Wednesday, October 31, 2012

‘The devil has my the people by the throat.’

There is a great scene in “Casablanca” in which Rick talks to an émigré couple about getting out of town.  Because it’s so good, I’m reproducing it below.  The title quote reminds me of America today.

The greed and disinterest in one’s fellow human being, especially if poor or disadvantaged, that Romney and the Republicans embody is the greatest risk to America today.

A businessman doesn’t understand the feedbacks of an entire economy.  He lives in a detached world, concerned only with his income statement and balance sheet.  Austerity in extremis will kill the economy.

The devil has a large portion of the American people by the throat.  If Romney is elected and the Republicans do what they’ve said they will do—cutting taxes even more on the wealthiest, increasing military spending and starting new wars, gutting support for research, education, social services—America will become like Brazil.

We will become a full fledged banana republic.  The social class and income of the parents will largely determine that of the child.  The sliver of very wealthy families at the top will own most of everything, including the house your children will live in, and they will groom their children to positions of quasi-royalty.  Like Tagg Romney, who makes a million dollars a year of capital income in the business his father set up for him.  The rentier class will live in a world apart from their countrymen.

Obama is weak and pathetic, but he understands this, and may do something to mitigate the damage caused by the epoch of deleveraging and increasing inequality that we’re living through.

If Romney wins, the devil may have America by the throat.

Annina: We come from Bulgaria. Oh, things are very bad there, Monsieur. The devil has the people by the throat. So, Jan and I we - we do not want our children to grow up in such a country.
Rick: So you decided to go to America.
Annina: Yes. But we have not much money and...traveling is so expensive and difficult. It was much more than we thought to get here. And then Captain Renault sees us, and he is so kind. He wants to help us.
Rick: Yes, I'll bet.
Annina: He tells me you can give us an exit visa, but, but we have no money.
Rick: Does he know that?
Annina: Oh yes.
Rick: And he's still willing to give you a visa?
Annina: Yes, monsieur.
Rick: And you want to know...
Annina: Will he keep his word?
Rick: He always has.
Annina: Oh! Monsieur. You are a man. If someone loved you very much, so that your happiness was the only thing that she wanted in the world, but she did a bad thing to make certain of it, could you forgive her?
Rick: Nobody ever loved me that much.
Annina: And he never knew. And the girl kept this bad thing locked in her heart. That would be all right, wouldn't it?
Rick: You want my advice.
Annina: Oh yes, please.
Rick: Go back to Bulgaria.
Annina: Oh, but if you knew what it means to us to leave Europe, to get to America. Oh, but if Jan should find out. He is such a boy. In many ways, I am so much older than he is.
Rick: Yes, well, everybody in Casablanca has problems. Yours may work out.

Sunday, October 28, 2012

The Economist catches on

Via:  The Economist’s special report on inequality

Although inequality has been on the rise for three decades, its political prominence is newer. During the go-go years before the financial crisis, growing disparities were hardly at the top of politicians’ to-do list. One reason was that asset bubbles and cheap credit eased life for everyone. Financiers were growing fabulously wealthy in the early 2000s, but others could also borrow ever more against the value of their home.

That changed after the crash. The bank rescues shone a spotlight on the unfairness of a system in which affluent bankers were bailed out whereas ordinary folk lost their houses and jobs. And in today’s sluggish economies, more inequality often means that people at the bottom and even in the middle of the income distribution are falling behind not just in relative but also in absolute terms.

In search of true progressivism.

Friday, October 26, 2012

Wall Street is the welfare queen

Via:  today’s must read, The Dark Age of Money, an impassioned recitative of how “capitalism” and “free markets” have been transformed into “monetary fascism”—worldwide.

All Bow to the Welfare Queen

Total governmental transfers and assumed liabilities related to U.S. financial institutions since 2008 exceed the entire history of all social welfare programs for all free world economies collectively since Bismarck (do the numbers, its true).

