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Sluggish Economic Growth, The Federal Reserve, And The 2016 Election

Economy Heartbeat

Earlier this week, the Commerce Department reported that the economy had grown at a rather anemic pace in the Second Quarter according to its latest Gross Domestic Product growth estimate:

The economic recovery may be durable, but it is anything but dynamic.

Weighed down by anemic business spending, overstocked factories and warehouses, and a surprisingly weak housing sector, the American economy barely improved this spring after its usual winter doldrums.

Consumer spending advanced at a robust pace, helping to sustain a modest growth rate of 1.2 percent, but the gain was overshadowed by the poor showing in other sectors of the economy. The April-June quarter was the third consecutive period in which the economy advanced at less than a 2 percent annual rate, the weakest stretch in four years.

The new economic data underscores the continuing frustration about the current growth cycle, which has now gone on for seven years — longer than most economic upswings — but which has repeatedly failed to break out into a higher orbit.

And with the political conventions now over, and the brawl between Hillary Clinton and Donald J. Trump for the White House in full swing, Friday’s data at least partly undercuts the Democrats’ argument that the nation’s economic health is improving.

“This definitely feeds into an existing Republican narrative that the economy is growing too slowly and dials it up a notch,” said Jared Bernstein, a liberal economist who served in the Obama administration.

The economic debate may intensify ahead of the election in November, particularly because the recovery’s gains have been less robust in battleground states like Ohio and Pennsylvania. States firmly in the Democratic or Republican column — California and Texas, for example — are generally doing much better.

On Friday, Republican leaders were quick to cite the new data on the nation’s gross domestic product to reinforce their argument that President Obama’s policies have failed to turn things around.

“After eight years of higher taxes, endless regulations and skyrocketing health care costs, the chickens are apparently coming home to roost,” said Senator Tom Cotton, Republican of Arkansas.

But there are other signs that the economy is on the mend, even for ordinary Americans who had, until recently, barely benefited from the rebound. The unemployment rate, which reached 10 percent after the recession, has fallen back to around 5 percent, while hiring and pay gains have been healthier lately. Those factors may ultimately contribute more to perceptions of vitality than abstract statistics on the nation’s economic output.

“What really matters to people is jobs and income, and that’s most recently been a positive story,” added Mr. Bernstein, who is now a senior fellow at the Center on Budget and Policy Priorities.

Based on more complete information about recent years, the government revised last year’s growth rate up slightly to 2.6 percent — the best so far since the severe downturn ended in mid-2009. But that is still below the gains the American economy recorded in the mid-2000s, let alone in the booming late 1990s.

Over all, the economy’s 1.2 percent advance in the second quarter, the Commerce Department reported Friday, was just slightly better than the 0.8 percent pace recorded in the first quarter.

Besides the decrease in inventory accumulation and business investment, weaker government outlays also held back growth, reinforcing a trend that has hobbled the recovery in recent years.

The abrupt falloff in homebuilding caught analysts off guard, but it came after a series of double-digit gains in late 2014 and 2015. And with mortgage rates very low and home prices still rising in many parts of the country, the residential real estate sector is expected to contribute to growth again in the coming quarters.

Household spending was the economy’s bright spot, rising at an annualized rate of 4.2 percent.

“The consumer is doing all the heavy lifting,” said Nariman Behravesh, chief economist at IHS Markit. “Aside from technology and software, business spending was bad and housing was also surprisingly weak, which is payback for gains in recent quarters.”

This report came at virtually the same time that The Wall Street Journal reported that corporate profits had risen during the same period of the year during which the economy seemingly stalled yet again. This opens the possibility that we could see stronger economic growth in the second half of the year as businesses invest those profits in replenishing inventory in preparation for the end of the year and, possibly, investment in the kind of business expansion that would fuel much stronger economic growth, something we haven’t really seen in the seven years of the recovery from the Great Recession. As has always been the case, businesses seem to be holding back on widespread expansion simply because the state of the economy, and the individual markets they serve, is so uncertain that it’s unclear that they’d be able to recoup their investment never mind make a profit. Additionally, businesses apparently continue to find that increases in worker productivity mean that expansion isn’t necessarily needed in order to meet whatever increased demand may be out there. This last point is one of the reasons why job growth has been less than spectacular throughout the recovery. As long as that’s the case, we’re likely to continue with the middling growth that we’ve seen throughout this recovery, a scenario that risks the possibility that even a slight economic shock from some unforeseen event could throw the economy into recession at a moments notice.

Oddly enough, the report from the Commerce Department came on the same day that Federal Reserve Board Chair Janet Yellin said in a speech that economic growth was becoming strong enough to justify interest rate hikes at some point in the near future:

GRAND TETON NATIONAL PARK, Wyo. — Janet L. Yellen, theFederal Reserve chairwoman, said on Friday that she saw a stronger case for raising the Fed’s benchmark interest rate, suggesting the central bank was likely to act in the coming months.

“In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months,” Ms. Yellen said.

The remarks, delivered at an annual policy conference here, indicated that the Fed would consider raising rates at its next meeting in mid-September, though most analysts say they think the central bank is more likely to move in December.

In trading on Friday, the chances of a September increase rose to 36 percent from 21 percent, according to a measure derived from asset prices. The chances of a rate increase by the end of the year rose to 61 percent from 52 percent.

Stanley Fischer, the Fed’s vice chairman, who has suggested in recent months that the economy is strong enough to move, told the cable business network CNBC that a strong August employment report, due Sept. 2, “would probably weigh in our decision.”

But some officials remain nervous about the fragility of this long but tepid period of economic growth.

The Fed also may be inclined to wait until after the presidential election in November, like earlier this year, when Fed officials said they did not want to raise rates before Britain’s referendum on European Union membership in June.

