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Home Sales Improve in January But Drag on Market Remains Print
Written by Dean Baker   
Tuesday, 28 February 2012 11:00

The pending home sales index for January had the highest reading since April of 2010, when the first-time homebuyers tax credit expired. Sales in the South were especially strong, up by more than 10 percent from year-ago levels. New and existing home sales also have shown a similar upward trend, and inventories of both have fallen to a more normal range of close to six months of sales. At the trough of the downturn, the range was near 10 months of sales.

But these positive signs must be viewed with some caution. Monthly data are always erratic, especially in the winter months when weather can be a very important factor. In the case of this winter, an unusually mild January likely boosted sales in the Midwest and Northeast. More importantly, though, the sources of long-term drag on the housing market remain. Despite some improvement in the job market and an increasing willingness by lenders to allow modifications and/or refinancing, we are still likely to see more than 900,000 foreclosures in both 2012 and 2013.

For a more in-depth analysis, see the latest Housing Market Monitor.

Quick Thoughts on Modern Monetary Theory Print
Written by Dean Baker   
Saturday, 25 February 2012 13:47

Since there were many thoughtful comments on my earlier post, it seemed worth saying a bit more by way of response. As I noted at the onset, I did not see a difference between MMT and the Keynes that I first studied more than 30 years ago. I guess I still don’t see the difference.

In my prior post I noted that there were three channels to raise the economy back towards its potential:

  1. Government spending and tax cuts;
  2. Expansionary monetary policy; and
  3. Devaluing the dollar to increase net exports.

I should also add a fourth channel that can move the economy to full employment by reducing the average workweek or work year: work sharing.

As best I can tell, the MMT folks would have us only use the first channel and seem to disparage the other three routes to raising employment levels. I will briefly argue the merits of the other three channels and explain why I do not think reliance exclusively on the first channel is the best policy.

The Monetary Policy Channel

Several comments on my earlier post argued that monetary policy alone could not be counted on to get the economy back to full employment. This is true, but of course not what I was arguing.

I was making the case that the Fed can do more to boost the economy, even with short-term rates near zero. It could target a longer term rate, for example committing itself to push the 5-year Treasury rate to 1.0 percent or the 10-year Treasury rate to 1.5 percent.

This would boost the economy in several ways. First, investment is relatively unresponsive to interest rates, but it is not altogether unresponsive. In other words, with sharply lower interest rates, we should expect to see some additional private sector investment.

We should also see money freed up from mortgage refinancing. This amounts to a shift of income flows from creditors to debtors. That should lead to some additional consumption under the assumption that the propensity to consume for people with mortgages is somewhat greater than the propensity to consume among people who own mortgages or mortgage backed securities.  (Many people have over-estimated this effect, but it certainly is not zero. If we can get $4 trillion in mortgages refinanced at interest rates that average 1.5 percentage points less than their prior mortgage, it would reduce annual payments by $60 billion. If we assume that one third of this translates into additional consumption, it amounts to $20 billion a year in added demand. )



Labor Market Policy Research Reports, Feb. 20 – 24, 2012 Print
Written by Matthew Sedlar   
Friday, 24 February 2012 15:00

New reports were released this week by the Center for Economic and Policy Research, Demos and the Economic Policy Institute.

Center for Economic and Policy Research

Health-Insurance Coverage for Low-Wage Workers, 1979-2010 and Beyond
John Schmitt


Putting Vermont Money Back to Work for Vermont: Introducing the Vermont Partnership Bank

Economic Policy Institute

A Decade of Declines in Employer-Sponsored Health Insurance Coverage
Elise Gould

It's So Hard to Get Good Help Print
Written by Dean Baker   
Wednesday, 22 February 2012 13:29

There is a growing chorus of sophisticated types telling the country that we could have millions more jobs in manufacturing, if only we had qualified workers. This claim has the interesting feature that it places responsibility for the lack of jobs on workers, not on the people who get paid to manage the economy (e.g. the Fed, Congress, the White House).

As they say on Wall Street, talk is cheap. It is easy for an employer to claim that he/she would hire lots of people if only he could find workers with the right skills. However economists claim that we look at what people do, not what they say.

