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Operation Twisted Print
Written by Dean Baker   
Wednesday, 21 September 2011 20:31

The Republican congressional leadership took the unusual step of sending Federal Reserve Board Chairman Ben Bernanke a letter warning against "additional monetary stimulus."This drew an outraged response from many Washington pundits, although for the wrong reasons.

Many in the pundit class expressed outrage that politicians would dare to influence the policy decisions of the "independent Fed." This is the high priest theory of central bankers. In this worldview, the Fed and other central banks are run by people who get the truth directly from the economy and make their judgements after carefully meditating on the latest economic data and connecting it to the sacred texts of the economics profession.

The high priest theory always warranted ridicule, but after the economic collapse of 2008 no self-respecting person should ever be associated with this view. The housing bubble that wrecked the economy was cleaarly visible from at least 2002. If the central bankers had any superior knowledge of the economy, they would have been shooting at the bubble at that point rather than allowing it to grow large enough so that its collapse would wreck the economy.

Note that shooting at the bubble does not mean raising interest rates. Note that shooting at the bubble does not mean raising interest rates [corrected -- thanks Sandwichman]. (Sorry, I had to say that twice for the economists who might be reading this.) It meant first documenting the bubble, showing that house prices had grown far out of line with historical trends and with rents. This information should have been at the center of every public appearance by Greenspan and other Fed officials. The Fed also should have used all its regulatory authority to crack down on the fraudulent mortgages that were being issued.

Read more...

 

 
Why Do the Bankers Decide How Many People Will Be Unemployed? Print
Written by Dean Baker   
Wednesday, 21 September 2011 14:02

The Federal Reserve Board's Open Market Committee (FOMC) met today and decided on a modestly expansionary monetary policy. It decided to unload $400 billion worth of short-term assets over the next 9 months and replace them with longer term government bonds. The idea is that this would place some downward pressure on long-term interest rates.

The effect on interest rates and the economy is likely to be very modest. It is unlikely that long-term rates would fall by even 20 basis points (0.2 percentage points) as a result of this action and more likely the effect would be closer to 10 basis points, but at least it is a step in the right direction. This will make it cheaper for people to buy a car or refinance a mortgage. It will also be cheaper for firms to borrow to invest. It would have been good to see stronger action, but this is what the FOMC was prepared to do.

However what was most striking about this decision was the breakdown on the vote. Five of the people voting were members of the board of governors. (There are 7 positions, but 2 are currently vacant.) The governors are appointed by the president and approved by Congress for 14-year terms. Of the 5 sitting governors, 3 were appointed by President Obama, 1 was appointed by President Bush, and 1 governor (Chairman Ben Bernanke) was appointed by both.

The other members of the FOMC are the presidents of the 12 district banks. These presidents are essentially appointed by the banks in the district. All 12 district bank presidents sit in on the FOMC meeting, but only 5 vote at one time.

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What Skills Shortage? Print
Written by John Schmitt   
Wednesday, 21 September 2011 09:30

I remember well the gas shortages of the 1970s. Long lines at the pumps, and gas prices through the roof. Higher prices are, of course, the textbook free-market response to a shortage.

Some economic analysts argue that an important reason we have high unemployment today is because we have a shortage of skilled workers. Employers have good jobs to fill, but they can’t find qualified workers to fill them.

If there really is a shortage of skilled workers, though, we’d expect to see skilled workers’ wages rising. Back in the late 1990s, for example, when the economy experienced four years of sustained low unemployment, and employers really were beating the bushes to fill vacancies, inflation-adjusted wages for workers at all skill levels rose faster than they have during any period in  the last three decades.

Journalist David Wessel has posted a magnificent graph at the Real Time Economics blog that shows almost the exact opposite of what we’d expect if there were a shortage of skilled workers.

wessel_slaughter_wages-400x187

Source: Matthew Slaughter via David Wessel.

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Why I'm Not Surprised by Heritage's "Surprising" Poverty Facts Print
Written by Shawn Fremstad   
Wednesday, 21 September 2011 08:30

At the Inequalities blog, Brendan Saloner, citing a perennial report from the Heritage Foundation, notes: "… many of the so-called poor appear to be living at a more middle-class standard. Most of them have fridges, microwaves, televisions, and even air conditioning and game systems. There are data that support this point, and it needs to be addressed. I have not heard a clear response from leftwing commentators."

There's actually no dearth of responses, including ones from Stephen Colbert and the Center for American Progress. Here's Colbert: 

And you would not believe some of the stuff poor people have in their homes! Luxuries like ceiling fans, DVD players, answering machines, and coffee makers. I don't have those things. I have central air, a Blu-Ray player, voicemail, and I go to Starbucks every day. Must be nice. Must be pretty nice.

