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.
The National Labor Relations Board (NLRB) is the government agency tasked with enforcing the provisions of the National Labor Relations Act, under which private-sector employees have the right to join together as a labor union. One of the major activities of the NLRB is to conduct union representation elections, in which workers vote on whether or not to form a union at their workplace. In June of this year, the NLRB proposed rules to reform procedures concerning these elections, so as to "reduce unnecessary litigation, streamline pre- and post-election procedures, and facilitate the use of electronic communications and document filing."
CEPR Co-Director Dean Baker testified at a public hearing about these proposed changes, along with about 60 other speakers. In his testimony, Dean highlighted the research of CEPR Senior Economist John Schmitt and Senior Research Associate Ben Zipperer, in which they found "that in the 2000s workers were illegally fired in over 1-in-4 (26 percent) of union election campaigns, up sharply from about 16 percent in the late 1990s."
It is likely that fewer workers would be illegally fired for supporting efforts to organize their workplaces if these proposed rules were implemented and union elections happened more quickly than they do now. However, congressional Republicans, who have already kicked their attacks against the NLRB into high gear, have now also drafted legislation that would prevent these needed reforms from being made and would, in many cases, increase the amount of time from the filing of an election petition to the actual election.
It is times like these that I'm glad CEPR has a collection of accurate, independent research about the benefits of unions to workers. This year we've also begun to alert our blog readers to the latest research on labor market policy from other organizations. And, of course, we will continue to conduct research about unions and more general issues affecting workers, like our new paper about trends in unionization rates in 21 wealthy countries from 1960 to the present, by Domestic Intern Alexandra Mitukiewicz and Senior Economist John Schmitt. It will be released in the next few days - so keep an eye out.
The economy generated just 80,000 jobs in October, according to the latest Bureau of Labor Statistics' employment report. The latest jobs numbers continue a pattern of weak job growth. While upward revisions for the prior two months brought the three-month average to 114,000 jobs, this is only slightly higher than the 90,000 necessary to keep pace with the growth of the labor force. With this pace, it would take more than 33 years to return to pre-recession employment rates. And there is zero evidence in the latest jobs report of anything to suggest a boost to the labor market is on the horizon.
The data in the household survey was slightly more encouraging. While the unemployment rate edged down to 9.0 percent, the employment-to-population ratio (EPOP) increased by 0.1 percentage points to 58.4 percent. This is up from a low of 58.1 percent in July. This is a turn in the right direction; although this figure is still just bringing the EPOP back to its May level. It is still 5.0 percentage points below the pre-recession peaks hit in 2006.
In a post yesterday, I wrote that the new poverty measure proposed by the Obama Administration—known as the Supplemental Poverty Measure (SPM)—likely increases the poverty rate by a modest amount compared with the official rate (less than 1 percent), while producing lower poverty rates in most (34) states. A story in today's New York Times by Jason DeParle and Sabrina Tavernise goes considerably further, saying that the "bleak portrait of poverty" painted by official poverty statistics "missed the mark" with the implication being that poverty is "less bleak" than official statistics suggest.
Oddly missing from the article is any clear mention of the fact that the Supplemental Poverty Measure actually paints a modestly "bleaker" portrait of poverty in 2009, a fact confirmed by Census officials in a media webinar this morning. In fact, as the table below shows, some 2.4 million more people lived in poverty in 2009 than under the official measure.
The unexpected Halloween storms were the first but certainly won't be the last winter storms to create uncomfortable conditions for the #OWS protesters. Will the cold weather freeze out the movement? Mother Nature may be unpredictable but the movement is looking towards the long-term. On occupywallst.org the protestors are asking for winter donations, bundling up to survive future Nor’easters. To date, #OWS has collected almost half a million dollars in donations, allocating money carefully and democratically. Working groups approved by the #OWS general assembly are allowed to spend $100 a day for expenses such as materials to clean up Zuccotti Park, tents, and medical care. In the name of full transparency and disclosure, #OWS has posted their financial report, complete with the step-by-step process of allocating money, info on the #OWS bank account, and a balance sheet and income statement. The allocation process is monitored by the finance committee, made up of bookkeepers and entrepreneurs, and advised by CPAs. Within a matter of weeks, Zuccotti Park has turned into a democratic micro-economy.
While the movement is preparing to survive the winter season, the mainstream media has lost some interest. As seen in the graph below from a recent PEJ news coverage index report, last week’s coverage of #OWS is about half what it was back in mid-October (down to about 5% of weekly “newshole” coverage, compared to 10% just a few weeks ago). This week’s coverage is up slightly from last week’s, due to the controversial eviction of Occupy Oakland, during which an Iraq war veteran was wounded.
On Friday, November 4, the Census Bureau is holding a webinar on the Obama Administration's proposed "supplemental" poverty measure. The webinar is in advance of the release of new research on the measure on Monday.
Media stories about the Obama measure have generally focused on the likelihood that it would produce a national poverty rate in recent years that is modestly higher than the outdated official poverty rate. Conservatives like Robert Rector and Robert Samuelson have seized on this to claim that the measure is part of a liberal plot "to promote income redistribution."
Alas, no. In fact, Obama's new poverty measure, like so many of the Administration's proposals, gives up too much to conservatives — without actually getting their support in return — and does too little to advance progressive priorities. For reasons I have detailed in a 2010 report and at a Brookings forum, it is at best a centrist compromise proposal that leans right, not a progressive initiative. While the Obama poverty measure is based on recommendations made by the National Academy of Sciences in 1995, those recommendations left a lot of wiggle room for policymakers, including on fundamental issues such as where to actually set the poverty threshold. However, on these issues, the Administration has consistently adopted a conservative reading of the NAS recommendations.