Friday, November 6, 2009

Dollars and Sense

QOTD, Robert Reich:

That should be Obama's selling point to the Blue Dogs. He should tell them the economy needs a bigger stimulus in order to show improved job numbers by the mid-term elections. And he should make sure they understand that they're more politically endangered next November if the the job numbers aren't moving in the right direction by then than if they vote for a larger stimulus now.

Krugman: Obama’s trap

Back in the first few months of the current administration, when I was writing piece after piece urging the new administration to adopt a more aggressive economic policy, what I had very much in my mind — and wrote about on a few occasions — was the possibility of a sort of political economy trap. If unemployment continued to rise, I feared, Congress wouldn’t draw the right conclusion — that we needed more stimulus. Instead, the verdict would be that Obama’s economic policies weren’t working, so we needed to do less. And high unemployment would also lead to Democratic electoral losses, further undermining the ability to act (since the fact is that today’s GOP is the party of economic ignorance). The result would be a persistently depressed economy, and a fading out of Obama’s promise.

I really, really wish I had been wrong about this — and for a while, as banks seemed to regain their footing and stocks went up, it looked as if the administration’s softly, softly policy might work out after all. But on the things that truly matter, above all jobs, reality has played out even worse than I feared. Today the unemployment rate passed 10%, a sort of brutal milestone.

The thing to do, I guess, is to keep making the case for doing more; in particular, we can hope that centrist Democrats will finally realize that timid economic policies are hurting their own electoral prospects. But it’s an uphill fight.

Who’s to blame? The buck stops with the president. But did his economic advisers make it clear to him that the proposed stimulus was way short of what the math suggested we needed, even given what was known in January? Or was Mr. Obama really led to believe that his stimulus proposal was as bold as he claimed it was?

I don’t know. But I’ve got a sick feeling about the whole situation.
Yglesias: Unemployment Passes 10 Percent

More bad news on the labor market front:

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Takeaways: One, people need to stop worrying about inflation. Two, the federal government should deploy more aid to state and local governments. Three, instead of easing up on the easing of monetary policy the Fed needs to ease even more, probably by taking some advice from Scott Sumner about ways this is possible.

Meteorblades (DK): Layoffs Slacken. U6 Soars to 17.5%

Nonfarm payroll jobs fell another 190,000 in October, and the U3 unemployment rate calculated by the Bureau of Labor Statistics rose to 10.2%, it was announced this morning. The layoffs were higher than the 175,000 consensus of 84 economists surveyed beforehand by Bloomberg. But the number was also the lowest monthly job loss recorded since August 2008, an indication that the grim job market is improving, but with painful slowness. Earlier predictions by some analysts of a possible net growth in manufacturing jobs failed to pan out. Instead, 61,000 jobs were shed in that sector.

The percentage of officially unemployed Americans rose to the highest level since April 1983, with 15.7 million out of work. An alternative gauge of unemployment used by the BLS, U6, rose to 17.5%, or 27 million Americans. Unlike U3, the U6 figure includes "discouraged workers" and those who are employed part time only because they can’t find full-time jobs.

Click for larger version.
*Numbers in the above chart do not include the 824,000 lost jobs that the BLS will add in its January adjustment to be published Feb. 5.

Click for larger version.

The BLS report also noted:

• The average workweek for production and non-supervisory workers held steady at 33 hours.

• The number of long-term jobless (27 weeks or longer) rose 200,000 to 5.6 million, some 37% of the total who are unemployed. (President Obama will this morning sign the extension of unemployment insurance that was passed by Congress this week after several weeks of Republican obstructionism ignored the plight of workers exhausting their benefits.)

• The U3 rate by gender: men – 10.7%; women – 8.1%. By race: whites – 9.5%; Asian Americans – 7.5%; African Americans – 15.7%; Latinos – 13.1%. The teenage rate (aged 16-19): 27.6%

• Hiring of temporary seasonal workers increased by 34,000 for a total of 44,000 since July.

• August job losses were revised from 201,000 to 154,000, and the losses for September were revised from 263,000 to 219,000.

• The Labor force participation rate sank to 65.1% in October. The employment to population ratio also fell, to 58.5%.

Although some optimists suggest that net positive job growth will begin in the fourth quarter, just as gross domestic product grew in the third quarter, other analysts see that milestone arriving as late as March. Whenever that job growth does occur, it may be anemic. If it is, we could see what was anomaly in the previous two recessions (before the current one) become the standard. That is, a "jobless recovery" marked by much longer lags between the time GDP recovers to its pre-recession level and when the economy employs as many people as had jobs at the recession’s beginning.