I also recently had the chance to respond to Heritage's Robert Rector in a public radio debate with him. Rector's message is that we shouldn't be too concerned about economic insecurity and declining real incomes among the working class and middle class. In support of this message, he points to data showing that among households with income below the federal poverty line in 2005—an austere $19,806 for a family of two parents and two children that year, less than half of the income most Americans say such a family needs to "get along" at a basic level—most have refrigerators and cars, and some have computers and even own homes.

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Someone Remind Cato's Michael Cannon That Private Health Insurance is Expensive Print
Written by David Rosnick   
Monday, 19 September 2011 14:30
Over at Cato, Cannon pimps for the Ryan Plan, but leaves out all the most important facts to make his case. Citing the Dartmouth Atlas, he writes, "one third of Medicare spending is pure waste. Since the amount of the [Ryan Plan] vouchers would be based on per-enrollee Medicare spending, they would essentially give Medicare enrollees 50 percent more money than they would need to purchase all the beneficial medical care that Medicare currently provides." Actually, this would be true only if they could use the voucher to buy back into Medicare, rather than purchasing private health insurance. According to the Congressional Budget Office, Medicare-equivalent health care spending is 12 percent larger when going through private insurance than through Medicare itself. CBO projects that private insurance will perform worse over time, so that by 2022 when Ryan's plan would go into effect, total spending through private insurance would be 52 percent higher than through Medicare.

Furthermore, the Ryan Plan increases the age of eligibility from 65 to 67 — greatly increasing the costs to those who would have been covered by Medicare. Combined with the higher prices, the Ryan Plan would raise individual spending on Medicare-equivalent health care by $256,000 over 20 years for each the first beneficiaries (currently age 54). In order save any money under the Ryan Plan, these first beneficiaries would have to cut their medical coverage by half. The problem only gets worse over time, so that today's 14 year olds would have to cut their coverage by nearly three-quarters.

 
Two Health-Care Graphs Print
Written by John Schmitt   
Monday, 19 September 2011 08:56

Lane Kenworthy has posted two extremely helpful graphs that try to gauge the efficiency of the US health-care system relative to those of other wealthy countries. The first shows life expectancy in each country, in 2007, against per-capita health expenditures in the same year.

americasinefficienthealthcaresystem-figure1-version2

Source: Lane Kenworthy.

The United States is a huge outlier. We spend the most –by far– and yet we also have the lowest life expectancy.

But, as Kenworthy notes, the US could be an outlier for reasons that don’t have to do with the efficiency of our health-care system. Our life expectancy might be lower because we have a much higher murder rate or a much higher incidence of obesity, for example. So, he offers a second graph that, for the same group of countries, traces out the relationship over time between life expectancy and per-capita health expenditures. In this graph, we can see to what extent additional health expenditures help to reduce life expectancy within each country.

Life expectancy versus health expenditures, 1970-2008

Source: Lane Kenworthy.

The United States is still a substantial outlier. In every other country in the sample, extra health-care spending is associated with much higher increases in life expectancy than we see in the United States.

Neither graph proves causality, but both –and especially the second graph– suggest that the US health-care system is expensive and inefficient relative to the systems in place in other rich countries.

This post originally appeared on John Schmitt's blog, No Apparent Motive.

 
Labor Market Policy Research Reports, Sept. 5 – Sept. 16, 2011 Print
Written by Alexandra Mitukiewicz   
Friday, 16 September 2011 14:45

A roundup of the labor market research reports released this week and last week.


Center for American Progress

Workers and Their Health Care Plans: The Impact of New Health Insurance Exchanges and Medicaid Expansion on Employer-Sponsored Health Care Plans
Alan Reuther


Center on Budget and Policy Priorities

Letting Payroll Tax Cut Expire Would Shrink Worker Paychecks and Damage Weak Economy
Chuck Marr and Brian Highsmith

Read more...

 

 
Workers of Color Less Likely to Have Pensions Print
Written by John Schmitt   
Friday, 16 September 2011 11:40

Workers of color are substantially less likely to participate in an employer-sponsored retirement plan than white workers are. Over the years 2003-2009, for example, almost half of white workers (49.0 percent) participated in an employer-sponsored retirement plan, compared to only 42.6 percent of Asian American and Pacific Islander (AAPI) workers, 41.3 percent of black workers, and 26.6 percent of Latino workers.

retirement-race-fig1

Women (43.7 percent) are also generally less likely than men (45.4 percent) are to be in an employer-sponsored retirement plan. This holds true for white, AAPI, and black workers. Latino men, however, are less likely (25.3 percent) than Latino women (28.5 percent) to participate in an employer-sponsored plan.

retirement-race-fig2(Data note: All data are from the March Current Population Survey for the years 2004 through 2010, covering calendar years 2003 through 2009. The sample is all workers ages 18 to 64. Participation in an employer-sponsored plan requires both that the employer has a plan and that the employee participates in the plan. Participation does not require that the employer make a financial contribution.)

