American Jews are always worrying about the fate of American Jewry, of course. Intermarriage rates, hovering around 50 percent, are perennially cited as the prime factor in Jews’ inevitable extinction; and in The New York Review of Books last month, the journalist Peter Beinart argued that unless “establishment Jewry” made room for Jewish dissent about Israel, it would wake up to find “a mass of secular Jews who range from apathetic to appalled.” But on the day-to-day level, the high cost of the basics—synagogue membership, in particular—is troubling, both outdated as a business model and onerous to families having to choose between Hebrew school and math tutoring. A 2005 study put the average yearly synagogue membership at $1,100—but in big cities, fees can be twice or even three times as much (and, anecdotally at least, higher than churches, which often depend on voluntary donations rather than dues). At the Stephen Wise Free Synagogue (italics mine) on Manhattan’s Upper West Side, Rabbi Ammiel Hirsch says dues are “consistent with everyone else’s,” about $3,100 a year. (He, like virtually all rabbis, vows never to turn someone away for an inability to pay.)
American women are already the breadwinners or co-breadwinners in two thirds of American households; in the European Union, women filled 75 percent of the 8 million new jobs created since 2000. Even with the pay gap factored into the equation, economists predict that by 2024, the average woman in the U.S. and a number of rich European countries will outearn the average man. And she’ll be spending that money: as a new book on female economic power, Influence, points out, American women are responsible for 83 percent of all consumer purchases; they hold 89 percent of U.S. bank accounts, 51 percent of all personal wealth, and are worth more than $5 trillion in consumer spending power—larger than the entire Japanese economy. On a global level, women are the biggest emerging market in the history of the planet—more than twice the size of India and China combined. It’s a seismic change, and by all indications it will continue: of the 15 job categories expected to grow the most in the next decade, all but two are filled primarily by women.
Making a value judgment about deflation depends in part on which side of the balance sheet you sit on, and on what’s going on in the broader economy. Borrowers with fixed-rate loans—like the government, many companies, and homeowners—will cheer for inflation and worry about deflation. When wages and prices grow modestly each year, it’s easier to stay current with existing debt. And when there’s lots of unused economic capacity—shuttered factories, large numbers of unemployed people—a little inflation can be just what the doctor ordered. Continually falling prices act as a disincentive to investment and risk taking. Moreover, many economists and most central bankers believe the ideal rate of inflation is slightly above zero. “Experience shows that a rate of inflation around 2 or 3 percent helps the economy to perform at full potential with maximum sustainable employment,” says Joseph Gagnon, senior fellow at the Peterson Institute for International Economics. In fact, the Federal Reserve, the nation’s chief inflation fighter, actually wants prices to rise. One of the Fed’s mandates is to provide “price stability,” which means a consistent, reliable annual inflation rate. Without saying it in so many words, the Fed designs monetary policy to target inflation of between 1.5 and 2.0 percent per year.
Deficits are in large part a function of economic conditions. High unemployment means less tax revenue, and more people need social services, which means more government spending. If we don’t get our economy moving again and we remain trapped in that high-spending, low-revenue cycle, we’ll never get deficits under control. So it makes sense to do quite a bit more in stimulus over the next year or two if we think it’ll help accelerate economic growth. And, yes, we can afford it: $100 billion in additional stimulus is slightly more than one half of 1 percent of our anticipated debt. Don’t be fooled by false deficit prophets: there are a lot of policies that sound impressive when a politician says them but don’t actually save much money. Cutting foreign aid in half, for instance, will save $210 billion by 2022. That’ll get us 3 percent of the way there. Cutting earmarks in half is even less effective: it’ll get you $130 billion by 2022.
The Bush tax cuts are really, really expensive. They expire at the end of this year. If you renew all of them, you add $6 trillion to the deficit between 2012 and 2022. If you let the cuts for the rich expire—which is what we’re likely to do—you’ve still stacked up $4.9 trillion in debt. If you drop everything except for the AMT patch, you’ve added only $1 trillion. That would deal with much of our medium-term problem right there.