Thursday, October 25, 2012

Debt, the big picture

Via: Felix Salmon

CEOs’ self-serving deficit manifesto

Felix Salmon

OCT 25, 2012 13:26 UTC


The WSJ has what it calls “CEOs Deficit Manifesto ” — a copy of the letter, signed by 80-something US CEOs, urging action on the debt and deficit. It’s not a particularly impressive document. It starts like this:

Policy makers should acknowledge that our growing debt is a serious threat to the economic well-being and security of the United States.

It is urgent and essential that we put in place a plan to fix America’s debt.


This is ridiculous. There are lots of serious threats out there to the economic well-being and security of the United States, and the national debt is simply not one of them. Nor is it growing. The chart on the right, from Rex Nutting, shows what’s actually going on: total US debt to GDP was rising alarmingly until the crisis, but it has been falling impressively since then. In fact, this is the first time in over half a century that US debt to GDP has been going down rather than up.

So when the CEOs talk about “our growing debt”, what they mean is just the debt owed by the Federal government. And when the Federal government borrows money, that doesn’t even come close to making up for the fact that the CEOs themselves are not borrowing money.

In fairness, here is the picture of *federal* debt to GDP:


I am in favor of redistributive social policy in an era when the market system fails to provide a living for people who desire work and can’t find it.  The Benign Brodwicz program has always been, “poverty level workfare and health care for the unemployed.”  The conservatives will say such government spending doesn’t “produce” anything, but in first round of spending after the transfer all that money goes into the spending stream for consumer goods that are some business’s revenue.  My story is that with sufficient redistribution (requiring work in exchange for benefits; to some extent as FDR recognized the government will have to act in loco parentis) the constipation of aggregate demand we now face—falling incomes for the majority, exploding incomes for those at the top of the socioeconomic pecking order—can be unblocked.

The rich, however, seem to be willing to create a separate country for themselves within a South American-style society in which the people in the barrios are simply ignored. 

But this is self-serving only in the narrowest sense, and in the short run.  See the recent post on the evidence for the societal benefits of greater equality.

The current mantra is, “You first, after me.”  Social Darwinism is back.  The self-regarding CEOs don’t like freeloaders, and want to cut them off, but their CAPEX spending plans reveal what they think that will do to the economy.

If Mitt wins, one hopes the old “moderate Mitt” will come out and move slowly. 

There’s no better welfare state than the Mormon church, with its income guarantee for unemployed members.  Perhaps Mitt’s secret plan is to get everyone to convert to Mormonism….

Wednesday, October 24, 2012

The spirit level: a primer

Via:  Check out the graphs.  This work was largely done by an epidemiologist.  Economics with its obsession with monetary measures looks pretty pathetic in this light.  Social welfare theory—not.

The Evidence in Detail

The evidence in detail:
Physical Health

People in more equal societies live longer, a smaller proportion of children die in infancy and self-rated health is better. Find out more.

Mental Health

People in more equal societies are far less likely to experience mental illness. Find out more.

Drug Abuse

People in more equal societies are less likely to use illegal drugs. Find out more.


Children do better at school in more equal societies. Find out more.


Unequal societies are harsher, they imprison a higher proportion of people. Find out more.


Obesity is less common in more equal societies. Find out more.

Social Mobility

There is more social mobility in more equal societies. Find out more.

Trust and Community Life

Communities are more cohesive and people trust each other more in more equal societies.Find out more.


Homicide rates are lower and children experience less violence in more equal societies. Find out more.

Teenage Births

Teenage motherhood is less common in more equal societies. Find out more.

Child Well-being

Unicef measures of child well-being are better in more equal societies. Find out more.

Equality not Growth

Further economic growth will not improve our health or well-being. For a better quality of life we need greater income equality. Find out more.

Rich and Poor Countries

More equal societies spend a higher proportion their income on overseas aid and perform better on the Global Peace Index. Find out more.

Equality and Global Warming

Inequality fuels status competition, individualism and consumerism. It makes it harder to gain public support for policies to reduce global warming. Find out more.

