Ray Hendon’s Economics Blog

Now is the time

This article is by Robert Reich, the former Secretary of Labor under Bill Clinton, and currently professor of economics at the University of California, Berkley.

Oct 5, 2009

In his Saturday radio address, President Obama acknowledged the White House is exploring “additional options to promote job creation.” It’s about time. This is the worst job market in seventy years — including the longest duration of steep job losses.

If anyone had any doubt that something far more dramatic must be done, listen to former Federal Reserve Chairman Alan Greenspan. He warned Sunday against further stimulus because “we are in a recovery, and I think it would be a mistake to say the September numbers alter that significantly.” Greenspan has turned into an inverse soothsayer. After his cataclysmic error about where the economy was headed before the meltdown, his views about the future should be carefully noted as being the exact opposite of what’s likely to be in store.

The economy may be in a technical recovery but this is not a real recovery and the “green shoots” or “positive signs” that Wall Street cheerleaders love to shout about are phantoms of their ever-optimistic imaginations. The stimulus is working but it is far from adequate. Before the stimulus, we were losing more than 500,000 jobs a month. Now that 40 percent of the stimulus has been spent, we are losing more than 250,000 jobs a month.

What to do? With the debt ceiling approaching and the gravitational pull of the 2010 elections increasing, the White House can’t go back to Congress with a formal bill to enlarge the stimulus package. Four simpler moves would be to:

(1) Use existing authority under both the stimulus package enacted earlier this year and the nefarious TARP bailout fund — extending and combining them into a fund to make up for state and local cuts in public school budgets, childrens’ health, public health (we need workers to administer swine flu vaccine) and public transportation. Instead of bailing out banks and giant automakers, we should switch to bailing out public services that average people need.

(2) Propose a one-year payroll tax holiday on the first $20,000 of income. Republicans as well as Blue Dog Dems could go along with this, and it would be a highly progressive tax cut since 80 percent of Americans pay more in payroll taxes than they do in income taxes.

(3) Give small businesses a “new jobs tax credit” for every net new job created over the next year. Granted, under normal circumstances this sort of jobs credit doesn’t have much effect, and it’s difficult to separate hires that would have happened anyway from net new ones. But we’re not in normal circumstances; small businesses, which are responsible for most new jobs, still aren’t hiring. They need a boost.

(4) Dramatically expand the Small Business Administration’s lending programs and have the Fed buy up the SBA’s debt. Big banks are not lending to small businesses. TARP has been an utter failure in this regard. The SBA and the Fed should circumvent them and help small businesses get the capital they need, so they can start hiring again.

The politics of these four steps aren’t difficult. It would be hard to get a new stimulus package through Congress, but no member who’s up for reelection next year when unemployment is likely to be in double digits wants to be accused by rivals of voting against steps to help small businesses, public schools, childrens’ health, and average working people who need a tax cut.

The labor department estimates that July layoffs were the least since August of last year.  The chart below, provided by the New York Times, provides a clear picture of how the economy is slowly pulling itself out of the worst recession in over fifty years.

Certainly the rate of fall in the number of layoffs has not been smooth—it never is.  But the trend is clear.  Earlier projection of a bottoming in the third or forth quarter of this year are still looking accurate.

Fewer layoffs also resulted in a slight drop in the rate of unemployment.  The chart below shows this:

It should be pointed out that much of the drop in the rate of unemployment was a result of 400,000 workers leaving the labor market.  This “discourage worker” effect is well known in economic circles.  When job get harder to find, many workers become so discouraged that they cease actively looking for work.  It happens in every recession, and the effects are reversed when the labor market improves with recovery.

Another effect of discouraged workers is that while it  cushions the rate of unemployment during the downturn, it is a drag on unemployment rates during the recovery.  As jobs become easier to find, many of those who left the labor market because of their discouragement, re-enter the market when things get better.  A higher participation rate of the labor force thus causes the unemployment rate to rise, or fall less, when things get better.

All in all, this is good news.  The economy does appear to be bottoming.  I guess that by October on November, the fall in GDP will reach zero, and there should be some recovery in December or January of 2010.

One of the casualties of the world financial crash of 2008 was the carry trade. For the investor to make money on the interest rate differential between two currencies, it is imperative that the currency prices remain stable. Many of the emerging market currencies fell almost 50% from the last quarter of last year. This forced carry traders to liquidate their currency exposures. The carry trade went into a tailspin, and since then it’s been a waiting game for stability to return to world trade and to currency prices.