If it really is the case that employers have job openings, but can't find workers with the necessary skills, then we should be able to find evidence for this fact. The first piece of evidence that we might expect to find is a surge in job openings. In other words, if manufacturers are unable to find workers with the necessary skills, then there should be a lot of vacant positions.

Well, the good people at the Bureau of Labor Statistics (BLS) keep data on job openings in manufacturing.

Job Openings in Manufacturing
(click for larger version)

Manu-jobs Source: BLS.

The chart does show a recovery in the number of job openings, but we are still just getting back to the level of the middle of 2007. We are still far below the peak of the last business cycle and down by close to 40 percent from the January 2000 level, the first month in which the survey was used.



Charles Murray, Trade Unionist Print
Written by Shawn Fremstad   
Wednesday, 22 February 2012 12:40

I've only read the prologue and first chapter of Charles Murray's new book on growing class inequality. (That's all that I can download for free on my e-reader—I'm looking forward to reading the rest when I can borrow it from my local socialist bibliothèque, err, I mean, the D.C. public library.) So far, I've found two statements in Murray's prologue particularly interesting.

First, Murray correctly notes that income poverty was roughly cut in half between 1949 and 1963, going from 41 percent to just under 20 percent, and that this was a phenomenal achievement. Because the official poverty series published by the federal government starts in 1959, the decline in poverty in the 1950s doesn't get as much attention as it should, including from anti-poverty researchers and advocates. (Income poverty, of course, continued to decline for 10 years after 1963. The overall decline between 1949 and 1973 was about 73 percent. As I've discussed in a chapter in Half in Ten's recent report on poverty, over this entire period, income poverty trends basically tracked rising real median incomes and sustained rates of low unemployment. As the political center of gravity shifted to the right in the Carter-Reagan years, positive trends in both income poverty and real median incomes slowed and stalled out.)

Second, Murray argues that what he calls the founding "American project" was about "demonstrating that human beings can be left free as individuals and families to live their lives as they see fit, coming together voluntarily to solve their joint problems."



Les Enfants Français are More Upwardly Mobile than American Kids Print
Written by Shawn Fremstad   
Tuesday, 21 February 2012 10:00

In an otherwise very good New York Times Sunday Review piece, Sandra Aamodt and Sam Wang argue that: "French children also are tracked into different academic paths by age 12, a practice that reinforces the influence of parental socioeconomic status on educational and career outcomes, reducing social mobility." Whether or not their point about tracking is correct, the implication here that children in France have less social mobility than those in the United States is not.

As the figure below—from researcher Miles Corak—shows, France actually has more intergenerational mobility than the United States. 


“Intergenerational elasticity in earnings”—the y axis on the chart—is the mobility statistic. It shows the percentage difference in earnings in the child’s generation associated with the percentage difference in the parental generation. So, in the United States, an intergenerational elasticity in earnings of roughly .5 tells us that if one father makes 100% more than another then the son of the high-income father will, as an adult, earn 50% more than the son of the relatively lower-income father. France's elasticity of roughly .4 shows that a 100% difference between the fathers would only lead to a 40% difference between the sons.

In short, France has more mobility. While it still may be the case that there would be even more mobility in France if it weren't for the presence of distinct vocational and academic tracks at the secondary level (and less mobilty in the United States if we adopted this approach), I don't know that the evidence is clear on this front. Some research suggests, for example, that vocational tracks may increase mobility by "reducing the likelihood of unemployment and of employment in the least desirable of jobs." 

Labor Market Policy Research Reports, Feb. 13 – 17, 2012 Print
Written by Marie-Eve Augier   
Friday, 17 February 2012 14:20

New reports were released this week by Center for American Progress, Center on Budget and Policy Priorities, Economic Policy Institute and Institute for Women's Policy Research

Center for American Progress

Meeting the Infrastructure Imperative
Donna Cooper

Center on Budget and Policy Priorities

Romney Budget Proposals Would Require Massive Cuts in Medicare, Medicaid, and Other Nondefense Spending
Richard Kogan and Paul N. Van de Water

Economic Policy Institute

No Relief in 2012 from High Unemployment for African Americans and Latinos
Algernon Austin

Institute for Women's Policy Research

Tipped Over the Edge: Gender Inequity in the Restaurant Industry

AEI Touts the End of the Deficit Problem Print
Written by Dean Baker   
Friday, 17 February 2012 11:39

Okay, they didn't do it in exactly those words, but that is the implication of a blog post by J.D. Keinke at the American Enterprise Institute. Keinke notes the sharp reduction in the growth rate of annual health care expenditures, with spending growth the last two years coming in at under 4.0 percent.