The definition of insanity

Insanity: doing the same thing over and over again and expecting different results.
Albert Einstein

Obama missed the opportunity to make the point that doing what George W. Bush did—cutting taxes, mostly for the rich, and increasing military spending—is exactly what busted the budget in the last decade and started down the path of trillion dollar deficits.

“The last president cut taxes for the rich and increased military spending, and did we get jobs?  Where are the jobs?  NO, we got financial crisis and a mini-depression that I inherited.  So why would doing the same thing again work this time?”

Oh, he tried to make the point, but he lacked the emotional force required to counter an attack dog like Romney.

The national spirit level has sunk to new depths in recent weeks.  The Republicans appear to have successfully scapegoated Obama. 

The American social contract is broken.

Tuesday, October 23, 2012

Stock market demographics

Via:  San Francisco Fed  h/t

To examine the historical relationship between demographic trends and stock prices, we consider a statistical model in which the equity price/earnings (P/E) ratio depends on a measure of age distribution (for another example, see Geanakoplos et al. 2004). We construct the P/E ratio based on the year-end level of the Standard & Poor’s 500 Index adjusted for inflation and average inflation-adjusted earnings over the past 12 months. We measure age distribution using the ratio of the middle-age cohort, age 40–49, to the old-age cohort, age 60–69. We call this the M/O ratio.

Projected P/E ratio from demographic trends

Okay, in addition the current younger generation is saddled with record levels of student loan debt, the economy isn’t generating many good paying jobs, and we’re in a post credit crisis sucky cyclical recovery.

By these lights the bear market could go another ten years.

MMT hits the IMF

Via:  Telegraph  Ambrose Evans-Pritchard.  Article contains link to IMF study.  Recognition seems to be growing that it was a mistake to pile a bunch of private bad debt onto nation states’ sovereign debts.  Should have thought of that before.

One could slash private debt by 100pc of GDP, boost growth, stabilize prices, and dethrone bankers all at the same time. It could be done cleanly and painlessly, by legislative command, far more quickly than anybody imagined.

The conjuring trick is to replace our system of private bank-created money -- roughly 97pc of the money supply -- with state-created money. We return to the historical norm, before Charles II placed control of the money supply in private hands with the English Free Coinage Act of 1666.

Specifically, it means an assault on "fractional reserve banking". If lenders are forced to put up 100pc reserve backing for deposits, they lose the exorbitant privilege of creating money out of thin air.

The nation regains sovereign control over the money supply. There are no more banks runs, and fewer boom-bust credit cycles. Accounting legerdemain will do the rest. That at least is the argument.

Some readers may already have seen the IMF study, by Jaromir Benes and Michael Kumhof, which came out in August and has begun to acquire a cult following around the world.

Entitled "The Chicago Plan Revisited", it revives the scheme first put forward by professors Henry Simons and Irving Fisher in 1936 during the ferment of creative thinking in the late Depression.

Irving Fisher thought credit cycles led to an unhealthy concentration of wealth. He saw it with his own eyes in the early 1930s as creditors foreclosed on destitute farmers, seizing their land or buying it for a pittance at the bottom of the cycle.

The farmers found a way of defending themselves in the end. They muscled together at "one dollar auctions", buying each other's property back for almost nothing. Any carpet-bagger who tried to bid higher was beaten to a pulp.

Continues here.

Friday, October 19, 2012

NSFW "’99 problems’ remix

h/t Barry Ritholtz, too good not to post

When short-term irrationality is long-term rational, maybe—maybe not

Via:  Counterpunch 

The swing to Mitt may represent a desire to hurry up the final all-consuming crisis that will be necessary to precipitate reform in the Fourth Turning.  Certainly Obama has shown himself to be a pathetic creature.  Romney is merely simple-minded and barbaric, captive to the wealthy.  Romney has something of a touching tragic dimension as well:  the most moving moment in the last debate was when he spoke with almost teary-eyed pride of his best accomplishments in Massachusetts, upping the quality of the schools and providing health care to almost everyone in a plan he now disowns.  Our government is badly broken. 