Ms. Yellen’s speech “leaves the Fed in a stance of watchful waiting, which is exactly where it was at the end of the last F.O.M.C. meeting in July,” Kevin Logan, chief United States economist at HSBC, wrote in an analysis. “Policy makers are leaning toward a rate hike, but feel that they can wait until they are more confident that the expansion will continue at a sustainable pace.”

(…)

Ms. Yellen’s remarks appeared aimed in part at jarring the complacency of investors who had concluded that the Fed would not raise rates in September. Fed officials have repeatedly warned that markets had too much confidence in the likely path of policy, given the central bank’s considerable uncertainty about its own plans.

Ms. Yellen underscored the point with a chart showing that Fed officials thought rates could plausibly end 2017 anywhere from nearly zero to 4 percent.

Yet she also stopped short of echoing other Fed officials who have suggested in recent weeks that they are inclined to raise rates in September. The Fed’s policy-making committee is scheduled to meet Sept. 20 and 21 in Washington.

The debate over raising rates has been going on both inside the Federal Reserve and outside of it for the better part of a year now. At this point last year, it appeared as though the Board of Governors was on the verge of approving a rate increase in its September 2015 meeting only to see the board hold back on an increase in the wake of weaker than expected economic news from the United States and Europe and the continued impact of the market chaos that had started in China and spread around the world over the previous summer. Ultimately, though, the Fed ended up raising rates in December of last year by the smallest of measures and suggesting that it was likely that they would be doing so again in the coming year on a quarterly basis. As it has turned out, the Fed has found reasons, justified by weak economic growth and less than spectacular job growth among other things, to forego any such increase. Given that, one suspects that there will not be an increase in September absent clear evidence of a fast turnaround. This prediction is supported by the fact that, in the past, the Fed has been reluctant to do anything that might constituting rocking the economic boat before a national election. Given that, I suspect we won’t see a rate increase until the December meeting yet again. Even in that case, though, absent real evidence of the kind of booming economy that could lead to inflation, which there’s absolutely no sign of right now, one wonders why raising rates, which has the potential to slow down an already weak economic recovery, would be either necessary or wise.

Finally, of course, the state of the economy continues to be an issue in the election itself, or at least you think that it would be if the Republican candidate for President would actually bring it up. This past week, for example, Trump spent the week attacking Hillary Clinton as a bigot and changing his position on immigration at least twice in a twenty-four hour period. The anemic economic news? Totally unmentioned, and it’s been that way throughout the campaign in the wake of other bad reports such as some of the recent unemployment reports. In a normal campaign, a candidate seeking to challenge the nominee of the incumbent would jump on news showing a weak economy, but the Trump campaign is not operating like a normal campaign in any sense of the word. In any case, it’s likely that the state of the economy as we get closer to November is likely to have an impact on the election and the attitude that voters will take with them to the polling place. Who that ends up benefiting is another question entirely.

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. C. Clavin says:

    Weighed down by anemic business spending, overstocked factories and warehouses, and a surprisingly weak housing sector

    They forgot to mention Republican driven austerity.
    http://www.epi.org/publication/why-is-recovery-taking-so-long-and-who-is-to-blame/

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  2. gVOR08 says:

    The only thing that matters right now is that we won’t have scary recession headlines before the election.

    Growth is slow worldwide. Slower than the US in most of the developed world. Secular stagnation. (Wiktionary: Secular – 5. Continuing over a long period of time, long-term.) Maybe the high growth of the postwar period won’t happen again. No one seems to know why. It could be because neoliberalism, which took hold with Reagan and Thatcher in the 80s, was a huge mistake. It may be that the post war years represented a recovery from the disruptions of 1914 thru 1945 and aren’t repeatable. Maybe productivity has plateaued. Maybe growing inequality is the villain.

    We could have a productive discussion of what has happened and how to improve it. But instead we’ll have the usual nonsensical Republican (but I repeat myself) statements like

    After eight years of higher taxes, endless regulations and skyrocketing health care costs, the chickens are apparently coming home to roost – Tom Cotton above.

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  3. Slugger says:

    The economy remains confusing to me with data showing sluggish growth and Ms. Yellen apparently ready to bump interest rates up.
    I hope that all who are concerned by the potential for misdeeds by Hillary as President will join me in also being concerned about the potential for GOP obstructionism on economic issues for purposes of partisan gain. We citizens, we stakeholders in this country will have to stay awake for the foreseeable future.

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  4. bk says:

    @Slugger: And that potential would be – what?

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  5. bk says:

    @bk: (“for misdeeds by Hillary”, meant to include)

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  6. Pch101 says:

    one wonders why raising rates, which has the potential to slow down an already weak economic recovery, would be either necessary or wise.

    There seems to be this nagging gut feeling that there must have been some Pandora’s box was opened with quantitative easing and that inflation must be around the corner.

    The inclination to raise rates is also not entirely unjustified, given that the unemployment rate is under 5%. Typically, a rate that low would provide a clear indication that rates need to go up.

    What seems to be missed here is that the last crash was caused by an enormous debt bubble. The best fix would have involved writing off much of that debt, but that would have required a radical solution — bank nationalization — that was apparently too radical for them to entertain, even though we already have had experience with this on a smaller scale via the RTC.

    So instead, we relied largely upon asset inflation and various programs that helped to cure the bank balance sheet problem but that didn’t provide much relief to the consumer. If the goal was to use consumer demand to drive growth (and it should have been), then we should have written down those excessive debts so that the consumer would be free to spend again. Economic growth will necessarily be curtailed if much of today’s income is diverted toward paying off yesteryear’s loans instead of buying today’s goods and services.