The picture has changed over the last few months, however, as the graphs below show. The first chart shows prices of the Mexican peso ETF of Rydex Investments (FXM) over the last year. The prices are the dollar value of 1000 pesos. From its peak in August of last year, the peso fell over 35% to its low in early March of this year, at which time it began something of a comeback.

Mexican Peso/Dollar 1-Year Prices

Almost all of the emerging market currencies have made similar recoveries from their lows, and they continue to improve as the world’s economies head to recovery–we hope!

Even the developed currencies like the Euro and pound sterling have taken their licks. The pound fell about 30% over the same period.

£/Dollar (FXB) 1-Year

There is another casualty of the financial carnage of last year. Prior to August of last year, ETF and ETN providers were flooding the SEC with proposals for foreign currency exchange traded products. I was running out of disk space trying to keep up with all the new filings. The collapse of the currency markets brought all these plans to a virtual standstill, and there were no new offerings for the rest of 2008.

Now, however, things have changed enough for one of the providers, WisdomTree, to follow through with their plans. On Wednesday, May 6, they brought the WisdomTree Dreyfus Emerging Currency Income Fund (CEW) to market.

This new EM bundle includes 11 currencies, ranged around the world from Central Europe, Africa, Latin America and Asia. WisdomTree chose to put their new ETF under the Investment Act of 1940. This means, among other things, investors will have daily transparency of holdings and prices for their new product.

Initial sales look robust, with an average daily volume over 100,000 shares. It carries an estimated interest yield of about 4.6%.

This is a most interesting product. The inclusion of 11 currencies provides a degree of diversification not provided by single-currency ETFs. The list includes: Turkish lira, Brazilian real, South African rand, Polish zloty, South Korean won, Chilean Peso, Mexican peso, Israel shekel, Indian rupee, Taiwanese dollar, and the Chinese yuan.

I like the geographic diversity: it covers all the continents except Australia. I also like the equal weighting scheme they use to determine how much of each currency to hold. The fund will be rebalanced quarterly, and WisdomTree will remove a currency if, in their assessment, the political or economic environment becomes hostile to an orderly currency market.

This new ETF is similar to an older currency product, the Global Emerging Markets Strategy ETN, (JEM). I covered this ETN when it was first introduced in my June 26, 2008, article, Currency Bundles Pegged to the Dollar. JEM has fifteen currencies represented in their bundle. Ten of the currencies are the same as CEW, but JEM includes Russia rather than China, and it includes currencies in five countries not covered by the WisdomTree product: Columbian peso, Philippine Islands peso, Argentine peso, the Indonesia rupiah, and the Hungarian forint.

The recent price history of JEM is shown below. The share price fell from about $51 in July to its low of about $38 in February of this year, a 25% fall.

JEM was introduced at a decidedly unfortunate time, with political and financial instability just beginning in some of its target currencies. The results show in the relatively few assets this ETN has gathered since its inception (Bloomberg lists $2.98 million in assets in their latest data).

Yields on this bundle have been quite good, however, with the last dividend yielding about 9% annualized, but this return has been swamped by falling prices of some of the more unstable currencies.

I prefer the bundle offered by CEW, because some of the more volatile currencies have been omitted. For example, it does not have Russia, Hungary, Argentina, or the Philippines in its mix. Plus, the inclusion of China, which follows a relatively tight peg to the dollar, will help stabilize price fluctuations.

I also prefer the ETF form to the ETN. With last year’s carnage of supposedly unsinkable financial giants, I wonder if the ETN has much of a future.

WisdomTree’s website goes into detail about the expected interest earnings and the standard deviation of the returns of each country.

Although listed as an “income” fund, it will not behave like a normal income fund that is denominated in U.S. dollars. The dividend comes from interest earnings on short term cash instruments in each of the markets they include in their basket. Currency price fluctuations can eat up the interest earnings in a hurry.

Investors must also be aware that by including 11 countries in the mix does not necessarily completely diversify the risks of systemic failure. Emerging Market currencies are prone to move in the same direction during major disturbances, as they recently proved, so the normal safety in numbers is trumped by the herding instincts of investors.

WisdomTree properly recommends keeping currency investing to a 10% maximum of your total portfolio’s value. Part of their case for holding currencies is to moderate the downside risks of portfolios dominated by equities and fixed income holdings. Currencies are remarkably uncorrelated with equity and bond prices, so there is an advantage of lowering total portfolio volatility when currencies are included in the mix. In this case, adding a volatile currency may actually lower overall portfolio volatility because of the counter-cyclical properties of currency holdings.