The problem with thinking that by letting things get really bad under Mitt that things will get better quicker because people will “take to the streets” quicker is that Mitt may usher in a new Dark Age of neo-feudalism in which repression will be absolute.  The state has put all the tools in place for this to happen.  Norman Pollack is probably living comfortably on a generous pension and would like to watch the battle from a hillside somewhere.  Not sure I can buy into his argument, but I do feel the disgust with Obama and the pull to “try something different.” 

Under the Cloak of Liberalism

America on the Cusp of Fascism


I use “fascism” here not as a cliché, but as an historical-structural formation principally rooted in the mature stage of capitalism, in which business-government interpenetration (what the Japanese political scientist Masao Maryuma called the “close-embrace” system) has created hierarchical social classes of wide differences in wealth and power, the militarization of social values and geopolitical strategy, and a faux ideology of classlessness to instill loyalty for the social order among working people.  In fact, each of these factors is already present to a high degree in America–superbly disguised however by the rhetoric of liberalism, as in Mr. Obama’s presidency.

This said, my provocative hypothesis (only slightly tongue-in-cheek) is that in the coming election Romney is preferable to Obama.  Why? In broad terms, we see varying degrees of sophistication in the mad dash across the finish line (i.e., fascism proper, midway between nascent and full-blown), with Romney and Republicans representing plebeian fascism, and Obama and Democrats a sophisticated corporatist form.  Everything charged against Romney may be true, from Social Darwinist beliefs and gut-militarism to cultural intolerance and xenophobia, and perhaps even more so for the party as a whole, though that is a moot point–an overt negation, on all grounds,of what we mean by democracy.  (Not that America has honored or achieved that state of political-economic development through most of its history!)   To pursue the candidacy of Romney involves one in a societal nightmare of unrestrained wealth (and the perks that go with it, from horribly skewed taxation policy to categorical setbacks to unions, wage rates, and an antilabor climate) and severe cuts in the social safety net.  All this is known, predictable, transparent–part of my argument for viewing Romney as preferable to Obama.  Clearly, Trotsky in popularized form is in the back of my mind.

By contrast, Obama is unassailable, enjoying the protective cloak of the state secrets doctrine (which, also as the National Security State, he invokes constantly), the liberal glossing on all policy matters, thanks to the extremely able spinmeisters Axelrod and Rhodes, and an adoring, submissive, uncritical base, in deep denial and for whatever reasons unwilling to examine the administration’s record.  That record confirms the long-term political, economic, and moral bankruptcy of the Democratic party, whose differentiating character setting it apart from the Republicans lies in the magnitude of skilled evasion and/or deception surrounding policies which themselves replicate the central elements in those of their opponents.

Republicans sincerely criticize Obama because they are too ignorant to recognize, in their rush to antigovernment rhetoric, that he takes the same position as they smoothed out to please a base at best composed of pretend-radicalism and, equally, to ward off criticism from those who desperately want to believe his earlier promises.  This comes down to political theater at its cruelest.

The list of actual betrayal is long and virtually covering his public policy without exception.  (A good start can be found in the critical essays inHopeless, a true icebreaker for the uninformed prepared to listen.)  Let me select several obvious examples.  1) Health care, in which Obama savaged the single-payer system, thus preparing the way for the same on the public option, meanwhile silencing, or rather, delegitimating all dissident voices, at the same time as exempting health insurers from antitrust prosecution and favoring Big Pharma; 2) Civil liberties, a good litmus test of democratic governance, in which Obama’s Department of Justice argued against granting habeas corpus rights to detainees, invoked the Espionage Act against whistleblowers, carried surveillance beyond that of previous administrations, with the National Security Agency one of the culprits practicing the black magic of eavesdropping, while renditions and “black holes” continue and even agencies like FDA spy on its employees; 3) militarism, from which foreign policy, including trade policy, cannot be excluded, in which the drone–as Obama’s signature weapon–terrorizes whole populations reeking destruction from the skies, naval power displayed from the South China Sea to the Mediterranean, a whole new generation of nuclear weapons in the pipeline (exempt from potential budgetary sequestration), a military budget itself second to none, and what appears to be a permanent state of war; 4) the omissions, which by their absence speak volumes about the purposes and policies of his administration, in which job creation and foreclosures have not been addressed, climate change, wholly disappeared, gun control, nonexistent, poverty never, never mentioned, and business and banking regulation the compounding of phoniness on phoniness, not unexpected considering Obama’s belief in deregulation and bringing in the Clinton-Rubin crowd of free marketeers.