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  7. michael reynolds says:

    I have found interesting the lack of response here or elsewhere to this:

    An aging United States reduces the economy’s growth — big time. That’s the startling conclusion of a new academic study, and if it withstands scholarly scrutiny, it could transform our national political and economic debate.

    We’ve known for decades, of course, that the retirement of the huge baby-boom generation — coupled with low birthrates — would make the United States an older society. Similarly, we’ve known that this would squeeze the federal budget. Social Security and Medicare spending would grow rapidly, intensifying pressures to cut other programs, raise taxes or accept large budget deficits. All this has come to pass.

    But the study goes a giant step further, claiming that the very fact that the United States is an aging society weakens economic growth. “The fraction of the United States population age 60 or over will increase by 21 percent between 2010 and 2020,” says the study. This aging shaves 1.2 percentage points off the economy’s present annual growth rate, the study estimates.

    It’s obviously preliminary work. But it would explain why every first world economy is slowing simultaneously.

    Of course the reason no one is talking about it is because it is so far outside the usual political frames. If true, it would mean that neither left nor right really has any idea what’s going on, a suspicion I formed long ago.

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  8. jd says:

    Shorter headline: “Greed always wants more.”

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  9. gVOR08 says:

    @michael reynolds: Interesting study. Surprising since it’s Robert Samuelson. But most of the content is from the paper, not Samuelson. Apropos an aging society wanting stability, I saw a pretty convincing article claiming the BREXIT vote was largely the result of older people voting to maintain the NHS, having bought the outright lie that leaving the EU would free up large funds for the NHS.

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  10. gVOR08 says:

    @jd:

    Greed always wants more.

    Largely true. The Fed wants to raise rates because that’s what the Fed does. The Fed does it because it is a creature of the banks and banks like higher rates. The wealthy in general want higher rates. They believe tight money is good for them and don’t really care what effect it has on others or on the economy as a whole.

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  11. michael reynolds says:

    @gVOR08:

    I have a sort of corollary to the ‘everyone’s old’ theory. I suspect that technology – much of it free – has replaced the ‘keeping up with the Joneses’ mentality, especially among the young. Status can be a Porsche in the driveway (100 K) or it can be 5,000 Twitter followers (cash outlay basically zero.) When status can be purchased for zero dollars it makes other indicators of status seem absurd.

    I’m not saying the youths wouldn’t like a Porsche, just saying it seems increasingly previous generation. Ancien regime. Along with massive homes with restaurant quality kitchens. Those things are lower priority than getting lots of views for your YouTube channel.

    If old folks are tamping down the animal spirits and kids no longer care about shiny chrome or a big lawn, you’re going to get slower growth. Even 9 years ago when I would tour schools one of the big questions was, “What kind of car do you drive?” No one asks that anymore.

    Of course neither of these notions fits the existing political/economic narratives, so they’ll be ignored.

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  12. Guarneri says:

    Actually, Michael, I have pointed this out numerous times at Schulers place and recently here. Just to see if anyone picked up on it. No one did, indicating the pathetic level of economic understanding at OTB. I mean seriously, look at the Clavins, pch’s and gVORs of the world comments so far.

    As an investor we have been following these issues for years. They pay us to understand it. Here’s a stat for you. Peak consumer expenditures for housing and related items (furniture etc) occur at age 45-50. Alternatively, what is a spending habit of an aging boomer? Try food, travel lodging, garden equipment, home renovation etc etc. plus they should be saving. The patterns just keep going from there.

    What is the takeaway? Government and Fed policy is absolutely misguided. Prop up housing because it’s employment intensive? Broken windows. Low interest rate policy for boomers who have not saved, but now are trying to catch up? Only if you want an equities bubble for the rich. Heh. Like you and me. Further, if you have demographic headwinds of the like we are facing can you afford yet more government capture of resources and growth retarding regulation? Only if you have your stash and you say to those who don’t – eat shit. My daughter just entered college. She will major in marketing with a lib arts minor. I am encouraging her to enter also the leadership and entrepreneurship track. We have enough IT and finance drones. We need growth agents.

    Obama and the Fed have absolutely wasted 8 years with boneheaded policy. Europe is doing the same. China faked it. Obama (and economic mental midgets like Clavin) can’t see beyond partisan cheerleading and self aggrandizement. They are the ones peddling fiction.

    You are rich Michael. You will always be so. Me too. So will all of Hillary and Obamas possee. But anyone who really gives a damn about the Average Joe needs to recognize the state of the world and its leverage and growth challenges and deal with them accordingly. The hole has been dug for about 50 years, with a massive blowoff upon us the last decade. It will take quite a while to workout. I see nothing (do you see anything?) in Hillary Clinton that won’t be more of the same for the next 4-8. I just read the same tripe and platitudes from a tired old woman only interested in herself.

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  13. Gustopher says:

    @Pch101: The Fed would also like higher rates so if there is a downturn, they can lower rates to attempt to stimulate the economy. Otherwise, they will just be sitting on their hands, waiting for things to eventually turn around.

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  14. Thor thormussen says:

    Weighed down by anemic business spending, overstocked factories and warehouses, and a surprisingly weak housing sector

    …and the first recession in my lifetime where government cut spending at the same time! Wonder who thought that was a brilliant idea.

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  15. stonetools says:

    I’m sure Yellin will not bee raising rates in September and doubt rates will be going up in December. There are some inflation hawks in the Fed who have pressing for rate increases for a while now, worried that the economy is over-heating. There has been no sign whatsoever of this, but for the inflation hawks, it’s always 1979.
    Here in 2016, the great danger is DEFLATION, or at least the economy slipping back into recession. I expect the inflation hawks are never going to accept that. With the evidence of a slowly growing economy, and zero evidence of rekindling inflation, I suspect he Feds are going to hold off from rate raises for quite some time.