Looked at another way, we could have a so-called V-shaped recovery in GDP, with an L________-shaped recovery in jobs.

Here’s some historical data. In the four most recent previous recessions, the bounceback to pre-recession levels went like this:

• 1973-75 - GDP: 24 months; Jobs: 24 months
• 1981-82 - GDP: 24 months; Jobs: 28 months
• 1990-91 - GDP: 18 months; Jobs: 31 months
• 2001 - GDP: 6 months; Jobs: 47 months

Click for larger version of this Calculated Risk chart.

The last time a GDP recovery and job recovery were close to a match came after the recession that ended in late 1982. While that turnaround had its own problems, Eugene H. Becker and Norman Bowers wrote in the February 1984 issue of the BLS's Monthly Labor Review:

The end of 1983 marked a year of recovery from one of the longest and deepest post-World War II recessions. Improvement in the employment situation compared favorably with previous recovery periods. Spurred primarily by a surge in consumer spending, particularly on durable goods such as housing, appliances, and automobiles, real gross national product picked up sharply in the spring and summer months. Overall, real GNP grew by about 6 percent over the year (fourth quarter 1982 to fourth quarter 1983), compared with a decline in the prior year.

Industrial production, which had fallen by just over 12 percent during the 1981-82 recession, increased steadily throughout the year. By yearend, the index had risen by more than 15 percent, with the biggest increases occurring
among durable goods manufacturers.

Concomitant with the improvements in production and spending came sharp gains in employment and reductions in unemployment . While comparatively stagnant in the first quarter of 1983, total civilian employment grew rapidly during the remaining quarters and posted an overall increase of 3.9 million between the 1981-82 recession trough of November 1982 and December 1983. Nonfarm payroll employment increased by 2.9 million over the same period.

The two go on to explore the details in depth. The disconnect between a quarter-century ago and what American working stiffs now face is readily apparent. Ignoring for the moment all those long-standing issues underlying this and other recent U.S. economic crises – stagnant wages, off-shored jobs, a tax code favoring upward transfers of wealth, corporate concentration, and profound conflicts of interest by high government officials, to name a few – today’s counterparts of the consumers who drove previous recoveries live in a different world.

They are heavily indebted and 5.6 million of them have already been out of work longer than the duration of the entire 1981-82 recession. Good news in productivity improvements, vastly reduced layoffs, unexpected improvements in automobile sales and the first GDP expansion in four quarters are tempered by the fact we’re moving upward off very low bottoms, and by bad news like increased bankruptcies, dramatic increases in foreclosures in previously stable cities, and the coming tsunami of lay-offs caused by state budget crashes. Moreover, that touted engine of job growth, small businesses, are having a devil of a time getting the loans they need from the banks the taxpayers bailed out.

Sometime, most likely late in the first quarter of 2010, but possibly sooner, net positive job growth will return. But without further government stimulus – a most difficult sell in Congress these days – the speed with which we get back to where we were two years ago is likely to be torpid. The disconnect between the GDP recovery and the job recovery could expand even more.

To some people that kind of talk bespeaks unwarranted gloom and doom on a day that should be devoted solely to cheers because the job loss numbers are at a 14-month low. To others it’s the view without rose-colored glasses. Only time will tell whose perception turns out to be more accurate.

John Cole: Same Old Same Old

I just heard some former administration official (Bush era, I am assuming, since he wore a bow tie, and using the Tucker Carlson/George Will theorem, the surest sign that someone is both an asshole and about to start spewing bullshit, but who knows for sure) on CNN state that more stimulus money needs to be spent on road construction and infrastructure, because Rahm Emmanuel has spent the money on the Department of Education to achieve a political goal.

Anyone want to count the number of ways that statement is bullshit? We could start with the fact that Rahm Emmanuel had not one vote on the stimulus bill. We could also note that infrastructure spending was toned down by, guess who? We could also note that education spending on teachers is a good thing, because states not laying off teachers keeps people working. And on and on and on. Add your own.

The anchoress at CNN, of course, said nothing.

Another day with our failed media experiment.


We talked earlier about the central division among Democratic policymakers in D.C. -- whether to pursue an ambitious agenda or slam on the brakes. Matt Yglesias and Steve M. disagreed, at least in part, with my take on this, so I thought I'd flesh this out a little more.