 
Friday Failure: The Recession and Lost GDP Print
Written by David Rosnick   
Friday, 16 September 2011 10:45

Note: Requires latest version of Flash to play.

According to the Bureau of Economic Analysis, in the second quarter of 2011 the United States produced goods and services at a $15 trillion annual rate (Table 1.1.5). The Congressional Budget Office, meanwhile, figures that the economy was then capable of producing $16 trillion per year. This implies a loss of $250 billion income over just three months.

From October 2007 through June 2011, the difference between what Americans might have produced and what they actually produced has a total value of $3.21 trillion. Amazingly, CBO projects that there is another $2.56 trillion in lost income yet to come over the next five years. That is, if CBO’s projections come to pass, we will have foregone income of $5.78 trillion over the course of the recession.

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CPI Ticks Up as Average Earnings Continue to Fall Print
Written by David Rosnick   
Thursday, 15 September 2011 11:15

The Consumer Price Index rose 0.4 percent in August and at a 2.6 percent annualized rate over the last three months, according to the Bureau of Labor Statistics' latest reports on the consumer price, U.S. import/export price and producer price indexes. By contrast, the CPI rose at a 4.6 percent rate from February to May and at a 5.6 percent rate the three months before that.

Average real hourly earnings fell again in August, 2.0 percent from its peak in June 2010. Earnings have only increased by 0.7 percent in the last four years, which means it will take until sometime in 2062 to see an increase in real earnings of just 10 percent. As long as this slow growth in earnings remains along with weak job growth, there is no reason to expect much domestic price pressure.  Worldwide commodity prices and a falling dollar, however, may contribute to inflation—particularly in the short run.

For more, read our latest Prices Byte.

 
Is the Poverty Rate Today Reaching Reagan or Eisenhower Levels? Do We Need a "New War on Poverty"? Print
Written by Shawn Fremstad   
Thursday, 15 September 2011 09:00

In a news story in the Financial Times, historian Alice O'Connor—whose Poverty Knowledge: Social Science, Social Policy, and the Poor in Twentieth-Century History is must-read for any serious student of anti-povery policy—says "we are entering territory which looks like the period before we even starting fighting a 'War on Poverty' in the 1960s."

At 15.1 percent in 2010, the poverty rate appears quite a bit lower than the rates that prevailed in the 20th century before 1964. The official rate was 19 percent in 1964 when the Economic Opportunity Act was enacted, and 22.4 percent in 1959. What we have entered is Reagan-Bush I territory, when the poverty rate last crossed the 15-percentage-point level (15% in 1982, 15.2% in 1983, and 15.1% in 1993).

One important distinction between now and the Reagan era is that Congress and President Obama did more to help working-class people in 2009 and 2010—and less to harm them—than Reagan in the early 1980s. Unfortunately, things may get worse since Tea-Party inspired members of the current Congress seem hell-bent on blocking any new action to create jobs and bolster social insurance. 

Another important distinction between now and the period just before the War on Poverty is that income poverty had already been trending downward for more than a decade and a half back then—it was just over 40 percent in 1949 and had been cut in half by 1964. By contrast, over the last decade, poverty has been on the rise—going from 11.3 percent in 1999, it's lowest level since 1973 to 14.3 percent in 2009. In other words, things were steadily improving then, while today we've lost an entire decade of economic progress.

Read more...

 

 
How It Could Have Been Different This Time Print
Written by Dean Baker   
Thursday, 15 September 2011 06:57

I have been dismissive of the claim that the financial crisis has condemned the country to 8-10 years of high unemployment and low growth. This claim is derived from the book by Carmen Reinhart and Ken Rogoff, "This Time is Different."

Reinhart and Rogoff perform a valuable exercise in recounting the history of financial crises over the last six centuries. They note that these crises have been followed by a long period of adjustment in which economies are subject to weak growth and high unemployment. Based on this history, they and others have argued that the United States is condemned to a prolonged period of stagnation. The moral of the story is to stop your whining and live with it.