    In a normal campaign, a candidate seeking to challenge the nominee of the incumbent would jump on news showing a weak economy

    Er, Doug, the reason conservatives can’t say much about the weak economy is :

    1. They crashed the economy the last time they were in charge, and the Democrats would be quick to remind them of that fact.

    2. They have no answer to the problem of a slow-growing economy, except massive tax cuts for the rich (Their answer to every economic problem) and no one outside Right Wing Land believes that would work ( Remember the 2001 and 2003 tax cuts setting off a burst of rapid economic growth? Me neither).

    3. Clinton and the Democrats actually have a pretty good program for reviving economic growth -an infrastructure bill, paid for by borrowing at historically low rates and tax increases on the rich. Most economists like that program. Republicans don’t , but since they have no response, they can’t really raise the issue.
    Here is what the experts think about Clinton vs Trump on economics:

    Economists think Hillary Clinton in the White House would be far better for U.S. businesses than Donald Trump.
    In fact, economists pick Libertarian candidate Gary Johnson as their second choice, according to a new survey from the National Association for Business Economics of over 400 experts. Trump comes in third.
    “A majority (55%) choose Democratic nominee Hillary Clinton, followed distantly by Libertarian nominee Gary Johnson (15%) and Republican nominee Donald Trump (14%),” says LaVaughn Henry of the NABE. “The remaining 15% said they ‘don’t know.'”
    The results are another sign of how Trump is struggling to connect with the business community despite touting his own record as a business titan. Trump’s push to restrict trade and immigration are exactly the opposite of what most economists say the U.S. should be doing to boost growth.

    THAT’S why Trump isn’t mentioning economics.

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  16. JohnMcC says:

    @Guarneri: I have been reading that the over-50’s (aka Baby Boomers) have remarkably large share of disposable income; it’s pretty standard fare in the papers here in FL. Your comment about the peak spending occurring in the 40-50 yrs of age made me check up on it and I found (marketingcharts.com of August ’12: baby boomers control 70% of US disposable income) that it’s considerably larger than I’d realized.

    With corporation income and stock prices way up in record territory it’s pretty obvious that that disposable income is being used to drive equities, eh?

    So you and I obviously agree that redistributive taxes are plainly the right answer. THANK YOU! And — didjanoe!? — Hillary had that figured out too? Wow.

    Damn right! We’ll forgive student debt! We’ll tax that frigging disposable income being used to make brokers rich and spend $27Billion on roads, bridges, airports and internet access as fast as that in SouthKorea for EVERYBODY! We’ll spend $27Billion on early childhood education and produce the greatest generation of innovators EVER! We’ll make every kilowatt as green as possible and give them wonderful new transmission & control infrastructure!

    Guarneri, you’re a genius!

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  17. stonetools says:

    @Guarneri:

    Obama and the Fed have absolutely wasted 8 years with boneheaded policy. Europe is doing the same. China faked it. Obama (and economic mental midgets like Clavin) can’t see beyond partisan cheerleading and self aggrandizement. They are the ones peddling fiction.

    Shorter Guarneri. Everyone else, all over the world , is wrong. Only I, the Great Guarneri, know the truth.
    Dude, do you even hear yourself? You sound like every megalomaniac ever. Look, Obamacare covers mental health therapy too. Sign up.

    Doug has yet to even refer to the Clinton economic plan, let alone discuss it Here’s a CNN explainer on it for those who want to discuss policy.

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  18. Todd says:

    On Friday, Republican leaders were quick to cite the new data on the nation’s gross domestic product to reinforce their argument that President Obama’s policies have failed to turn things around.
    “After eight years of higher taxes, endless regulations and skyrocketing health care costs, the chickens are apparently coming home to roost,” said Senator Tom Cotton, Republican of Arkansas.

    Whenever someone points to the “right track/wrong track” numbers in polls, or tries to pin slow economic growth on the President’s “failed policies”, they usually conveniently leave out the fact that Republicans have controlled Congress for at least half of President Obama’s time in office.

    Divided government worked in the past because both sides, while still looking to promote their own interests, at least made what was best for the country their main priority … and compromised when necessary. I don’t think it’s an exaggeration to think that many of today’s Republicans have almost seemed to be wishing for 6+ years that the economy would go back into recession … just so they could blame it on Obama.

    Since Republicans are almost sure to keep the House after this election, it’s likely we’ll see the same type of things during a Clinton administration. They will block any and all efforts at stimulating job/wage growth, then when we inevitably do have another recession it will of course be all Clinton’s fault.

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  19. Tyrell says:

    There is no doubt the Federal Reserve should be audited. The veil needs to be pulled back. Senator Warren should support this audit. The people need to find out what is going on. Why all the secrecy? The Federal Reserve has to much power and control of the economy. This has been going on for years.

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  20. Just 'nutha ig'rant cracker says:

    @Guarneri: I have sometimes upvoted your prognostications on the economy. You DO have SOME useful insights at times, and I, in the dark night of my own soul, am a conservative at heart–despite the fact that I have come to the realization that the Right is incorrect in aggregate on every major policy issue facing the nation at this particular moment in time. A specific example and one or two comments on it:

    can you afford yet more government capture of resources and growth retarding regulation

    1. This particular hobby horse is one for which I see little concrete evidence beyond typical libertarian nonsense that “participants in the market will do the right thing because they are all basically good people and their own interests, along with market force, will prevent them from being greedy.” (And, of course, Epi Pens, for example, rose in cost by 400-600% because they suddenly became much more expensive to produce.)

    2. Your observation about who benefits from this so called “capture of resources,” etc. leaves out one other group that might not care about the problem if it even exists–both the very rich, who already have their wad, as you put it, and the segment of the population that lives in the bottom quintile or quartile of the societal income range may have the same reactions. In the case of the poor, they may not care because they don’t actually participate in the economy as independent actors anyway and so, have nothing to lose either way the economy goes.