Depending on your own preferences for risks, and whether you want to hedge your emerging markets equities against possible dollar depreciation, this new ETF may provide your portfolio with some important benefits. I welcome this new offering as a potential tool in balancing the risks when taking on emerging market equity investments. I hope that as the market recovers, some of the other filings of 2008 will see the light of day. Currency investing is not for everyone, but for those who can use it, a wider set of options is welcome.

From Bloomberg today, two bright spots on the economic landscape:

• The Conference Board’s sentiment index climbed to 39.2, the highest level since November, from 26.9 in March, the New York- based research group said today. The gain was the biggest since November 2005.
• Home prices stabilize: A report from S&P/Case-Shiller today showed that the slide in home prices in 20 U.S. markets slowed in February for the first time since January 2007. Prices fell 18.6 percent in February from the same month last year after dropping 19 percent the previous month.

These are welcome developments in a financial and economic world beset with bad news. These data emphasize that the dragon of recession can be slain. The programs put in place in the U.S. are beginning to take effect.

Further analysis of the Conference Board sentiment index is also illuminating. The Conference Board’s measure of present conditions rose to 23.7 from 21.9 the prior month. The gauge of expectations for the next six months surged to 49.5, the highest level since the collapse of Lehman Brothers Holdings Inc. in September of last year.

This jump in optimism is encouraging, because if and when the economic recovery begins, it must be supported by strong consumer spending. But, if consumers are pessimistic about the future, their wallets are likely to remain closed. The hunker-down syndrome is strong when the outlook is sour.

As for housing prices, recent reports show government efforts to support housing and revive lending may be starting to work. Combined purchases of new and existing houses have hovered around a 5 million annual pace since November, and sales at retailers improved in the first two months of the year.

Add to these new developments the fact that the American and many foreign equity markets are on a fairly sustained up-trend, and you get more signals that the worst may be over, and that investors and consumers are loosening their retrenchment. It looks good for an actual recovery some time this year.

The 25.7 percent drop in exports has prompted The World Bank to cut its estimate of China’s growth in 2009 from 7.5 percent to 6.5 percent. The cut on Wednesday was the second time in the last four months the World Bank has reduced its estimate of China’s growth. The estimate before November was 9.2 percent , but was reduced in that month to 7.5 percent The current estimate of 6.5 percent is the weakest since 1990, when the economy expanded by only 3.8 percent.

The fall in exports has continued in China over the last six months, as the world wide recession extends its reach. The report did not foresee a significant recovery for China until the world economy recovers, and most economists do not see this occurring until the last quarter of 2009 or even later.

Although Mr. Wen Jiabao, China’s Premier, said only last week that China would reach its 8 percent goal for growth this year, he is almost the only one who is holding to that outlook. Most private economists see a more dismal picture for China for the rest of this year, with their estimates ranging from 5 percent on the low end to 8 percent of Mr. Wen.

The World Bank did not factor into their estimate that Mr. Wen has stated that if their 8 percent target for growth begins to looks uncertain, he is prepared to increase stimulus spending enough to bring it up to target.  It is likely that this possibility will be discussed at the G-20 meeting in London on April 2nd, as many of the members have endorsed a coordinated effort of stimulus spending in order to increase world trade.

The Chinese stock market has reflected the gloomier outlook for their economy. The chart below shows the exchange traded fund, FXI, which is Barclays’ Capital ETF that follows the FTSE/Xinhua China 25 index. This index has dropped 50 percent over the last year.

The index does appear to have stabilized in the $20 to $30 range since last November, however. It closed at $27.48 on Tuesday.

What are the signs of the recession reaching bottom?  There are a number of indicators that may be of some help.  For the stock market, which usually turns up a quarter or two before the economy follows, the signs are weak, but at least in the right direction:  First, an upturn in the total stock index would be a good sign.  The chart below is a three-month tracking of the Dow Jones Industrial Average.

But is the slight up-tick for the last week a telling indicator?  Probably not, since it could just as easily turn down next week.  One week does not make a trend.

Another stock market measure is the price/earning ratio of the market.  The market index value divided by the aggregate earnings of all the components is an important indicator of the value of equity holdings.  The chart below shows a long, historical trend of this measure:

P/E Ratios for U.S. Equities

The P/E ratio in earlier recessions was lower than it is now, but this indicates that the bottom may at least be near.  The current level of 13 is below the long term average of around 15, but it was below 10 in both the 1982 and 1930s recession.