Keinke takes this as evidence that the health care system has fixed itself and that the country no longer suffers from out-of-control health care costs. We may want to hold off a bit longer and see a few more years of data before we break out the champagne. We may also question the story that this slowdown was due to the market working its magic in the health care sector.

There are a lot of efforts at cost control being tried at all levels of government. Perhaps these cost-control efforts really have nothing to do with the slowing of spending, but it would be good to see some evidence here rather than just an assertion.

It is also worth noting that this is a simple explanation for slower cost growth in at least one area: prescription drugs. According to the Food and Drug Administration's ratings, in the last decade, the industry has developed very few new "priority" drugs that involve qualitative improvements over existing drugs. New drugs have historically been the main cause of higher drug prices. In this case, the slower rate of growth in spending is a mixed blessing.

However, there is one thing we can say with certainty if Keinke is right about the future path of spending growth. If the rate of growth of health care spending remains at the pace of the last two years, then we can throw all those projections of exploding long-term budget deficits in the trash.

It was always health care costs that drove the scary budget scenarios that Peter Peterson and the deficit hawk gang loved to tout. If we are now living in a world where health care spending grows at pretty much the same rate as the overall economy, there will no longer be a deficit tsunami in the long-term budget projections that can be used to justify cuts in Social Security, Medicare and other important programs. If Keinke is right we can look forward to lots of unemployed deficit hawks in the near future.

Getting A Grip on Deficit Hysterics Print
Written by Dean Baker   
Tuesday, 14 February 2012 17:00

Promoting fears about the budget deficit is a major industry in Washington. The central theme is usually that we have out of control spending which will make us just like Greece in only a few short years. The policy take away from this story is that we have to cut Social Security and Medicare, and the sooner the better. This is just the idea put forth by Rep. Tom Cole (R-Okla.) in a recent piece that appeared on The Hill's Congress Blog.

Everything in this picture is wrong. The basic story of out-of-control deficits as an ongoing problem is nonsense. While people may have complained about the deficits in the Bush presidency, the debt-to-GDP ratio was actually falling by the end of his administration and was projected to continue to fall for the foreseeable future, even without the ending of the Bush tax cuts.

The factor that changed this picture was the economic downturn that followed the collapse of the housing bubble. The projections for deficits soared before President Obama even took office; the people who want to blame an Obama Administration spending spree for the deficit are missing the mark.



Labor Market Policy Research Reports, Feb. 6-10, 2012 Print
Written by Marie-Eve Augier   
Friday, 10 February 2012 16:00

This week, the LMPRR features reports from:

Center on Budget and Policy Priorities

Contrary To “Entitlement Society” Rhetoric, Over Nine-Tenths of Entitlement Benefits Go To Elderly, Disabled, or Working Household
Arloc Sherman, Robert Greenstein, and Kathy Ruffing

House Spending-Cap Bills Would Enact Radical Ryan Budget into Law: Bills Would Worsen Recessions, Rule Out Balanced Deficit Reduction, and Facilitate Deep Cuts In Social Security And Medicare
Paul N. Van de Water

Strengthening State Fiscal Policies for a Stronger Economy
Erica Williams

Testimony Of Jared Bernstein Senior Fellow, Center On Budget And Policy Priorities Before The Senate Budget Committee United States Congress Hearing On “Assessing Inequality, Mobility And Opportunity”

Economic Policy Institute

Do Public School Teachers Really Receive Lavish Benefits? Richwine and Biggs’ Recent Report Doesn’t Make the Grade
Monique Morrissey