    Point number two may be significant because (IIRC) according to the IRS, 50% of all tax payers earn less than $30,000/year. I’ll leave it up to whoever “we” is to decide whether that’s a problem or not. I do agree with you on one more point; it is going to take a long time (or a significant shift in the zeitgeist of the wealthy) to dig ourselves out of the hole we’re in.

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  21. Just 'nutha ig'rant cracker says:

    @stonetools: Another point of focus related to the economy might be the observation that I came to many years back as I watched how my investments reacted to the various administrations that came along: GOP economic policies are good for capital holders while Democratic economic policies are good for businesses. The goals and the needs of the two groups are not identical, even though membership in each cohort overlaps.

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  22. Just 'nutha ig'rant cracker says:

    @Todd: Conservatives and Republicans are willing to burn the economy (and the nation if necessary) to the ground, provided that they will be given say over what happens to the ashes. This alone has been my biggest disconnect from the right.

    I didn’t leave conservative thought, it abandoned me.

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  23. JohnMcC says:

    @Tyrell: http://www.federalreserve.gov/newsevents/reform_audit.htm

    You’re welcome!

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  24. JohnMcC says:

    @Just ‘nutha ig’rant cracker: Thank you for that pithy reminder of an important distinction, my friend. I have such a limited grip on the intricacies of economic writing that I constantly have to google “fiscal policy vs monetary policy” and leave it up while I read economic stuff. It seems backwards to me and I keep crossing them up. (Being old doesn’t make it easier.) But I have a pretty good grip on US history and I keep in mind the eternal dispute between ‘tight money’ and ‘easy money’ as it’s played out here since — well — since Hamilton and Jefferson. Andrew Jackson and William Jennings Bryant and all that.

    When I hear that the Yellen Fed keeps wanting to raise the prime rate I relate it to those issues and realize that central bankers never ever have had the interests of the little guy — the Okie farmers or the General Store owner on the frontier — as their mission. It’s always ALWAYS been the financial guys.

    I still get puzzled and crossed up when I think about policy but the goals of policy really ought to be crystal clear in a close-to-stagnant economy.

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  25. Ben Wolf says:

    This report came at virtually the same time that The Wall Street Journal reported that corporate profits had risen during the same period of the year during which the economy seemingly stalled yet again.

    Because government spending is at near-record highs and the budget deficit has expanded to over $600 billion. 40-50% of that goes to corporate profits.

    This opens the possibility that we could see stronger economic growth in the second half of the year as businesses invest those profits in replenishing inventory in preparation for the end of the year and, possibly, investment in the kind of business expansion that would fuel much stronger economic growth, something we haven’t really seen in the seven years of the recovery from the Great Recession.

    Businesses invest when expectations for greater sales justify the spending. So long as current expectations are met at the current level of deficient demand there will be no significant investment.

    As has always been the case, businesses seem to be holding back on widespread expansion simply because the state of the economy. . .

    I’m not sure it tells us much to say failure of businesses to invest has created a situation in which businesses have failed to invest.

    . . . and the individual markets they serve, is so uncertain that it’s unclear that they’d be able to recoup their investment never mind make a profit.

    Uncertainty cannot be changed. I think you may mean risk.

    Additionally, businesses apparently continue to find that increases in worker productivity mean that expansion isn’t necessarily needed in order to meet whatever increased demand may be out there.

    Labor productivity growth is at historic lows, a result of lacking investment.

    This last point is one of the reasons why job growth has been less than spectacular throughout the recovery.

    Businesses do not expand employment unless their expectations change accordingly. Until they do effective demand equilibrium will remain below full employment.

    As long as that’s the case, we’re likely to continue with the middling growth that we’ve seen throughout this recovery, a scenario that risks the possibility that even a slight economic shock from some unforeseen event could throw the economy into recession at a moments notice.

    Economies can fall into recession regardless of growth rates. It isn’t about shocks, it’s about fear; government’s job is to act as chief reducer of fear/restorer of confidence. Unfortunately we can expect Republicans to tie the public sector’s hands so long as a Democrat remains in the White House.

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  26. Ben Wolf says:

    @gVOR08: There’s a shift taking place, with Japan increasing spending, the rise of support for helicopter money and the EU allowing member states to breach deficit limits set by the SGP. After six years of resistance by politicians austerity ideology is crumbling; even central bankers are beginning to question whether the belief that low rates are inflationary might have the relationship backward.

    FYI, I trade under a model which assumes low rates are deflationary and high rates are inflationary. It works very well.

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  27. Thor thormussen says:

    I didn’t leave conservative thought, it abandoned me.

    same here. Conservative, as a political philosophy, is respectable and useful. Eisenhower. Truman. Those kinda people. Smart. Informed. Cautious. I have little beef with them.

    The people who call themselves conservative today have little in common with those people. They are not smart, they are not informed, and they are not cautious. They are dumb, angry racists.

    Like the guy from the WSJ said, after the GOP gets destroyed this fall, it needs to rebuild, and it needs to do so without idiots like Limbaugh, Hannity, and O’Reilly.

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  28. bill says:

    @C. Clavin: 8 yrs later…..yawn.
    does anyone remember the ’90’s? the media were all over the “Americans don’t save” shtick. we could earn 5-7% on just a regular savings account and plan for retirement in a low risk fashion.
    fast forward to now and we have no choice but to roll the dice in stocks/bonds/401k’s or hide it in the mattress. and more disturbing is that the media is silent, encouraging the fed to keep the prime rate at 0-1% for “fear of recession”…..as the obama economy is beyond weak.
    wall st is laughing all the way to the bank- and the banks are laughing too, as we’re footing the bill.
    the only difference between now and 2012 is that big banks, wall st, etc. threw money at democrats to shut them up- and it worked big time.