How much more or worse damage can Romney and the Republicans do? They might fuss about same-sex marriage and contraception, while Obama, in his Pacific-first geopolitical vision and concrete strategy, wants to encircle China, and press for an economic agenda promoting further corporate-wealth concentration.

If Republicans come across as Taliban on cultural issues, Democrats almost surreptitiously advance the financialization of the total economy, with the consequent distortions introduced–loss of manufacturing, increasing wealth concentration, and capitalism’s Achilles heel, underconsumption.  Why Romney?  Because his transparency as a Neanderthal may, just may, bring people into the streets, while under Obama passivity and false consciousness appear almost irreversible.  I for one will stay home.  The lesser-of-two-evils argument is morally obtuse, and dangerous, the first, because it means complicity with policies ultimately destructive, the second, because it induces an undeserved self-righteousness which next time around would yield further compromise.  If the people are gulled and lulled into the acceptance of mock-democracy, courtesy of Goldman Sachs and waterboarding apologist Brennan, with Obama presiding over the bread-and-circuses routine, heaven help us.

Thursday, October 18, 2012

Currency wars & monetary policy

Here’s a great explanation of the currency was prevailing now between the US and China.

It’s great up until Rickards throws a 1 percent canard out at the end that tax cuts after WWII was what got us out of the Depression.  Note:


You just can’t trust a plutocrat anymore, not matter what his seeming political stripes.

Sunday, October 14, 2012

The extraction of America

A couple more references on the extraction of America by the 1 percent.  The financial elite have set America up to go broke so they can buy up the assets at steep discounts.  It’s the old pump and dump and buy back in strategy.

The stupidity of the American people in not being able to see through Mitt Romney’s pandering to the 1 percent is evidence that part of the extraction plan was dumbing the American people down virtually to “useless eater” status, perhaps in advance of a “regrettable” liquidation through deprivation of health care and poverty and abuse by perpetually lowered socioeconomic status.  General Petrov sounds the same themes as the Gamble scion in his video a couple of posts ago.  Note that Petrov also is careful to state his conspiracy theory is not about any one religious or ethnic group, i.e., the Jews, and I agree.  The international financial elite are multicultural, united in their greed and enabled in global expropriation by weakened national states the world around.

The Self-Destruction of the 1 Percent Chrystia Freeland, New York Times

Tuesday, October 9, 2012

‘Animal spirits’ update

Nothing on this web site should be construed as investment advice.  This is pure research and speculation.  You trade at your own risk, unlike the Wall Street banks, who also trade at your risk.

Confidence stalls when things stop getting better than what we’re used to.  Confidence fails when they become worse than what we’re used to.  Defined solely in terms of the unemployment rate, confidence now has a one percentage point cushion between current rate (7.8 percent) and adaptation level (~8.8 percent).  If the unemployment rate stabilizes and climbs a percentage point because the economy falls off some form of fiscal cliff, the actual rate will hit the adaptation level, which historically has almost always precipitated a failure of confidence and a negative jag in output and employment.  The forecast is below.  The remainder of the decade is likely to resemble the ‘Seventies (the 30 year inflation cycle was staggered a year by mini-depression and QE) as cost-push inflation rears its ugly head (see South Africa today) and reserves liquidity feeds into a wage price spiral.


If the American stock market follows the ‘Seventies pattern, there will be a steep bear market bottoming in about first half 2014, and then a “bull market” in which total return to shares is something less than the rate of inflation.