Right to Work: A Failed Policy a New Hampshire Update
Gordon Lafer

The ‘Toxics Rule’ And Jobs the Job-Creation Potential of the EPA’s New Rule on Toxic Power-Plant Emissions
Josh Bivens

National Employment Law Project

Ban the Box: Major U.S. Cities and Counties Adopt Fair Hiring Policies to Remove Unfair Barriers to Employment of People with Criminal Records

Low-Wage Lessons Print
Written by John Schmitt   
Thursday, 09 February 2012 11:15

As I write in a new CEPR briefing paper (pdf), the United States leads the wealthy world in the share of its workforce in low-wage jobs. According to the commonly used international definition of low-wage work –earning less than two-thirds of the median hourly wage– about one-fourth of US workers are low-wage.


The report draws five lessons from the experience of the United States and other rich countries over the last several decades:

  • Lesson 1: Economic Growth is not a Solution to the Problem of Low-wage Work
  • Lesson 2: More “Inclusive” Labor-market Institutions Lead to Lower Levels of Low-wage Work
  • Lesson 3: The United States is a Poor Model for Combating Low-wage Work
  • Lesson 4: Low-wage Work is Not a Clear-cut Stepping Stone to Higher-wage Work
  • Lesson 5: In the United States, Low Wages are among the Least of the Problems Facing Low-wage Workers


Parting Ways with the Pessimists Print
Written by Dean Baker   
Monday, 06 February 2012 15:04

The economists who predicted the housing crisis tend to be a gloomy bunch, as Adam Davidson notes in his latest New York Times Magazine column. Dean Baker is the rare exception. In the following guest post on NPR's Planet Money blog, he explains why he has parted ways with the economic pessimists.

For more than five years before the recession began in December of 2007, I was one of the leading economic pessimists, warning of the housing bubble and the damage that its collapse would do to the economy. I based this pessimism on my analysis of the housing market, not a genetic disposition to pessimism. Given the economy's current situation, I find the warnings of the pessimists – the double-dip gang – to be wrongheaded and seriously counterproductive.

First to the economy's near-term prospects: the economy is growing and will in all probability continue to grow. Economies do generally grow. We see new investment, leading to more employment and higher productivity, which leads to higher profits and higher wages.

In the past when the economy has fallen into a recession it has been the result of plunges in house sales and car sales. Neither possibility seems plausible at the moment, primarily because both remain at extraordinarily low levels that leave little room for them to fall further. Even if they did fall, it would have only a limited impact since current demand is already so depressed.



Labor Market Policy Research Reports, January 30 - February 3, 2012 Print
Written by Marie-Eve Augier   
Friday, 03 February 2012 14:35

The following reports on labor-market policy were released over the past week.

Center on Budget and Policy Priorities

Testimony of Jared Bernstein, Senior Fellow, Center on Budget and Policy Priorities Before the Committee on Education and the Workforce United States House of Representatives Hearing on “Expanding Opportunities for Job Creation”
Jared Bernstein

Economic Policy Institute

The benefits of raising Illinois’ minimum wage: An increase would help working families and the state economy
Doug Hall and Mary Gable

Jobs in the U.S. auto parts industry are at risk due to subsidized and unfairly traded Chinese auto parts
Robert E. Scott and Hilary Wething

Political Economy Research Institute

Economic Prospects: Fighting Seriously for Jobs and Social Security
Robert Pollin

The Austerians Attack! How we the people can fight back against plans to cut the social safety net
James Crotty

The Schwartz Center for Economic Policy Analysis & New York City Comptroller

Are New Yorkers Ready for Retirement?
Joelle Saad-Lessler, Teresa Ghilarducci, and Lauren Schmitz

New York’s Retirees: Falling into Poverty

A Research Report on the Downward Mobility of New York’s Next Generation of Retirees
Joelle Saad-Lessler, Teresa Ghilarducci, and Lauren Schmitz

Strong January Jobs Numbers Result in Drop to Unemployment Print
Written by Dean Baker   
Friday, 03 February 2012 11:25

Unemployment fell to 8.3 percent in January, bringing its drop over the last year to 0.8 percentage points, according to the latest Bureau of Labor Statistics employment report. The establishment survey showed an overall gain of 243,000 jobs — with the private sector adding 257,000, making up for losses in the public sector. Upward revisions to job growth for the prior two months have resulted in an average growth of 201,000 jobs over the last three months. Ignoring Census hiring, this is the strongest three-month stretch since February to April of last year when job growth averaged 239,000 a month.