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  29. C. Clavin says:

    @michael reynolds:
    I think what you describe is a symptom, not the disease.
    The young folks I work with seem to want “stuff”.
    I don’t have kids, but all my friends kids seem to want “stuff”.
    Unfortunately a 30 year war against the middle class has changed their ability to acquire “stuff”.
    Combine that with flat Government spending, as a % of GDP, and the world is going to be different than when you and I were kids. You just cannot have a third of the economy (overall Government spending is about 35% of the economy) be stagnant and still expect overall growth to remain strong.
    This is the economy Republicans want when they say they want small Government. I’m not sure why they are complaining.

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  30. Barry says:

    “The economic debate may intensify ahead of the election in November, particularly because the recovery’s gains have been less robust in battleground states like Ohio and Pennsylvania. ”

    At this point anybody describing Pennsylvania as a ‘battleground state’ deserves a good flogging.

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  31. Just 'nutha ig'rant cracker says:

    @C. Clavin: I think that the complaints about the economy come from their not getting the Phi Beta Kappa key of American Politics–POTUS.

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  32. grumpy realist says:

    @JohnMcC: Suggest you go read the few books available on how the best theories out there to explain what’s going on involve chaos theory.

    Best explanation I’ve found so far, most depressing because it indicates that once your economy has meandered away from a “good point” it’s very likely impossible to get back to it.

    I’m mainly a Keynsian, myself. Demand is what keeps an economy chugging along, somewhat like the temperature of a fire. Which is why if the present point doesn’t have enough demand (such as in a depression), you need the government to jump in and create it.

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  33. Barry says:

    @Thor thormussen: “…and the first recession in my lifetime where government cut spending at the same time! Wonder who thought that was a brilliant idea.”

    The Tea Party

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  34. Guarneri says:

    @JohnMcC:

    First, you are in Florida, dumbass. Second, its personal lifetime spending cycle pattern. Repeat after me – personal lifetime spending pattern. Which changes its composition with time, and changes its savings vs consumption weighting over time. And you have more dyers than buyers, and buyers spending less. By the way. If you want a test lab, look at Japan.

    The stock market is being driven by yield chase, as yield is nearly unavailable in fixed income securities. Look at earnings multiples.

    As for taxes, yes, if you think resources should be siphoned off so politicians can buy votes from subsidized sugar companies, public employees, college administrators, banks or electric car makers then go ahead. Don’t complain to me when you get as much utility as paying people for digging holes and filling them up again. Don’t blame me when the Average Joe gets crushed paying for teachers union salaries and pensions……………..until the pensions vaporize.

    By the way, how many people have come off the food stamp roles under Obama? How is black unemployment doing under Obama? How many people have dropped out of the workforce under Obama? How has GDP growth been under Obama? How is income inequality doing under Obama? How are incomes under Obama? How is manufacturing doing under Obama? Its an ugly picture. It will be no different under Clinton, her highest and best talent is selling influence to the highest foreign bidder — but you may need to change the color of your cheerleaders skirt and pom poms. BTW – Is selling out to the Saudis or Russians allowed under the TPP? Is that in the kill homosexuals and stone women clause??

    Like I said, the level of economic understanding here can only be described as pathetic.

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  35. gVOR08 says:

    @Barry: No, I don’t really think so. Much as I think the TP is stupid and destructive, they’re nobodies. Whenever I look at the big, real harm that’s been done: Iraq, mismanaging Afghanistan, trying to privatize SS, W’s tax cuts and deficits, AGW denial; it’s the Republican Establishment that’s done it. Same with austerity.

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  36. Just 'nutha ig'rant cracker says:

    @Guarneri: Ooooohhh… Somebody got a little angry when his theory was used to come to a different conclusion than the one he wanted. Maybe he should be less oblique.

    I don’t know what being in Florida has to do with anything, but I thought Mr. McC’s proposal had some merit to it. It certainly wouldn’t be any worse than doing what we’re doing now. I don’t know about anyone else, but my wish hand isn’t filling up anywhere near as fast as the other hand is.

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  37. Just 'nutha ig'rant cracker says:

    And to make matters worse, my crack team of dwarfs, unicorns, and pixie-dust hounds are not finding any traces of the Lost Dutchman Mine, either!

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  38. Tyrell says:

    @JohnMcC: Thanks for your reply. That bill was good: in 2012 an audit revealed that the Fed secretly gave trillions to overseas banks and corporations; while the American small businesses had to cut back or went under.
    But that bill was did not go far enough in opening up the inner workings. A new bill would open up the meetings and decision making of the Fed. This bill has broad bi-partisan support.
    See: The Hill: Senate Rejects Pauls Push to Audit Fed
    New York Post: Why Does Federal Reserve Fear a Real Audit ?
    Campaign For Liberty: “About Audit the Federal Reserve”
    scott.net: Audit of Federal Reserve Reveals $16 trillion In Secret Bailouts”

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  39. C. Clavin says:

    @Guarneri:

    By the way, how many people have come off the food stamp roles under Obama? How is black unemployment doing under Obama? How many people have dropped out of the workforce under Obama? How has GDP growth been under Obama? How is income inequality doing under Obama? How are incomes under Obama? How is manufacturing doing under Obama?

    UM…Significantly better than under the last Republican President…and Trump is promising to triple down on Republican economic theories that have been proven to be abject failures.
    More importantly…people are freer and safer.

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  40. C. Clavin says:

    @Guarneri:
    The more important question from the viewpoint of the economy, is if, once trounced in the election, Republicans will stop with their reflexive opposition to every single thing…including things they are actually for…and begin to govern in the interest of the country and not just their own narrow interests. That’s when the economy will start rolling again. Not until. Certainly electing a voo-doo supply-sider like Trump will not do it.