Inflation-adjusted relative price and total return of the S&P 500

Monday, October 8, 2012

One scion’s take on global domination

This is a trippy but entertaining, and when it comes to exposing the conspiracy for global domination, quite convincing.  All it takes to motivate the conspiracy is highly concentrated ownership of capital and implacable greed among its owners, and that seems self-evident to many today.  Basically libertarian with the simplism and categorical lack of faith in the ability of any government to do virtually anything right.

THRIVE: What On Earth Will It Take?
Visit for more information on THRIVE. THRIVE uses the Yekra player technology. See for more information.

Thursday, October 4, 2012

The signature of incipient depression

Historically, the signature of an oncoming depression consists of an unserviceable debt to GDP ratio and an aggregate demand choking level of income inequality (and wealth inequality).

The United States today resembles the US of 1929 more than that of 1941.  The warmongers inside the Beltway still salivate over the miraculous drop in income inequality that occurred in 1942 as America came together to fight the Axis.  They wish for another world war to propel America through the Fourth Turning into a new social cohesion.

Dubious proposition. 

I have published the supporting graphs before, but here they are:

The situation today is essentially as depicted in these graphs.

If the ruling class continues it manipulation of the tax system to its own advantage, with or without a Romney victory, given the broken, money-fouled state of our political system, I conclude that deeper depression will ensue, characterizing where we are as being similar to the 1930s, with positive growth, but as a relatively mild depression.

Some type of repeated systemic collapse looks more and more likely.

Wednesday, October 3, 2012

Don’t say "class warfare”…

Even if that is what has happened over the past 30 years.  Henry Blodget, who has been barred from the securities industry for life, produces a useful set of charts at

Here's What's Wrong With The Economy [CHARTS] 

But what’s he’s really saying is that the corporate gansta class that controls capital in this country has screwed labor royally.

Remember that Warren Buffet himself said (paraphrasing):  “Yes, there has been class warfare in this country for the past 30 years, and it’s my class that’s winning.”

The current shibboleth of the corporate gangsta class is “austerity.”

Solution to the debt problem

See American Dream Has Become a Myth – Stiglitz in Der Spiegel.

Given that we are in QEternity and ZIRP Into Perpetuity, and that the infrastructure of the US is crumbling, our schools are a mess, our teachers so abused that hardly anyone with half a brain would ever consider becoming one, and given the self-evident truth of Modern Monetary Theory that if you put slack to work in productive ways that exceed the cost of printing the money to do so, then it is obvious what Timmy and Ben should put their empty crania together to do--

Let the Treasury issue Zero Coupon Perpetuities!  Let the Fed buy them!

Problem solved!

Women pose for photos near a homeless man during New York Fashion Week this month.

Monday, October 1, 2012

Stagtaxflation—the tax increase you can bet on

The most likely tax hike—and the one that will not affect high income Americans, of course—will be the roll back of the Social Security payroll tax cut of two percentage points.  This tax break was economically justified in that it provided relief for “the 47 percent,” those that pay no federal “income” tax (the payroll tax is an income tax).  It was a bad idea politically, from one point of view, in that it provided a precedent for attacking the revenue stream supporting Social Security payments.  The Times article below indicates that most opposition came from conservatives.

In any event, the payroll tax cut will affect about 95 percent of American income earners.  Combine this with BLS-measured year-over-year inflation of 2.6 percent over the past 12 months, and you have a close to five percent hit on consumer purchasing power.  The consumer is not coming back until corporations start paying living wages.  See the rant by Henry Blodget, who has been barred from the securities industry, here.  It’s familiar material.


Payroll Tax Cut Is Unlikely to Survive Into Next Year


WASHINGTON — Regardless of who wins the presidential election in November or what compromises Congress strikes in the lame-duck session to keep the economy from automatic tax increases and spending cuts, 160 million American wage earners will probably see their tax bills jump after Jan. 1.

That is when the temporary payroll tax holiday ends. Its expiration means less income in families’ pocketbooks — the tax increase would be about $95 billion in 2013 alone — at a time when the economy is little better than it was when the White House reached a deal on the tax break last year.