African Americans saw an especially sharp decline in unemployment in January, with their overall rate falling by 2.2 percentage points to 13.6 percent, the lowest level since March of 2009. The unemployment rate for African-American men over age 20 fell by 3.0 percentage points to 12.7 percent, the lowest level since November of 2008. The drop for women over age 20 was 1.3 percentage points to 12.6 percent.

For a more in-depth analysis, read the latest Jobs Byte.

CEPR News January 2012 Print
Written by Dawn Lobell   
Thursday, 02 February 2012 10:45

The following highlights CEPR's latest research, publications, events and much more.

CEPR on Haiti Two Years After the Quake
It’s been two years since the devastating earthquake in Haiti. Through interviews, articles, Hill briefings and the Haiti Reconstruction and Relief Watch blog, CEPR marked the occasion by focusing attention on the ongoing humanitarian emergencies that hundreds of thousands struggle with daily. Half a million people remain homeless, more lack adequate sanitation, and the country grapples with a cholera epidemic the UN refuses to take responsibility for causing. CEPR has led the call – along with the Institute for Justice and Democracy in Haiti and other organizations – for UN accountability for this and other criminal actions in Haiti. Co-director Mark Weisbrot was quoted in this ABC News article on the cholera epidemic, and he appeared in this ABC News video on sexual assaults by UN troops. He was also cited at length in thisUSA Today report on recovery efforts.

Mark and CEPR Research Assistant Jake Johnston contributed a chapter to the book Tectonic Shifts: Haiti Since the Earthquake. Editor Mark Schuller discussed the book at a January 24th event CEPR sponsored along with TransAfrica, Teaching for Change, and Busboys and Poets. Jake was interviewed by FAIR’s syndicated radio show “Counterspin” about the situation in Haiti, and was cited in this Miami Herald report that was reprinted in dozens of U.S. newspapers. Mark took part in a panel discussion on Al Jazeera’s “Inside Story” that assessed the relief and recovery effort in Haiti. CEPR’s tracking of the aid and recovery situation was also cited in dozens more newspaper articles, blog posts, and radio reports.

CEPR participated in a series of congressional panels on Haiti— part of a Congressional Schedule of Events that took place January 24-25. On the 24th, Mark was a panelist at a briefing on the cholera outbreak sponsored by the offices of Rep. Frederica Wilson, Rep. Yvette Clarke, Rep. Barbara Lee, Rep. Donald M. Payne, and Rep. Maxine Waters. Later that same day, Mark was a panelist at another briefing sponsored by the offices of Rep. Yvette Clarke, Rep. Barbara Lee, and Rep. Donald M. Payne. That briefing followed the screening of excerpts of the documentary "Haiti: Where Did the Money Go?" which focuses on the status of relief efforts and steps towards increasing accountability of aid organizations. CEPR and the film were subsequently mentioned in this column by Clarence Page for the Chicago Tribune.

On January 25th, Mark participated in a briefing on Haiti’s political process, including the roles of the President, the Prime Minister, and members of Parliament; the various political parties in Parliament and who they represent; and the influence of various interest groups and stakeholders, including the wealthy elites, the business sector, and the impoverished majority. The briefing was moderated by Rep. Maxine Waters and was sponsored by Waters and Rep. Barbara Lee.



Even the Guy Who Dosn't Care About Poor People Wants to Raise the Minimum Wage: Where Does President Obama Stand? Print
Written by Dean Baker   
Thursday, 02 February 2012 09:29

Former Massachusetts governor Mitt Romney, who remarked yesterday that he doesn't care about the poor, supports indexing the minimum wage to inflation. If the minimum wage had been indexed since its last increase in July 2009 it would be $7.60 instead of $7.25. If it had been indexed to inflation since 1978 it would be almost $9.00 today.