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  41. al-Alameda says:

    @Guarneri:

    By the way, how many people have come off the food stamp roles under Obama? How is black unemployment doing under Obama? How many people have dropped out of the workforce under Obama? How has GDP growth been under Obama? How is income inequality doing under Obama? How are incomes under Obama? How is manufacturing doing under Obama? Its an ugly picture. It will be no different under Clinton, her highest and best talent is selling influence to the highest foreign bidder — but you may need to change the color of your cheerleaders skirt and pom poms. BTW – Is selling out to the Saudis or Russians allowed under the TPP? Is that in the kill homosexuals and stone women clause??

    Because it is not readily apparent to me, I have to ask you: Did you know that there was an economic and financial collapse in 2008-09, the worst we’ve experienced since the Great Depression?

    And if you did know about it, why is it that you seem to refuse to evaluate the performance of the economy since 2009 in the context of the loss of nearly 25% of the wealth of America’s residents and businesses – about $18 Trillion. When Obama was inaugurated the economy was shedding jobs at a rate over 700,000 per month, and the credit and capital markets were locked up, an important part of the reason why the Administration intervened to pre-empt a GM bankruptcy and a possible loss of a million auto industry jobs when job losses were hemorrhaging through out the economy (by the way, I can only imagine the criticism and opprobrium conservatives would rightly be throwing Obama’s way if he had let GM shut down.)

    As for the rest of your complaints vis-à-vis Obama and trends in manufacturing, Black unemployment, and income inequality? Disingenuous at best.

    Our economy and other western economies have been shedding manufacturing jobs for the better part of 3 decades now, the transformation from that economy to a digital, technology, research and services based economy is upon us – all of this predates Obama by 3 decades. Black unemployment has, statistically, always been a problem – one that did not originate with Obama. Income inequality is something has never concerned Republicans, at least not until they could criticize Obama, apparently for not cutting taxes so that the trickle-down could benefit lower income Americans.

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  42. David M says:

    @Guarneri:

    By the way, how many people have come off the food stamp roles under Obama? How is black unemployment doing under Obama? How many people have dropped out of the workforce under Obama? How has GDP growth been under Obama? How is income inequality doing under Obama? How are incomes under Obama?

    al-Alameda already took this apart, but it’s worth noting the nonsense here is what allowed Trump to be successful. If you keep repeating complete nonsense, eventually someone like Trump will come along.

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  43. C. Clavin says:

    To my point about stagnant Government growth:

    In May 2008, U.S. school departments employed 8.4 million teachers, administrators, and other staff. Today, they employ just 8.2 million, despite the fact that those schools now serve 1 million more students, according to Department of Education estimates. And while those teachers are being asked to serve more students, they’re making less money: According to a new analysis from the Economic Policy Institute, weekly wages for public-school teachers have declined 5 percent over the past five years.

    So that’s 200,000 less jobs before you account for the normal growth that should happen to accomodate more students. So the net number is way higher. And this is just teachers; it doesn’t count cops or fire-fighters or administrative help.
    And it doesn’t account for our complete lack of investment in infrastructure which, given the low interest rates, borders on treason.

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  44. Tyrell says:

    @C. Clavin: We see cities spending tax money to help millionaire professional sports team owners build new stadiums and arenas. All the while teachers are laid off and the school facilities fall into disrepair. At one local school the air conditioning doesn’t work half the time and some classes are so crowded that students are sitting on bookshelves. And you can tell that school has started : kids going door to door selling candy, jewelry, and magazine subscriptions to raise money for copy paper and computers.
    Of course the school board just gave the superintendent a big bonus. Politicians talk education up, but that’s all – just talk.

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  45. al-Alameda says:

    @Tyrell:

    Of course the school board just gave the superintendent a big bonus. Politicians talk education up, but that’s all – just talk.

    Don’t leave parents out of this either.

    There are plenty of people across the country who do not value education in the least. And they’ve got a lot of excuses (basically talking points) as to why they mock or scorn education: ‘religion is not allowed in our schools, ‘children are subjected to liberal indoctrination,’ ‘what good is ((any mathematics instruction)) my kids don’t need it,’ etc.

    A lot of parents talk education up and subsequently do nothing to support their schools or their children in educational endeavors.

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  46. Tyrell says:

    @al-Alameda: The kids football and t-ball games will be packed. The school parent-teacher meetings are lucky to have thirty people. There is a lesson there somewhere.

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  47. the Q says:

    Business is investing all right….in themselves…a staggering 85% of all corporate profits are going into stock buybacks or dividends!!!!! Why the phuck do you think productivity is dragging? Business investment has dried up as the CEOs (you know, the 40-60 crowd) has just decided to take all the wealth for themselves and their top 1% cronies who earn a staggering 70% of all capital gains.

    Way to go worthless boomers, you guys just can’t admit that as Guarnari pointed Obama has been great for Wall St and not so much for Main St.

    Yes, Bush was a disaster and almost crashed the economy, but the O man has had 7 years to improve things and he HASN’T much for the middle class. I guess you boomers just can’t admit the obvious hammering of the wage levels (below 1998 levels) and the HUGE income inequality which has increased under the neo libs.

    Hey, not to worry, just go on living in your bubble, which fast approaches the wingnut bubble of not having to face inconvenient facts.

    As i have maintained, modern liberalism is all about wealth accumulation and feel good non issues like 8 yr old TGs shitting wherever. Meanwhile the whole friggin financial house is about to blow up thanks to willful ignorance displayed by most here. And Obama is pushing TPP beyond all logic and reason (oh yeah, someone has to pay back all those Hollywood/Silicon Valley donations.) Google Michael Froman, one of the biggest POS DLC backstabbers. He was a primary proponent of gutting Glass Steagall? Why, oh about 60 million reasons. His compensation at Citi Group which was allowed to merge under Froman’s boss Rubin ($345 million). These mergers of investment/commercial banks is reprehensible and now Froman is the USTR??? And you people trust that azzwhole?