Independent analysts say that the expiration of the tax cut could shave as much as a percentage point off economic output in 2013, and cost the economy as many as one million jobs. That is because the typical American family had $1,000 in additional income from the lower tax.

But there is still little desire to make an extension part of the negotiations that are under way to avert the huge tax increases and across-the-board spending cuts, known as the fiscal cliff, that will start in January without a deal. For example, without any action, the Bush-era tax cuts will expire and the military and other domestic spending programs will be reduced.

“This has to be a temporary tax cut,” said Timothy F. Geithner, the Treasury secretary, testifying before the Senate Budget Committee this year and voicing the view of many in the White House and on Capitol Hill. “I don’t see any reason to consider supporting its extension.”

The White House has not pushed for an extension. “We’ll evaluate the question of whether we need to extend it at the end of the year when we’re looking at a whole range of issues,” Jay Carney, the White House press secretary, told reporters last month.

The original point of the payroll tax holiday was to stimulate consumer spending and aid middle-income households. But now Congress needs the money as it struggles with vast deficits and believes the economy can withstand the expiration.

Many Republicans vehemently opposed its passage last year, as it would divert money from the Social Security program. Many Democrats fervently supported it last year but show no such enthusiasm now. Nancy Pelosi of California, the top House Democrat, has told reporters she thinks it should expire.

Support is lacking for two main reasons. First, both Democrats and Republicans would rather focus on the broader political and economic issue of the fate of the Bush-era income tax cuts. These cuts, too, were initially meant to be temporary, but are now deeply entrenched in the tax code and central to the budget battle.

Second, though the economy has not become significantly stronger over the past year and the tax increases in addition to spending cuts coming next year could push the country into a recession, independent economists say that the economy could shoulder the payroll tax increase without undue harm.

Moody’s Analytics, for instance, estimates that expiration of the payroll tax holiday would shave 0.6 percentage point off economic growth, adjusted for inflation, in 2013 — and that the economy could safely stomach government spending cuts and tax increases totaling up to 1.5 percentage points of economic output.

Still, expiration of the payroll tax cut will increase the taxes of millions of middle-class families.

The fragile state of the recovery and the frustratingly slow growth of the economy have heightened the stakes for the end-of-year negotiations. Economists estimate that if Congress fails to forestall or unwind the spending cuts and tax increases due to take effect next year, the hit could send country back into a recession.

The Federal Reserve currently estimates that the economy will grow 2.5 to 3 percent next year, and that the unemployment rate will be 7.6 to 7.9 percent, still painfully high.

The uncertainty in the United States is “currently a threat,” said Christine Lagarde, the managing director of the International Monetary Fund, pressing Congress last week to avoid the cliff. “It’s not a threat just for the United States of America. It’s a threat for the global economy.”

Some economists have pushed for an extension of the payroll tax holiday to help support the recovery — or for its replacement with other measures to help the millions of low-income working families whose taxes will rise when it expires.

The Economic Policy Institute, a liberal Washington-based research group, for instance, has said that the payroll tax cut has a stronger stimulative effect on the economy than many other tax cuts because the working households that receive it tend to spend the money rather than save it. Thus, it estimates that the tax cut’s expiration could erase 0.9 percent of economic output and put up to a million jobs at risk.

It recommends replacing the payroll tax cut with infrastructure spending or fiscal aid to states, as a form of support for the recovery in the short term that would not have harmful long-term budget effects.

Some conservative economists have pressed for its extension as well, arguing that no Americans should have their taxes go up next year.

“Obama and Congress both need to hear this alarm clock, wake up, and get busy avoiding a payroll tax hike insult to the middle class’s injuries of stagnant wages and high unemployment,” wrote J. D. Foster, a fiscal specialist at the right-of-center Heritage Foundation.

The payroll tax holiday this year has reduced workers’ tax on wages up to $110,100 to 4.2 percent from 6.2 percent. In 2012 that translated into a $700 tax cut for a person making $35,000 a year and a $2,202 tax cut for workers making $110,100 and up.