The rate of GDP growth slowed to just 0.1 percent in the first quarter, largely as a result of sharp reversals in exports and investment in equipment. In the fourth quarter, exports had grown at a 9.5 percent annual rate adding 1.23 percentage points to fourth quarter growth. Equipment investment rose at a 10.9 percent rate adding 0.58 percentage points to growth. Both numbers were largely reversed in the current quarter, with exports shrinking at a 7.6 percent rate and equipment investment falling at a 5.5 percent rate. Together these drops subtracted 1.39 percentage points from growth for the quarter.
There was also a reversal on inventories, which showed a slower rate of accumulation in the quarter. As a result, they subtracted 0.57 percentage points from growth in the quarter. They had added 1.87 percentage points to the strong 4.1 percent growth number reported for the third quarter of 2013.
One strong spot was health care spending, which added 1.1 percentage points to growth for the quarter. This is undoubtedly the effect of the Affordable Care Act. Presumably this indicates a one-time jump and not a higher rate of growth going forward. While the weakness in the first quarter number is clearly overstated by focusing on the 0.1 percent overall growth figure, this report suggests GDP growth might for 2014 might be somewhat lower than most forecasters had expected.
At the beginning of 2014, thirteen states increased their minimum wage. Of these thirteen states, four passed legislation raising the minimum wage (Connecticut, New Jersey, New York, and Rhode Island). In the other nine, the minimum wage automatically increased in line with inflation at the beginning of the year (Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Vermont, and Washington state).
Last month, CEPR looked at state-by-state employment growth in the first two months of 2014, highlighting these 13 minimum wage-raising states for easy comparison. Using new employment data from the BLS, we can now update these figures with data from the month of March.
Early on in his (rightly) highly complimentary review of Thomas Piketty'sCapital in the 21st Century, Paul Krugman declares: “This is a book that will change both the way we think about society and the way we do economics.” Krugman is certainly correct about the impact that Capital in the 21st Century will have on the way we think about the world. But, I wonder whether the book will have much impact on the progressive policy agenda in the United States.
Last week, when Piketty was in Washington, DC, I attended one of his book events (at the Economic Policy Institute with co-sponsorship from the Washington Center for Equitable Growth) and watched another (at the Urban Institute) online. At those events, as in the book, Piketty warned that unless we can lower the rate of return to capital (r) below the rate of growth (g) in the overall economy, it will be very hard to block rising inequality in income and wealth at a national and a global scale. Piketty's preferred policy for getting “r” below “g” is a steep, global, progressive wealth tax.
Silicon Valley has for some time prided itself on a supposedly novel approach to corporate practice. High-tech firms, and the luminaries who lead them, have espoused doctrines pledging to think differently, not be evil, or otherwise changing or breaking with traditional corporate behavior. While these firms may at times fail to live up to their high-minded ideals – accumulating vast cash reserves beyond the purview of the US tax code, and shifting their workforces overseas, much like their corporate peers outside of the Valley – they have gotten a pass from much of the public for their well-minded intentions (not to mention savvy marketing campaigns).
Lawrence Summers, former U.S. Treasury Secretary, will deliver the keynote address. This conversation is especially crucial in the context of continuing high unemployment and growing inequality, even after 5 years of economic recovery.
Convened by Jared Bernstein, Senior Fellow at the Center on Budget and Policy Priorities and previously Vice President Biden’s chief economic adviser, CEPR co-director Dean Baker will be one of the featured panelists. They'll be joined by economists Laurence Ball, Kevin Hassett, and Susan Houseman, and other renowned public policy experts.
This graphic below traces almost twenty years (January 1995 to February 2014) of gains and losses in US manufacturing, finance, and public employment. Job growth (or loss) is indexed, with three choices for a base point: the start of the series (January 1995), the end of the boom of the late 1990s (January 2000), and the onset of the last recession (December 2007). On each graph, the national numbers are represented by the red line and job trajectories in the states (mouse over the graph, or filter the state list, to identify particular states.
[Note: this blog post has been updated with the BLS data from March, updated post here]
At the beginning of 2014, thirteen states increased their minimum wage. Of these thirteen states, four passed legislation raising the minimum wage (Connecticut, New Jersey, New York, and Rhode Island). In the other nine, the minimum wage automatically increased in line with inflation at the beginning of the year (Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Vermont, and Washington State).
Earlier this week, Goldman Sachs conducted a simple evaluation of the impact of these minimum-wage increases on state employment levels. Goldman Sachs compared the employment change between December and January in the 13 states where the minimum wage increased with the employment change in the remainder of the states, where the minimum wage remained constant. They concluded that “January's state-level payrolls data failed to show a negative impact of state-level hikes (in the minimum wage). Relative to recent averages, the group of states that had hikes at the start of 2014 in fact performed better than states without hikes. While this is only one month's data, it suggests that the negative impact of a higher federal minimum wage--if any--would likely be small relative to normal volatility.”