    Guarnari is a too right wing for me, but you can’t gainsay his facts on the state of minorities, the middle class etc under the DLC Dems like Billy Bub, Obama and the soon to be disaster Hillary.

    Someone here has to stand up for true liberalism. Bernie tried and most of you went for the DLC shrew.

    Shame on all of you faux Liberals.

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  48. al-Alameda says:

    @the Q:

    Way to go worthless boomers, you guys just can’t admit that as Guarnari pointed Obama has been great for Wall St and not so much for Main St.

    Someone here has to stand up for true liberalism. Bernie tried and most of you went for the DLC shrew.

    I’ve got to laugh. While you have been busy blaming Boomers for everything, Congress has been taken over by people who despise so-called “true liberalism,’ and these people were most likely not voted into office by Boomer voters.

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  49. Grewgills says:

    @the Q:
    Your arguments would be much more convincing without the sexism, complete dismissal of all social issues, and constant harping on generational irrelevancies. You have reasonable points about some economic issues, but the ‘what if Archie Bunker loved FDR’ shtick that you interweave with them destroys their persuasiveness.

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  50. the Q says:

    I am just observing how this country was taken back to 1920s style Hooverism/Reaganism and the limp modern day liberal response to it. And thats because of the 1980s/90s neo liberal DLC with the sellout Bayhs and Clintons and Gore etc.

    I am appalled that we have to fight settled “law” all over again.

    Wingnuts trying to get rid of the “death tax” or people who now think a progressive tax code is “unfair” to rich people?

    In my day, it was “who lost China”….currently its “who lost the middle class”?

    I was alive when Glass Steagall was passed. And to think Dems had a big hand in getting rid of it.

    Sorry, I am too old to parse….I am going to hold you young folks feet to the fire.

    We could have elected Bernie as President. Imagine, a socialist Dem in office. This was pure fantasy the past 40 years but within reach.

    Yet most of you are Hillary slurpers….and that bugs the schitt out of me.

    I love reading Mr. Reynold’s comments and even stonetools and clavin and al alameda.

    I just won’t hold back. It kills me to see the Reagan Revolution never ending. And I blame the weak defense of New Deal ideals by the Hillarys and Debbie WS who weaken our opposition.

    Not one Dem has come out and said “no more defense spending increases”

    You know, LBJ picked Ramsey Clark as Atty General. Can you in your wildest dreams imagine him in Hillary’s cabinet? He is a radical, in my day a middle of the roader.

    Thats how far right my Dem party has gone to and I won’t stand for it like some of you.

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  51. Grewgills says:

    @the Q:
    On ‘defense’ Democrats haven’t moved much from their positions since WWII.
    On economics Democrats have certainly moved to the center right because of the massive backlash against liberal economic positions that began in the 80s when Reagan and the republicans managed to make liberal a dirty word.
    On social issues Democrats have been moving steadily to more progressive positions since the 60s.
    To say that liberals or Democrats have moved steadily to the right focuses solely on one aspect of the reality of national politics in the US. You seem to totally discount progress on social fronts and focus solely on economic issues as the ‘real’ issues. Your analysis is consistently one dimensional and ignores massive improvements made by progressives for minorities and women since the days you pine for. Yes, Democrats and Republicans were more progressive on tax structure, unions, and other economic issues back then, but they were also much more hostile to the rights of women and minorities in those days. It can be considered irrelevant by you in all likelihood because you are white and male and can at least pass for christian. You might want to take a step back from your invective and recognize the progress made on other fronts since your golden era.

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  52. the Q says:

    Grewgills, a glacial pace of change my friend on your end. Lets see, on my watch, integrated the Armed Forces, ended JIm Crow, passed Civil Rights and Voting Rights Acts, initiated Affirmative Action, passed amendment to allow 18 year olds the right to vote, passed Disabilities Acts and saw the wholesale entry of women into the work force en masse. All in 30 years. Lets see, in the last 30 years. we had a Clinton sell out in the White House and a potential Clinton sell out in the White House. Um, let me think what else?

    I will give you the gay rights issue. Bravo. We did pretty much all the heavy lifting on the race issue.

    And like Ike said when asked what Nixon had accomplished as VP, “give me a week to think about it.” Same here with the boomers/gen Xers.

    Oh, you gave third grader TGs bathroom rights. I totally forgot that one!!!

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  53. Grewgills says:

    Lets see, on my watch, integrated the Armed Forces, ended JIm Crow, passed Civil Rights and Voting Rights Acts, initiated Affirmative Action, passed amendment to allow 18 year olds the right to vote, passed Disabilities Acts and saw the wholesale entry of women into the work force en masse.

    The Civil Right Act and Voting Right Act, Affirmative Action, lowering the voting age, Disabilities Acts were all largely driven by the ‘boomers’ that you are constantly decrying. It wasn’t the old guard New Deal Democrats that pushed those progressive causes through.

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  54. the Q says:

    The boomers were teenagers during the civil rights era….come on, you have to do better than that!!!! How old were LBJ and Everitt Dirkson? 19?

    I guess Bob Dole doesnt count as he was the prime mover in the ADA.

    Boomers are Allan Bakke clones now. AA is totally under attack by your generation and is obsolete in most states.

    Next? Other than gay rights, you guys have done hardly anything. Just admit the plain facts, the boomers are for the most part one of the worst generations in U.S. history. Just look at this past do nothing Congress for Exhibit A. Those aren’t 80 year olds there btw.

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