One of the reasons business earnings (half of the P/E ratio) are so low is the inability of businesses to raise prices.  We are currently in a period of deflation, which is not promising for a strong business environment.  However, there are a couple of up-indicators for a return of rising prices: the prices of copper, corporate bonds and inflation-protected Treasury securities are higher today than they were in November.

For an Associated Press Report on the possibility of bottoming, follow the link:http://news.yahoo.com/s/ap/20090314/ap_on_bi_ge/wall_street_finding_the_bottom

The prices of homes is another indicator that many consider important to a recovery.  The graph below shows the trend in this important variable:

Prices of Homes

Home prices have come down considerably from their previous high, but they still have a way to go before reaching the long term average.  Also, home prices vary considerably within different markets.  Some of the hardest-hit regions (Las Vegas, Phoenix, Miami) have already lost about 50% of their previous high.

The one variable yet to be considered is the broken banking system that afflicts most of the developed and emerging markets world.  And on this front, there is not much encouraging news.  It is impossible to foresee an economic recovery without a healthy banking system, and that is not present just now.  The meeting of finance ministers in London over the weekend indicates they want to do something about it, but the language they chose in their press release was to “do everything possible” to correct the problem.  This is not language that instills confidence in the investing community.  It will be up to the heads of state, who meet on April 2nd to address this issue more fully.

The only encouraging statement coming out of the meeting of the finance ministers came from U.S. Treasury Secretary, Timothy Geithner, who indicated he would flesh out his proposal to strengthen American banks, “soon.”

Two other items relevant to a recovery are consumer spending, which is still falling, and the huge amount of money market and cash holdings by investors and banks.  Consumer spending needed to fall from its near 100% level just a few month ago.  An economy needs to have savers, and this country lost theirs, at least in the aggregate, for many of the last few years.  There is a recovery of savings underway, but it has a bit further to fall before stabilizing at the long-term average of 93%,

Cash holdings of investors in money market funds and banks are exceptionally high, which indicates to me that there is plenty of money poised to re-enter the equities market, once confidence is restored.  We can only hope it is soon.  Probably by the middle of April, we should see some signs of recovery of consumer confidence.  The G-20 meeting will have concluded, with some expected gains from an agreement to strengthen the IMF lending to emerging markets, better international banking regulation and some coordination of stimulus spending plans.

Plus, there are other signs that the rate of getting worse is slowing down. Unemployment figures for March will help clarify this issue, and they should be out in early April.  If we get some encouraging signs by the end of April, then we might expect a bottoming by the summer or fall quarter.

UPdate 3/16:  Chairman of the Federal Reserve, Ben Bernanke, sees end of recession in 2009.

From NYT: “We’ll see the recession coming to an end probably this year.”

With those words, Federal Reserve Chairman Ben S. Bernanke staked a marker on what he believes will be the end of the malaise that has descended upon the United States economy. And, he said on a “60 Minutes” interview that ran Sunday evening, the country will begin to recover next year — “and it will pick up steam over time.”

To watch a video of the interview on 60 minutes, follow the links below.

• 
  The Chairman Part 1 (13:23)
• 
  The Chairman Part 2 (13:13)
• 
  Behind The Scenes #1 (0:57)

To read the complete transcript of Mr. Bernanke’s inverview Follow this link to the CBS site.

In a move that sets the American tone for the meeting this weekend in London, President Obama called for coordination of increased stimulus spending by the G-20 members and for increased international cooperation in regulating the world’s financial institutions.  Most agree that a new world order is needed, but there is not agreement as to what should be emphasized first.

In recent past statements, Mr. Obama had downplayed America’s role  in working on international bank regulations.  His Secretary of the Treasury, Mr. Timothy Geithner, has stated that America would not have a fully fleshed-out regulatory package in time for the London meeting.  It is not clear from the statement whether the new statement of the President means that this problem has been overcome.  But, it is reassuring that he is not backing away from this important agenda item.

There is not a unanimity among world leaders about the most important items on the G-20 agenda.  Angela Merkel, Germany’s Chancellor, has not agreed that a major stimulus program is necessary for the Euroland economies.  Her current proposal of about $63 billion in stimulus spending is dwarfed by the U.S. efforts of almost $800 billion recently passed by Congress and by China’s $500 billion that is already being spent.  Japan is more in the German camp, having committed to stimulus spending, but not being willing to take on much more debt to bring it off.  The U.K. is more in the American and Chinese camps.

