My friends at the Political Economy Research Institute at the University of Massachusetts did a new study examining the evidence on the military spending fairy. The issue at hand is the whine heard across the country that cuts in military spending will cost jobs.
In a severe downturn like the current one, cuts in any government spending will cost jobs, the question is how many. Using the Bureau of Labor Statistics' employment requirement tables, they find that on a per dollar basis spending on health care or energy conservation creates 50 percent more jobs than spending on the military. Spending on education creates more than twice as many jobs as spending on the military.
In other words, if the point of spending is to create jobs, then the military is the last place that we would want to put our dollars. But, many in Washington believe in the military spending fairy who blesses the dollars spent on the military with unmatched job creating power that has no basis in normal economic analysis.
According to the latest Bureau of Labor Statistics' employment report, 315,000 people left the labor market in October. This move pushed the unemployment rate down by 0.4 percentage points to 8.6 percent. BLS' establishment survey also showed a weaker-than-expected 120,000 job gain for October, but this bad news was largely offset by upward revisions of 72,000 to the job growth numbers for the prior two months.
The drop in labor force participation was entirely among women, especially black women. Participation numbers among white women fell by 0.2 percentage points to 199,000. The drop among black women was 164,000, a drop of 1.2 percentage points. These monthly numbers are highly erratic, and it is likely that at least part of this drop will be reversed in future months. Nonetheless there had been a trend of declining participation rates among both white and black women even prior to the November plunge. This suggests that there is a real issue of women losing access to jobs; although the December figures may show some reversal.
For more in-depth analysis, read the latest Jobs Byte.
As a follow up to our Tuesday post on government regulation and mass layoffs, we highlight another Washington Post article helping debunk the myth that government regulation is smothering job creation. Suzy Khimm recently wrote a piece for the Post’s Wonkblog about barriers to small business success. A study conducted by the Hartford Financial Services Group asked small businesses what, in their opinion, was the biggest threat to their success.
Source: The Hartford Group via the Washington Post Wonkblog
As the graph above shows, the biggest barriers to success for businesses that identify as “slightly-” or “moderately successful” are those that have to do with a lack of demand: "the economy," “customers have no money" or "no clients or work." Even about 10 percent of businesses who identify as “extremely successful” pinpointed the economy as their main obstacle. Khimm notes that most of the “extremely successful” businesses identify government regulation as the culprit (11.4 percent) and explains that as businesses become more successful, they become more likely to identify problems other than the economy as the major roadblock to their further success.
The Hartford findings are completely consistent with the data on mass layoffs that we presented on Tuesday, and the National Federation of Independent Businesses (NFIB) data, discussed earlier here at the CEPR Blog.
The following highlights CEPR's latest research, publications, events and much more. CEPR on the Eurozone As the eurozone debt crisis continues to deepen, CEPR Co-directors Mark Weisbrot and Dean Baker released this joint statement calling for the Federal Reserve to intervene where the European Central Bank (ECB) won’t, and stabilize European bond markets by buying Italian and Spanish bonds – and other sovereign bonds as necessary – thereby lowering interest rates on these bonds. Dean followed up with this piece in Al-Jazeera that expands on the argument for why such intervention may be needed, Senior Economist Eileen Appelbaum was interviewed about it on Canada’s Business News Network, and Mark was interviewed for this piece that appeared in the Global Post.
CEPR has written extensively on Greece, Italy, the ECB and the future of the eurozone. CEPR’s research has had an influence on the debates, as evidenced by this article on CBS’s Moneywatch blog that references CEPR’s work on Argentina as a possible model for Greece, and this debate that Mark Weisbrot did opposite Dutch MEP Corien Wortmann-Kool with Channel 4 in the U.K. Mark also debated University of Bologna economist Paolo Manasse, in this video for The Real News Network.