I find this to be a case of incredibly bad induction. If we had looked at the probability that newborns would live to age five, examining random 20-year intervals in different countries over the last six centuries, we would find that in most of these intervals, most newborns do not live to age five. If we therefore concluded that we should expect children born today to die before the age of five, we would be utterly crazy. The advances in health care, nutrition and sanitation over this period make it possible for the vast majority of children almost everywhere to survive to adulthood.

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2000-2011: A Lost Economic Decade Print
Written by CEPR   
Tuesday, 13 September 2011 12:45

The Census Bureau has released its annual report on income and health insurance coverage in the previous year, and as expected the report shows a substantial deterioration in Americans' economic security between 2009 and 2010. Substantial income losses for middle- and working-class Americans and an increase in the number of Americans without health insurance cap off what can only be called a "lost decade" in economic terms. However, things could have been worse: The 2009 Recovery Act and the 2010 Affordable Care Act, as well as existing social insurance, moderated the declines.

The latest CEPR Poverty Byte looks at the new Census numbers, and in a new paper Shawn Fremstad offers recommendations for addressing poverty in a jobs and economy framework.

 
Small Business Bust Print
Written by John Schmitt   
Monday, 12 September 2011 09:02

Back in the summer of 2009, Nathan Lane and I wrote a CEPR report (pdf) documenting something that is surprising to many Americans. The United States has just about the smallest small-business sector in the world’s rich economies.

Our report used OECD data to look at the share of workers in small businesses in each of a variety of industries (manufacturing, computer-related services, research and development, “restaurants, bars, and canteens”, real-estate activities, “renting of machinery and equipment”). These were all of the industry categories for which the OECD had produced comparable data on the employment share by enterprise size. Unfortunately, at that time, the OECD had no numbers for the distribution of employment by enterprise size for the economy as a whole.

But, the OECD’s Entrepreneurship at a Glance 2011 now reports internationally comparable data on total small-business employment for a collection of rich and selected middle-income countries. The first figure below shows the share of total national employment in each country in enterprises with one to nine employees. The United States is dead last, with about 11 percent...

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Do Tax Cuts Boost the Economy? Print
Written by David Rosnick   
Friday, 09 September 2011 16:57

This is an abridged version of a CEPR paper available here.

There are many economists who argue that temporary tax cuts, like those in 2009 stimulus and the ones proposed by President Obama last night, have no impact on the economy. They argue that people will save a temporary tax credit rather than spend it.

Stanford University Professor (and Hoover Fellow) John Taylor is one of the economists making this argument. He purports to show that there was no statistically significant increase in private consumption of goods and services as a result of certain types of government transfers made over the last decade.  According to his analysis, it is unclear whether an additional dollar of government transfers led to any additional spending, or, alternatively, whether it raised personal savings by more than one dollar.

However, a closer look reveals something quite different.

Read more...

 

 
BLS Report Especially Bleak for Black Families Print
Written by Janelle Jones   
Wednesday, 07 September 2011 11:45

There are plenty of depressing numbers to highlight from last Friday’s employment report from the Bureau of Labor Statistics. And you can check out the latest Jobs Byte to get the details, but I’d like to draw attention to this number: 16.7 percent. This is the unemployment rate for blacks in August. Last August, that number was 16.3 and last month it was 15.9. Neither of these numbers are particularly uplifting, and that we have surpassed them both speaks to the utterly devastating situation in which black adults have found themselves.

ThinkProgress pointed out earlier this week that this is the highest level of black unemployment in 27 years. The current state of employment in the black community does more than remove much-needed income from families; it has lasting effects on the children within those families. A recent report from EPI highlights the numbers of children feeling these effects. In 2010, 15.8 percent of black children had at least one parent unemployed, up from 8.2 percent in 2007 and compared with 8.3 percent for whites in 2010. Those numbers become scarier when we look at the share of black children with a parent underemployed, which includes involuntary part-time workers and those who want, and are available for work but have not searched for a job in the past month. Nearly one-in-four (24.3%) in 2010 have at least one parent underemployed, up from 13.7 percent in 2007 and compared with 14.3 percent for whites in 2010. Moreover, these aren’t short spells of unemployment; the percent of long-term unemployed, those out of work for at least 27 weeks, was 48.4 percent last year.

A 2009 report by researchers at UC Davis showed that parental joblessness increases the probability of a child repeating a grade by about 15 percent. Given the link between academic achievement and parental unemployment, we are witnessing what could be a detrimental cycle for black families. High unemployment rates lead to a generation not reaching their educational, and thus job, potential, placing us firmly back at square one. If children are our future, I hope someone does something about jobs today.