The Democrats have historically been the major proponents of a higher minimum wage ever since a federal minimum wage law was first instituted in 1938. It will be interesting to see if President Obama or other leaders in the Democratic Party feel the need to respond to Romney's proposal.

Brazil: Record-Low Unemployment But Jobs Picture Mixed Print
Tuesday, 31 January 2012 14:30

Last week Brazil hit record-low unemployment of 4.7 percent (or 5.5 percent, seasonally-adjusted). But almost all of the jobs created in the last three months were in the business services, finance and real estate. This is remarkable: that sector comprises only 16.9 percent of all jobs.


Meanwhile, industry and commerce – sectors that have traditionally been drivers of job growth – have actually lost jobs for two quarters in a row. This is the first time that industry has lost jobs outside of a recession since 2006.

For a more in-depth analysis, read our latest Latin America Data Byte.

Case-Shiller 20-City Index Falls Again in November Print
Written by Dean Baker   
Tuesday, 31 January 2012 12:15

The seasonally adjusted Case-Shiller 20-City index fell 0.7 percent in November, according to the latest indicators and developments in the housing sector. The index, which is in its seventh consecutive month of decline, has now fallen in 17 of the last 18 months. In recent months, the rate of price decline appears to be accelerating modestly, with prices dropping at a 7.9 percent annual rate over the last three months compared to a 3.7 percent decline over the last year.

There is little reason to expect that house prices will stop their decline any time soon. The best path would be a slowing rate of decline with, prices perhaps leveling off by the end of 2012. In several markets, particularly cities on the West Coast, the housing bubbles have not yet fully deflated. Nothing should be done to prevent them from deflating; however, it would be desirable to see prices stabilize and possibly rise somewhat in markets where the bubble has fully deflated and the market is overshooting on the down side.

For a more in-depth analysis, read the latest Housing Market Monitor.

Fact-Checking the Fact-Checkers on Honduras Print
Written by Dan Beeton   
Friday, 27 January 2012 17:01

Both the New York Times and Washington Post’s fact-checks on the GOP presidential debate Thursday night missed the mark regarding former Senator Rick Santorum’s (R – PA) comments about Honduras.

Responding to the question, “What would each of you do as president to more deeply engage in Latin America and, importantly, to support the governments and the political parties that support democracy and free markets?”, Santorum’s answer included this statement regarding the Obama administration’s response to the 2009 coup in Honduras:

Our policy in Central and South America under this administration has been abysmal. The way we have treated, in particular, countries like Honduras, Honduras, which stood up for the rule of law, which threw out a would-be dictator who was using the Chavez playbook from Venezuela in order to try to run for re-election in Honduras, and the United States government, instead of standing behind the -- the people in the parliament, the people in the Supreme Court, who tried to enforce the constitution of Honduras -- instead of siding with them, the Democrats, President Obama sided with two other people in South America -- excuse me -- Central America and South America. Chavez and Castro and Obama sided against the people of Honduras.

The Washington Post’s The Fact Checker wrote:

Santorum’s statement reflects a commonly held viewpoint among conservatives, but it glosses over the fact that there was a coup against the democratically elected president of Honduras, Manuel Zelaya. The Obama administration, working with the Organization of American States, refused to recognize the parliamentary leader who had been named president and instead tried to broker a compromise that would have allowed Zelaya to serve out his term. But that effort failed. Eventually a new election was held and another man was elected president.



Labor Market Policy Research Reports, January 23-27, 2012 Print
Written by Marie-Eve Augier   
Friday, 27 January 2012 15:30

Center for American Progress

Movin’ It and Improvin’ It!: Using Both Education Strategies  to Increase Teaching Effectiveness
Craig D. Jerald

Center on Budget and Policy Priorities

Proposed Kansas Tax Break for "Pass-Through" Profits Is Poorly Targeted and Will Not Create Jobs
By Nicholas Johnson and Michael Mazerov

Center for Economic and Policy Research

Low-wage Lessons
John Schmitt

Pension Liabilities: Fear Tactics and Serious Policy
David Rosnick and Dean Baker

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