Mark, who has appeared repeatedly on NPR, PBS, the BBC, and other media outlets to discuss the eurozone crisis over the past year, has continued to write attention-grabbing columns on the topic, such as this one for The Guardian, which argues that the ECB’s ideological commitment to austerity is driving the crisis deeper. Dean made a similar case against the ECB’s policies in columns for The Guardian and Al-Jazeera, and discussed these ideas on Irish national radio (RTE) and Pacifica’s KPFK among others.
Mark took this important analysis to Europe, where he presented at a conference in Riga, Latvia organized by the Friedrich Ebert Stiftung. Mark’s participation was widely covered in the Latvian media, and he was interviewed by numerous TV, radio, and newspaper outlets. Videos of Mark’s presentation, and a post-presentation interview, are available here.
Mark also participated in a discussion titled “The Future of Europe - How to Solve the Euro Crisis?” sponsored by the Georgetown University European Club. Other speakers at the November 14th event included Georgetown Professors Jeffrey Anderson and James Vreeland; and Heiko Hesse, an economist at the IMF and President of Washington European Society.
Many conservatives argue that “excessive” government regulations are “a big wet blanket” smothering the economic recovery. But, mass layoffs data from the Bureau of Labor Statistics (BLS) suggest otherwise. A recent article in the Washington Post reported that in “2010, 0.3 percent of the people who lost their jobs in layoffs were let go because of ‘government regulations/intervention.’ By comparison, 25 percent were laid off because of a drop in business demand.”
The graph below shows the relevant data cited in the Washington Post story back to 1995, when the data series starts. The top line ("Total Initial Claimants") shows the BLS measure for the total number of workers laid off each quarter in what the BLS calls "mass layoff events," expressed as a share of total private-sector employment. For most of the period since 1995, mass layoffs were never more than 0.4 percent of total private-sector workers. At the peak of the recession in 2009, mass layoffs spiked at over 0.7 percent of private-sector workers per quarter, before falling back down closer to historical levels. What is most interesting about the graph is that the middle line -- which tracks layoffs due to declines in business demand --is driving almost all of the overall level of mass layoffs. The thick, almost flat line at the bottom tracks the portion of mass layoffs caused by government regulation. Government regulation has essentially no impact on layoffs and can't explain any of the increase in layoffs in the last several years.
The seasonally adjusted Case-Shiller 20-City index fell for the fifth consecutive month, dropping 0.6 percent in September. The index has now fallen at a 4.1 percent annual rate over the last three months and is down by 3.6 percent from its level a year ago. The unadjusted 20-City index also fell by 0.6 percent with prices dropping in 17 of the 20 cities.
While prices have fallen almost everywhere since the peak of the housing bubble, it's striking how badly bottom-tier homes have been hit in some of the most bubble-affected cities. Prices of bottom-tier homes are down by more than 50 percent from their bubble peaks in Chicago, Minneapolis and Los Angeles; by more than 60 percent in Tampa; and by more than 70 percent in Phoenix. Buying a moderate-income house in these markets near the peak of the bubble was an incredibly bad investment.
The current pattern of slowly declining house prices will likely persist into next year. There continues to be enormous excess supply in most areas, as evidenced most directly by the persistence of near-record vacancy rates. The continuation of extraordinarily low interest rates will be helpful, but on the other side the slow rate of job growth seems likely to persist through 2012.
In a recent report, Arloc Sherman of the Center on Budget and Policy Priorities concluded that the current income poverty rate would be much higher if not for social insurance, including temporary expansions of social insurance included in the 2009 Recovery Act. For example, Sherman concludes that about 6.9 million more Americans would have fallen below the income poverty line if not for six initiatives in the Recovery Act (specifically, three tax credit provisions, two unemployment insurance expansions, and an expansion of Supplemental Nutritional Assistance).
Both Sherman and I think this helps show that social insurance is doing one of the things it is designed to do: insuring working- and middle-class families against steep income declines during a recession. In an Economix post today, Casey Mulligan offers a less charitable interpretation:
... the safety net has taken away incentives and serves as a penalty for earning incomes above the poverty line. For every seven persons who let their market income fall below the poverty line, only one of them will have to bear the consequence of a poverty living standard. The other six will have a living standard above poverty.