 
The European Central Bank: The Loons Who Are Wrecking Your 401(k) Print
Written by Dean Baker   
Tuesday, 06 September 2011 17:30

Somehow the European Central Bank (ECB) is managing to avoid the intense anger that it richly deserves. While some of us have lambasted the Fed for failing to recognize the largest housing bubble in the history of the world (or perhaps worse, not realizing that its collapse would devastate the economy), the ECB scores just as highly in the economic incompetence category. Furthermore, it is compounding the destruction caused by its incompetence with its continued commitment to its 2 percent inflation target.

In this respect it has performed far worse than the Fed in the post-collapse world. While the Fed pushed its overnight interest rate to zero and has committed to keep this rate for the next two years, the ECB never went below 1.0 percent. Incredibly, it actually began raising rates earlier this year. Its overnight rate is now 1.5 percent.

Even more serious is its efforts to impose austerity throughout the euro zone. Somehow the ECB president never learned basic economics. If they force austerity throughout the euro zone the outcome is even slower growth.

Furthermore, by failing to commit itself to supporting the debt of troubled countries it is terrifying world financial markets with the risk of another Lehman-style meltdown. The stock market plunge last month that was widely attributed to the S&P downgrade of U.S. debt was almost certainly due to fears of a meltdown stemming from the euro crisis. Certainly this is the most obvious explanation of the current turmoil.

The question is why isn't the public more outraged at these unelected central bankers threatening the world with another financial crisis. Haven't they already done enough damage?

 
Labor Market Policy Research Reports, Aug. 29 – Sept. 2, 2011 Print
Written by Matthew Sedlar   
Friday, 02 September 2011 15:30

A roundup of the labor market research reports released this week.


Center for Economic and Policy Research

Improving Job Quality: Direct Care Workers in the U.S.
Eileen Appelbaum and Carrie Leana


Demos

The Fraying of Oregon’s Middle Class


Economic Policy Institute

Putting America Back to Work: Policies for Job Creation and Strong Economic Growth
Ross Eisenbrey, Lawrence Mishel, Josh Bivens, Andrew Fieldhouse

Sustained, High Joblessness Causes Lasting Damages to Wages, Benefits, Income and Wealth
Lawrence Mishel and Heidi Shierholz


Institute for Women’s Policy Research

Recommendations for Improving Women’s Employment in the Recovery

San Francisco Employment Growth Remains Stronger with Paid Sick Days Law Than Surrounding Counties
Kevin Miller and Sarah Towne

 
What Does Cynicism Have to Do With It? Print
Written by John Schmitt   
Friday, 02 September 2011 13:30

Matt Yglesias offers some “Cynical Thoughts on The Minimum Wage.” Cynical is fine, but informed would be better.

Most of the post focuses on what Yglesias believes are enforcement problems with the minimum wage. He recites an anecdote about a magazine that reclassified workers as interns rather than pay them the minimum wage; links to a series of exemptions to the federal minimum wage; and offers some hypothetical scenarios that might allow employers to sidestep the law.

But, we actually have good empirical evidence on what happens after the minimum wage goes up. The series of three graphs below, taken from David Card and Alan Krueger’s landmark 1995 book on the minimum wage, are just one example.

Read more...

 

 
Bleak BLS Report Shows No Job Growth in August Print
Written by Dean Baker   
Friday, 02 September 2011 11:00

There was no job growth in August and the job growth numbers for the last two months were revised downwards by 58,000, according to the latest Bureau of Labor Statistics' employment report. Job growth over the last three months has now averaged 35,000, well below the 90,000 needed to keep pace with the growth of the labor force. Peculiarities like the recent Verizon strike may have reduced the number of jobs in August, but adjusting for that particular factor, job growth would have averaged 50,000 over the last three months. The unemployment rate remained unchanged at 9.1 percent.

The employment-to-population ratio (EPOP) did edge up from its recession low to 58.2 percent. The number of people involuntarily working part-time jumped up by 430,000, to 8.8 million. A disproportionate share of the increase in employment in the household survey was among blacks, who saw a rise of 155,000 in employment. However, this went along with a jump in the African American unemployment rate of 0.8 percentage points to 16.7 percent. The unemployment rate for black men rose by 1.0 percentage point to 18.0 percent and for black teens by 7.3 percentage points to 46.5 percent. The EPOP for black teens was just 13.0 percent, a new low for the downturn.

The BLS report shows an economy that is growing, but at such a slow pace that it is not even creating sufficient jobs to keep pace with the growth of the labor force. It is difficult to see how this will change absent a boost from the government.

For more, read the latest Jobs Byte.

 
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