to an incomplete conclusion. The real issue is whether we live alone or live with others. Marital status is immaterial.
Living alone requires greater use of resources. Each home or apartment needs to be built from raw materials, for one thing, and each household in the developed world tends to be furnished with its own energy-guzzling collection of lights, appliances, and consumer electronics. Adding a person to an existing household, or combining two households into one, creates efficiencies that can't be matched when people live by themselves. The new study, to its authors' credit, mentions that "declines in multigenerational households, delays in first marriages, increases in empty nesters, and increases in separated couples" can also increase resource use. (It covers that aspect of the subject in three sentences, however, and some news reports on the study overlooked it entirely.)
It follows that for singles, moving in with someone—anyone—is a green thing to do. Getting married? Great. Cohabiting? That's great, too, from an environmental standpoint. Shacking up with a roommate or two? Nature thanks you.
Marriages may in fact be bad for Mother Earth for a reason that the new study didn't consider. First comes love, as the nursery rhyme goes, and later comes a baby carriage. Each additional member of the species adds to the human race's demand for resources. No wonder Slate calls babies "the new SUVs."
It doesn't take a rocket scientist to figure out that there are better things you could do for your health than take deep breaths on a smoggy day. A growing pile of research suggests that even relatively low levels of air pollution may be more harmful than previously realized, to both heart and lungs. The latest salvo from researchers, published this week in the New England Journal of Medicine, focuses on how particulate matter from air pollution affects lung function. The new research buttresses studies (here and here) published earlier this year by the same journal showing that air pollution contributes to heart problems. How much should you worry? U.S. News asked leading experts to put this latest news in context. Some key questions and answers:
What is particulate pollution?
According to an American Lung Association report, particulate pollution refers to the mix of solid and liquid particles in the air that can come from natural sources, such as dust storms or wildfires, or from such human activity as the burning of fossil fuels in factories or the use of diesel engines. Other particulates are produced when certain chemicals and substances react with one another in the atmosphere.
What is the danger to my heart and lungs?
The effect of low levels of particulate pollution found in many urban areas is not unlike secondhand smoke, experts say. Studies show that short-term adverse effects from particulates include diminished lung function, coughing, wheezing, cardiac arrhythmias, and heart attacks. Long-term exposure can also worsen asthma, slow normal lung growth, damage lung airways, and increase the risk of dying from lung cancer and cardiovascular disease.
How big is the risk to me?
Certain populations, such as the very old and the very young, are the most vulnerable to air pollution. However, even the most alarming studies conducted in the most polluted areas suggest that the average person's individual risk from exposure is very slight. Relative risk numbers often seem more frightening than they actually are, says Erik Rifkin, an environmental scientist and the coauthor of a book about assessing health risks titled The Illusion of Certainty: Health Benefits and Risks. For example, an earlier study published in the New England Journal of Medicine found that short-term exposure to traffic fumes tripled the risk of heart attacks in heart-attack survivors. What's easily forgotten, says Rifkin, is that the risk was extremely small to start with. Jogging or having sex, for example, could elevate the risk of a heart attack by a similar amount, says Robert Brook, a cardiac physician at the University of Michigan.
What's the big deal if the risk to an individual is small?
From a public health perspective, even a tiny increase in risk multiplied by millions of people translates into tens of thousands of unnecessary illnesses, hospitalizations, and premature deaths, experts say. The Environmental Protection Agency estimates that each year some 65,000 Americans have cardiac events associated with uncontrolled air pollution levels.
How can I protect myself?
Short of moving to the countryside or at least away from busy roads, shielding yourself from the effects of air pollution is not easy. Masks won't work, as many particles can slip right through. At the very least, suggests Murray Mittleman, a cardiologist at Harvard University, people who regularly exercise outdoors near highways may want to consider remapping their route.
How can I find out about the quality of the air in my local area?
The American Lung Association has a Web tool that allows you to type in your ZIP code and get a detailed report on the air quality in your area. You'll find everything from grades for particulate and ozone pollution (Chicago gets an F for particulates, for example, while Cheyenne gets an A) plus a breakdown that shows how many unsafe pollution days the region has had and how many people in the area are at high risk.