Note the criminological rhetoric deployed by Mulligan: Social insurance effectively pardons six out of every seven evildoers who apparently connived and conspired to get laid off, have their hours or benefits reduced, or not get hired during the Great Recession knowing full well that they could likely do so without having to "bear the consequence of a poverty living standard." And, to add injury to this insult, social insurance "penalizes" people who aren't currently receiving it.
My first reaction is befuddlement. Does Mulligan think that private insurance penalizes people who don't submit claims? Am I penalized when my neighbor's home is burgled and his insurance company partially compensates him for his losses?
When California passed its Paid Family Leave Act, it became the first state in the nation to make paid family leave available to virtually every private sector worker, a distinction it still shares with just one other state. The hope was that this groundbreaking legislation would provide access to paid leave for family caregiving for the vast sectors of the workforce – particularly low-wage workers – that have little or no access to paid sick days, paid vacation, or paid parental or family leave.
A recent CEPR-CUNY study based on a poll of California voters found that well under half (42.7%) of respondents had seen, read or heard of the PFL program. Even among those who had voted in the previous general election, just 44.9 percent knew about the program. This is an important improvement over the 29.7 percent of voters who knew about PFL in 2003. The increase in awareness over the past eight years occurred overwhelmingly among women. This may be due to the fact that the state now informs new mothers about the paid family leave program. Nevertheless, it is worrying that awareness of paid family leave is lowest among those workers who need it most – Black and Latino workers, and workers with lower wages or less education. The Poll results indicate clearly that more needs to be done to reach these workers.
Providing doctors with brochures that explain the program and requiring them to display the information prominently in their offices would help. Making the brochures available at WIC centers, which help new mothers and babies meet their nutrition needs, is another way to let low-income workers know about the program.
Today's Wall Street Journal profiled Pilgrim Screw Corp.'s successful use of work sharing — reducing workers' hours instead of laying them off, with the workers getting partial unemployment benefits to make up much of their lost pay — in this detailed article, "Cutting Hours Instead of Jobs."
The WSJ points out that even a conservative, Kevin Hassett of the American Enterprise Institute:
also is a fan, and noted that he hasn't encountered any hostility when he has raised the topic with fellow Republicans. "This thing could have a big impact on the labor market," he added.
At the other end of the media spectrum, earlier this month PBS television's Need To Know described work sharing as an "innovative job-saving program, which seems to be paying off" in Rhode Island and across the nation (and included an interview with CEPR's Dean Baker):
House Budget Committee Chairman Paul Ryan drafted a response to the Congressional Budget Office's recent study on inequality. This piece pulls out all the usual tricks. Most notably it:
a) argues that we should be focused on growth rather than inequality, failing to note that the U.S. economy is doing poorly by this metric also;
b) challenges the data showing growing inequality by saying the government data are wrong;
c) tries to divert attention to Medicare and Social Security raising the banner of generational war; and
d) ignores all the ways in which deliberate government policy has been responsible for the upward redistribution of income over the last three decades.
Representative Ryan's first summary bullet point is:
"The question for policymakers is not how best to redistribute a shrinking economic pie. The focus ought to be on increasing living standards, expanding the pie of economic opportunity, and promoting upward mobility for all."
That sounds great, except the last three decades have not only been a period of rising inequality, they also have been a period of slower growth. According to the Commerce Department, in the 32 years from 1947 to 1979, when most of the population shared the gains from growth, per capita income rose at average annual rate of 2.6 percent. In the 31 years from 1979 to 2010, when most of the gains have gone to the top, growth in per capita income has averaged just 1.8 percent.