Thomas Piketty’s provocative new book, Capital in the Twenty-First Century, has struck a chord among prominent economists and political scientists in these trying times. Piketty’s sweeping account of economic theory and history highlights the special character of capital accumulation as the driver of economic inequality, and he challenges us to place distributional questions at the center of the economic debate. Positing that broad-based economic growth is largely a relic of the short 20th century, he contends that the returns on capital will continue to outpace the economic gains accessible to the majority of society, ultimately threatening the foundation of our liberal-democratic states.
Piketty will be visiting Washington DC this April to discuss Capital, with stops in New York in Boston to follow. Be sure to attend one of the discussions of what is already shaping up to be a seminal work of political economy. You can find a list of these speaking events at the bottom of this post.
In case you have not gotten your hands on a copy of the book, or are as of yet unconvinced that you should read it, I have included below a sampling of reviews of Capital in the Twenty-First Century.
Maybe you’ve had that early morning moment of anxiety when you wake up with a fever and a cough that won’t stop and you think ‘Should I go to work today?’ If you’re lucky, your employer offers a few paid days off in case of illness and you can roll over to get some much needed rest. Unfortunately, that is not the case for everyone. More than 41 million working Americans, in industries from fast food to health, education and social services, face the dilemma of taking time to recover from an illness or losing a day’s pay.
Currently, only seven cities in the United States and the state of Connecticut have laws mandating some type of paid sick leave. Yes, that is as bad as it sounds. To give a little context,
In a discussion yesterday with Bill Bennett, Rep. Paul Ryan told him: “your buddy Charles Murray or Bob Putnam at Harvard, those guys have written books on this, which is we have got this tailspin of culture, in our inner cities in particular, of men not working and just generations of men not even thinking about working or learning to value the culture of work, and so there is a real culture problem here that has to be dealt with.” [italics mine]
If it’s not immediately apparent how the rate of job creation on Bill Gates’ estate is relevant to the pace of job growth in California and Texas then you have to think about the issues more carefully. In recent weeks, many proponents of low taxes have been touting the faster pace of job growth in low tax Texas compared with high tax California as proof of the economic superiority of the low tax model.
There is little doubt that Texas has seen faster job growth in recent decades. Since the business cycle peak in 1981 employment has grown by 56.0 percent in California, compared to 77.9 percent in Texas. If our only measure of economic success is job creation, there is no doubt that Texas wins the prize, but it is a bit more complicated.
First there is the issue of oil, which is important but by no means the only factor explaining differences in growth. By using 1981 as a base year, we are comparing a near peak oil price with another period of high prices. But Texas’ growth pattern does look a bit like an OPEC country. If we take the low oil price year of 2000 as the end point, California wins the job growth prize 48.6 percent to 47.1 percent. So clearly the price of oil (and gas) plays a big part in the economic performance of Texas.
However there is another very important factor in the story, building restrictions. In general, California imposes relatively tight restrictions on building, whereas regulations in Texas are considerably more lax. The result is that, relative to the size of its population, much more housing has been built in Texas over the last three decades than in California. And this has meant that housing is considerably cheaper in Texas than in California.
Just to take a couple of examples, according to the Department of Housing and Urban Development, the fair market rent for a two-bedroom apartment in Los Angeles County is $1,398 a month. In Harris County, which includes Houston, it’s just $926 a month. The fair market rent for a two-bedroom apartment in Santa Clara County, which includes San Jose, is $1,649 a month. It was just $894 in Dallas County in 2010, the most recent year available.
This morning, one of the largest caucuses in Congress, the Congressional Progressive Caucus, released the Better Off Budget. The headline numbers are impressive: 8.8 million jobs by 2017, and $4 trillion in deficit reduction over the next 10 years.
Budget experts and journalists have posted good summaries of the dozens of proposals in the Better Off Budget, such as investments in infrastructure and clean energy; the reversal of sequestration and other spending cuts; and funding for the long-term unemployed, rehiring of state employees, and public works and job training programs.
Douglas Elmendorf, director of the Congressional Budget Office, will also be testifying. He'll likely be presenting the results of a recent CBO study on the effects of a minimum wage increase. That report generated a lot of media attention, mostly for its projection that a raise to $10.10 per hour would "reduce total employment by about 500,000 workers, or 0.3 percent."
Indeed there is a relationship between unemployment and inflation. The Federal Reserve is tasked with balancing inflation and unemployment, and when the Fed fears inflation, it raises interest rates with the intent of slowing the economy and creating unemployment. To some extent, then, the relationship is the Fed’s doing.