We’ve entered what Michael Klare, a professor at Hampshire College, calls the era of “extreme energy.” Consider how oil production in the U.S. has evolved. In Texas in 1901, wildcatters didn’t have to work very hard to tap into the great Beaumont gusher. The oil was essentially at the surface, all but seeping out of the earth’s crust. When the land-based oil was exhausted, American prospectors went to sea. And when the shallow-water oil was exhausted, they went farther out. In 1985 only 21 million barrels, or 6 percent of the oil produced in the Gulf of Mexico, came from wells drilled in water more than 1,000 feet deep. In 2009 such wells produced 456 million barrels, or 80 percent of total gulf production. Today, deepwater gulf wells account for about one quarter of the oil the U.S. sucks from the earth. The Webcams broadcasting images from the spill provide a real-time measure of the environmental cost of this effort.
Our government fixers are determined to draw perishable lines in the sand and to avoid legislated lines in concrete, like Glass-Steagall’s separation of investment from commercial banking (or, in the closest thing to it in the current legislation, Sen. Blanche Lincoln’s proposed spinoff of derivatives desks from banks, which seems to be losing support daily). Their argument is that, as Tim Geithner, President Obama’s self-assured Treasury secretary, put it in a letter back in January about proposed new limitations on leverage taken by banks, setting such things down in writing might endanger banks’ future business. “We do not believe that codifying a specific numerical leverage requirement in statute would be appropriate,” he wrote. Doing so, Geithner suggested, would “produce an ossified safety and soundness framework that is unable to evolve to keep pace with change.” And change, of course, is good—the mantra we heard for so long during the era of financial innovation.
Every time there’s a crisis in the world, investors rush to buy the dollar and government bonds, which pushes interest rates down. And the latest crisis—the problems in Europe—has added another log to the deflation bonfire. The eurozone’s economy is about as large as that of the United States. But it has hit a rough patch. In response to the crisis, the European Central Bank is expanding its balance sheet, as the Federal Reserve did in 2008 and 2009. But Europe is pursuing an entirely different fiscal policy than America did. Rather than cut taxes and massively increase spending on a temporary basis, European governments are embracing austerity. Germany, Spain, Greece, and Portugal are slashing government spending and raising taxes. These are contractionary fiscal policies that will likely lead to less consumer and business activity, slower growth, and falling prices. Still freaked out about inflation years after the hyperinflation of the 1920s, Europe may be setting itself up for some deflation.
It’s possible that the power of rising consumption and production in China, India, and other emerging markets can ignite inflation. But so far, it doesn’t seem to be doing so. And the accumulation of market and observable evidence seems to be sinking in at the U.S. organization charged with maintaining price stability. At its April meeting, the Federal Reserve’s Open Market Committee did its usual fretting and discussed the need to raise interest rates and sell off assets as a means of warding off inflation. But it concluded that inflation was largely under control. “In light of stable longer-term inflation expectations and the likely continuation of substantial resource slack, policymakers anticipated that both overall and core inflation would remain subdued through 2012, with measured inflation somewhat below rates that policymakers considered to be consistent over the longer run with the Federal Reserve’s dual mandate.”
"First in, last out" is a well-known accounting term, and it may also be the right phrase to characterize this economic recovery. Even though the economy began to expand in mid-2009, the sector that led us into the mess—credit—has remained in recession. The conflagration of debt—soured mortgages, defaulted bank loans, Chapter 11 corporations, huge credit-card charge-offs, student loans, auto loans—drove the economy into a deep recession. Now, nearly a year into the overall economic expansion, there are tentative signs that improvement is coming to the stricken world of consumer credit.
Take the biggest component of consumer debt: mortgages. The Mortgage Bankers Association recently released its data on the first quarter of 2010. It found the delinquency rate for residential mortgages rose to 10.06 percent in the first quarter, up substantially from the fourth quarter of 2009 and from the first quarter of 2009. But other measures suggest that the mortgage clouds have begun to break. TransUnion, the credit-data firm, reported last week that the mortgage-loan delinquency rate—defined as the percentage of borrowers who are two or more months late—fell in the first quarter of 2010 after three straight years of increases.