The birthplace of the Occupy Wall Street movement was raided and dismantled early Tuesday morning. At 1 a.m., NYPD in riot gear entered Zuccotti Park with an eviction notice in hand, telling protestors they needed to clear the park immediately but temporarily, for cleaning. The protestors resisted eviction, and close to 250 arrests were made (including reporters and a NYC Councilman). The camp’s belongings were seized, including the #OWS library. Unfortunately, most of the library’s possessions are missing or damaged.
Tuesday night, protestors were allowed back into the park after the clearing and cleaning of the grounds. However, few protestors returned. Occupying Zuccotti Park is now prohibited along with tents, generators, and large bags. With these new rules, there is no way Zuccotti Park can transform back into the mini-city of the 99 percent.
Consumer prices fell 0.1 percent in October but rose at a 2.4 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. The rate of inflation in the Consumer Price Index has been at 2.1 percent over the last six months, compared with 5.1 percent in the six months ending in April. This is overwhelmingly attributed to falling energy prices, which have dropped at a 3.2 percent annualized rate compared with an increase of a 35.0 percent annualized rate over the prior six months.
There are few signs of inflation, with the rebound of the dollar amidst troubles in Europe, falling trade prices, and producer prices slackening at all stages of production. Even with the drop in energy prices, the real average hourly wage has lagged consumer prices at a 1.2 percent annualized rate over the last three months. Unless there is an increased demand for goods and services domestically and abroad, it's doubtful inflation will be an immediate problem for the economy.
As the New York City police chase out and arrest protesters at the Occupy Wall Street site, they are also giving the world a lesson in how free market economics ain't what it is cracked up to be. One of the side bars to this action is the disregard by the police for the personal property of the protesters, as they destroy or discard the sleeping bags, tents and various personal items of the protesters. (According to one account, this disregard applies to one of the protestor's dogs. That is not funny.)
Of course the treatment of the property is a trivial issue compared to the larger one of whether people's right to protest is properly respected. However, it is worth comparing it to treatment of other property of little value.
What is the value of a copyrighted song that is downloaded without permission? It's pretty damn trivial. Yet law enforcement officers can be made to take this value very seriously. What explains the contrast between the disregard for the protesters' personal property and the government's great concern for enforcing the copyrights of corporations like Disney and Time Warner?
One could suspect that it has something to do with the fact that the latter are large corporations who have the ability to force the government act in their interests. But, that is just a guess. Of course if economists ever paid attention to things like efficiency, they would be appalled by the fact that we rely on such an incredibly inefficient system to finance the production of creative work. But economists rarely seemed concerned about efficiency when the implications might be negative for people with money.
Héctor Cordero-Guzmán has conducted a second round of his #OWS survey on occupywallst.org, following up on his Oct. 5 study, which I discussed in an earlier post. Cordero-Guzmán fielded the second survey on the #OWS website Oct. 20-21, right after the movement’s one-month anniversary. How has the #OWS support base changed since the beginning of October? Let’s go to the numbers.
From round one to round two, #OWS supporters are older (see graph below). In round two, 32 percent of survey respondents are 45 or older, up from 12.6 percent in round one. While almost half of supporters (49.5%) are still in the 18-34 age group, Mike Konczal argues that the movement should not be dismissed because of its young support base. He points out a large proportion of young people are involved in the #OWS movement because they have the most to lose in the current economy.
Last Sunday, Nicaraguan President Daniel Ortega was re-elected by a large margin. His party, the Sandinista National Liberation Front (FSLN), won an unprecedented majority in the National Assembly. The major media, which are generally hostile to Ortega (and to most of the left governments in Latin America), mostly missed the main economic changes that might explain this result. These include a significant reduction in poverty and inequality and a considerable increase in access to health care and education.
Given that the world economic downturn occurred right as Ortega’s government social and economic programs were taking effect, it is surprising that poverty decreased at the rate that it did during this period. The latest household survey, published in 2009 by the Nicaraguan National Institute of Information and Development (INIDE), showed that while poverty decreased by only 9 percent between 1993 and 2002 (an average annual improvement of 1% per year), this rate of improvement tripled after 2005, decreasing by 12 percent in the four-year period between 2005 and 2009 (an average annual improvement of about 3% per year).