Recent downturns in German exports, however, may move the German Chancellor off the dime, but so far, she thinks the major focus of the G-20 meeting should be bank regulation rather than deficit spending.  Japan holds a similar position.

The International Monetary Fund has called on the trading nations of the world to commit to stimulus spending of 2% of GDP for 2009 and 2010, far above the current German efforts.  Mr. Geithner, in a press conference later in the day, endorsed this goal, and he endorsed the IMF goal of funding an additional $500 billion in funding for their efforts to stabilize the weaker currencies of Asian and Central European economies.

In an earlier meeting between Mr. Obama with British Prime Minister, Mr. Gordon Brown, the Prime Minister emphasized an agenda for the G-20 that would completely restructure the original Bretton Woods agreement.  This would mean a new structure for the IMF, the World Bank and internationalizing banking regulation.  Mr. Obama did not specifically endorse these proposals at the meeting, but he may have come along some since that time.

The banks of the world are not enthusiastic about these new regulatory proposals.  Their trade association has already met and drafted their own version of what would pass muster for them.  You can guess as to the nature of their proposal.

Others think that Mr. Brown has set too ambitious an agenda for the meeting.  He, it is said, needs to be seen as a heroic figure at the meeting, given his shaky status in his own country.

There is little doubt that the world needs a new Bretton Woods arrangement.  Too much has changed since the 1944 agreement that reestablish mechanisms that promoted world trade.  Before WWI, the British pound sterling had been used as the major trading currency in the world, but WWI and WWII saw the end of the preeminence of the pound, and Bretton Woods replaced it with the U.S. dollar.

A new agreement would not likely replace the dollar in its role as the major reserve currency in the world.  There are simply no suitable currencies that have the heft to take its place.  But the IMF and World Bank, just to name two, need to be restructured, allowing greater participation by China, India and Brazil, who are becoming important players in world trade.  And, some mechanism needs to be reinforced to come to the rescue of the battered currencies of Europe’s emerging markets.  Adding a complete restructuring of the regulatory environment for the world’s banks and coordinating stimulus spending to the agenda is a long reach.

This is a hugely important meeting, and its success or failure to rise to the occasion is still up in the air. My hope is that on areas where there is still disagreement, they will agree to meet again, perhaps later in the year, to reach a final settlement.  Mr. Obama has not been if office long enough to be fully prepared for this giant a task.

Update 03/14/09

A report from the Wall Street Journal on Saturday concluded that there will not be a unified agreement from G-20 members to call for more stimulus spending.  (Click here for full article.)  Germany and France argued that their unemployment benefits and other social safety net made stimulus spending less necessary.  There was agreement to increase funding for the IMF, but the amount will be left to a later decision, and there was agreement on licensing credit rating agencies.  There will still be an emphasis by the U.S. to coordinate stimulus spending, however.

For Bloomberg’s Saturday update click here.  Their emphasis is on solving the banking asset problem–the difficulties of reaching an agreement and the difficulty of the problem itself.

Two significant signs of the worsening global slowdown come from China and Germany–two of the world’s largest exporting countries.

Consumer prices in China fell 1.6 percent lower last month than the same month in 2008. This was the first decline since December 2002. February’s result represented a fast drop from an inflation rate of 8.7 percent in February of last year, when rising prices were a top priority for the Chinese government.

Producer prices are falling even faster. Oil and commodity prices contributed to the drop, but also by a glut of factory capacity and falling of demand from both exporters and Chinese consumers. Producer prices were 4.5 percent lower last month than a year earlier, after having shown annual increases of as much as 10 percent as recently as last summer.

Hong Kong business leaders also warned that their mainland factories are not running full capacity, but only a few have actually closed down. “They may be operating at one-third or half of production” capacity, said Clement Chen, the chairman of the Federation of Hong Kong Industries, while adding that, “We haven’t seen a large number of closures.”

China’s problems, while not nearly as bad as America or Europe, are beginning to take a toll. China’s growth rate has already been declared to be about 6%, substantially below the near 10 percent rate of the last decade.

On the positive side, the stimulus spending package is already showing up in investment totals, as China is pumping about $500 billion into its economy. No one, at least yet, has predicted their economy will turn negative for 2009.