There was an even more pronounced change in the levels of extreme poverty, which had declined at a slow pace between 1993 and 2002 and had risen alarmingly between 2002 and 2005. In the four years after 2005, extreme poverty witnessed an average annual decline of 4.0 percent, compared with a 4.4 average annual rate increase between 2002 and 2005.
The Obama administration has staked out grounds in opposition to the financial speculation tax is being considered by the European Union and was recently proposed in Congress by Senator Tom Harkin and Representative Peter Defazio. There are three main arguments that have been given:
It is not enforceable;
That it will be passed on to ordinary investors; and
That is will raise the cost of capital, thereby reducing output and employment.
Each of these can be quickly dismissed.
On the first point, financial transactions taxes actually exist in the world and raise considerable revenue. The U.K. has a 0.5 percent tax on stock trades and raised between 0.2-0.3 percent of GDP annually ($30 billion to $40 billion a year in the United States). There will be some flight to tax havens, but the extent of this flight will largely depend on the willingness of the United States government to counter it. There have been many questions raised by the competency of the Obama administration, but surely it could limit this route to evasion, if it chose. People are not running guns for Al Queda from the Cayman Islands.
As far as the second point, since most investors trade infrequently, the amount of the tax would be trivial -- considerably less than borkerage commissions and other fees charged by the financial institutions that manage 401(k)s and similar accounts. Furthermore, the response to a tax would be a decline in trading. Most research indicates that the decline in trading volume should roughly offset the increase in the cost per trade due to the tax. This means that for the typical investor they will be spending no more on their trades after the tax than before.
Finally the claims, based on dubious models, that the tax will lead to a substantial decline in GDP and jobs are just silly. The implication is that financial transactions costs have a large impact on productivity. The model implied that the 0.1 percent increase in the transactions costs for stock trades from the tax being considered by the EU would lead to a 1.76 percent decline in output.
Since transactions costs have fallen by around 5 times this amount over the last 30 years, this would mean that declining transactions account for about 8 percentage points of the increase in productivity growth over this period. This would be around 15 percent of the productivity growth over this period. If this was true then it is remarkable that none of the standard growth models includes financial transactions costs as an important contributing cost.
If this is true, then the U.S. should anticipate slower productivity growth in the years ahead, since there is little room for transactions costs to decline further, now that they getting close to zero. This claim would also mean that the U.K. could quickly see a a jump in its GDP of close to 9 percent if it got rid of its tax. (There was no notable jump when it reduced the tax from 1.0 to 0.5 back in 1986.)
In short, it highly unlikely that anyone really believes this claim about the impact of a financial speculation tax on growth and jobs. But hey, it's a good thing to say if you want to protect Wall Street.
The political deadlock between President Obama and Congress makes it almost impossible for any further job creation bills to be approved before the next election. If Congress were willing, the best solution would be a large stimulus program. Since Congress is not willing, here are some policies that President Obama could pursue on his own to reduce unemployment.
1. Work sharing
This one should be a simple and non-partisan issue. As it stands now, workers who lose their job can get up to 99 weeks of unemployment benefits. These benefits are typically about half of their wages. However if they have their hours reduced, then they get nothing. This effectively makes it better for many workers to get laid off than to have their hours reduced.
Work sharing allows workers to use their unemployment insurance to partially offset a reduction in hours. For example, a worker who has his hours reduced by 20 percent would have 10 percent of his total wages made up by unemployment benefits.
There are already 23 states that have work-sharing programs. But many employers and workers don't know the programs exist, and the take up rate is low. President Obama could try to increase the take up rate by both promoting the program and encouraging the Labor Department to be flexible in enforcing the rules for Unemployment Insurance program, so that states can have the ability to be more flexible in their administration of the program. If just 5 percent of layoffs/dismissals can be prevented through work sharing, this would translate into 1.1 million additional jobs by the end of a year.