These developments in China, and reports that Germany is now facing a worsening economy, will probably contribute to the sense in the upcoming G-20 meeting in London that there needs to be a world-wide coordination of stimulus spending.  Mr. Obama has already put this at the top of his agenda, and Chinese officials have voiced similar sentiments.

Only Chancellor Angela Merkle of Germany has not seen the need for a large stimulus plan.  Perhaps the 38 percent plunge in January export orders,  the biggest drop since data for a reunified Germany started in 1991, will get her attention. “The annual slump is absolutely catastrophic,” said Alexander Koch, an economist at UniCredit MIB in Munich. “The extent of declines is terrifying.”

From Bloomberg, “Export factory orders for Germany sank 11.4 percent in January from December, according to today’s report, with orders from outside the 16-nation euro region dropping 18.2 percent. Domestic demand dropped 4.3 percent in the month.

Pan-European Slump

Production is slumping across Europe. In the U.K., factory output dropped 6.4 percent in the three months through January, the most in at least four decades. French industrial production declined 3.1 percent in the month, five times the pace predicted by economists.

The German economy, Europe’s largest, will shrink 2.5 percent this year, the International Monetary Fund said on Jan. 22, three times as much as previously forecast. The European Central Bank expects the euro-region economy to contract about 2.7 percent in 2009.”

President Obama’s budget, submitted this week to Congress, is stirring things up, as should be expected.  Taking on the deepening recession with a near-trillion dollars stimulus plan, and keeping to his campaign promises to reform health care, energy production,  combat global warming, and increasing education spending, his $3.6 trillion proposal is ambitious and startling.

The battle lines are already forming.  Republicans, as expected, will attack all elements of it, hurling labels like “socialism,” “unAmerican,” “Big Government,” etc.  Even some democrats are unhappy with cutting farm subsidies to some of their big contributors–those who take in over a half a million dollars a year.

Mr. Obama is fighting back, however.  His website has a video presentation of his weekly “radio” address in which he lays out his defense. (Click here to see it)

The vested interests, such as the medical and insurance industries, do not like it.  So we might expect a repeat of the advertising blitz that doomed the Clinton proposal in his first year in office.  This time, though, the Obama Administration knows what to expect, so I would expect orchestrated counterattacks to shore up the defenses.

There is no way to overstate the sea-change this budget represents.  It abandons the Reagan approach that defined government as the problem, and reinstates the Roosevelt approach that placed the federal government front and center of shaping American welfare.  It will be interesting to see how this looming battle plays out.  Can Mr. Obama use his popular mandate to force through this kind of change?  Stay tuned for a round-by-round accounting.

Update on Health Care initiative: (3/5/09)

Although Mrs. Hillary Rodham Clinton has not directly participated in any of the White House’s planning sessions on health care, her presence is felt in Mr. Obama’s efforts to pass his own health care reform proposals. The work she did 15 years ago, although ultimately unsuccessful, is being used as a model of what and what not to do for the current efforts.

First, the Obama plan is not being drafted in secret, and then handed over to Congress to pass. Mr. Obama’s plan is broadly defined, and Congress will be allowed to shape the details. Secondly, Mr. Obama is introducing his plan only six weeks into his Presidency. Mr. Clinton waited for 11 months to make his move. The delay, according to some, was one of the major factors in its defeat.

Another factor was the focus of the new plan, which stresses cost control, and it allows everyone to keep their current coverage if they want to. One of the things about the Clinton plan that was attacked was the fear that everyone was going to be forced into one type of access to health care.

Mr. Obama has also included at least partial funding ($635 billion) for his proposal in the first budget submitted to Congress. Mr. Clinton did not do this, choosing to focus initially on balancing the budget, which did not allow any room for health care spending. Now, however, the need for health care reform is widely seen as a necessary step to control the costs of Medicare and other federal spending that touches on health care. This means that the proposals of Mr. Obama are facing far less resistance from Congress and, oddly enough, even from the health care industry than the Clinton plan when it was introduced.

These differences may be critical in gaining passage of this most important piece of legislation. Although Mrs. Clinton may be engaged in diplomacy in foreign lands today, her efforts of a decade and a half ago are helping the new President do what he promised to do about bringing important changes to Washington. She may not get the credit for the success, and certainly Mr. Obama deserves all he will get for getting the job done, but Mrs. Clinton knows that her past efforts are providing some broad shoulders for the current Administration to stand on.