Reading over the various reports, and reviewing the Democratic handwringing, there are effectively three competing contingents:

* Go Big: These are Dems who want to generate excitement within the party's base, and run in 2010 on a lengthy record of accomplishments. They envision a scenario in which Dems can pass health care reform, a climate change bill, financial reform, an education bill, immigration reform, and a repeal of "Don't Ask, Don't Tell" before the end of next year. It's ambitious, but doable, and would prove that Dems know how to get things done.

* Go Home: These are center-right Dems, generally from "red" states and districts, who believe every one of the votes the Go Big crowd wants is like a nail in the proverbial coffin. They'll drive "independents" away; reinforce negative stereotypes of the party; and motivate the right wing. It's better to scale back, the Go Home contingent believes, slam on the brakes, and focus on issues like deficit reduction.

* Take A Detour: These Dems don't want to crawl into a hole, but they say it's time to reshuffle the party's priorities. The wish list can remain long, just so long as Democrats limit their ambitions, keep issues like the economy on top, and relegate issues like DADT repeal to the bottom. If Dems focus on job creation, the elections will take care of themselves.

Go Big strikes me as the smart course, but I'm not unsympathetic to the Take A Detour crowd. The problem is the specificity of this group's agenda -- the same congressional Democrats who want the party to "focus like a laser" on job creation and economic growth aren't prepared to show any real follow-through.

In other words, center-right Dems are looking for an excuse to avoid Going Big, and their talk about focusing solely on the economy is just that: talk.

Atrios explained:

While a Congress in which one party theoretically has 60 votes in the Senate can probably walk and chew gum at the same time, it would be nice to know just what focusing on jobs and the economy would mean. For me it would mean direct aid to state and local governments and a massive public works project. To Evan Bayh it might mean cutting the corporate tax rate, or maybe it means nothing at all, but at least he could... propose that!

Right. Bayh and others who are encouraging the party to scale back its ambitions aren't really proposing much of anything. They don't want another stimulus; they don't want more aid to states; they don't want more deficits; they don't want more spending; and they don't even want a climate bill that would create jobs in the energy sector.

These Dems talk about job creation as their top priority, but then fall silent when the inevitable question comes: "OK, how do you propose we create more jobs?"

Matt concluded:

Setting aside elements of the progressive wish list in order to focus on improving the labor market is a reasonable idea. But this crowd doesn't have any actual ideas for doing that. It seems to me that there's good reason to think that resolving uncertainty about the future direction of American energy policy and immigration policy would, in fact, help spur economic growth. But I'd also be amendable to having congress take up additional stimulus legislation as a way to spur economic growth. Or maybe they could do tax reform. But as best one can tell Tanner & Bayh & Lincoln don't want to do any of those things or anything else. It's sad.

It is, indeed.

Krugman: Obama and the conventional wisdom

Andrew Leonard asks when I’m going to “blow my top” over Obama’s statement that now is the time to “get serious” about reducing debt. Um, never?

Look, it has been obvious since the primary, if you were paying attention, that Obama — who has many excellent qualities — has an unfortunate tendency to echo “centrist” conventional wisdom, even when that CW is demonstrably wrong. Remember when he bought into the line that Social Security is in crisis, stepping on one of the biggest progressive victories in decades?

And right now, deficit-phobia has quickly congealed into the latest CW. You can see it in editorials (not from the Times, I’m happy to say, but almost everywhere else), in what the talking heads say, even in supposedly objective news reporting. Not a day goes by without my reading some assertion that “markets are anxious/jittery/worried about the deficit” — an assertion based on no evidence whatsoever. (Long-term interest rates on US debt are near historic lows; CDS spreads show no concern about default.)

And Obama, being who he is, apparently feels compelled to give at least rhetorical obeisance to the CW. We can only hope that his economists, who know better, can convince him not to act on it.

Reich: How Obama Can Convince Congress to Enact a Larger Stimulus, and Why He Must

The Administration's biggest economic mistake so far was to badly underestimate last January how bad the employment situation would become by Fall. As a result, it low-balled the stimulus -- settling for a plan that, while avoiding even worse job losses, didn't go nearly far enough.

Obama has to return to Congress, seeking a larger stimulus.

Yes, I know. We're already in the gravitational pull of the midterm elections (look at the bizarre attention given to gubernatorial elections in New Jersey and Virginia, and even to a congressional election in the 23rd district of New York, as supposed harbingers of voter behavior a year from now!) so it will be even harder to round up the needed votes from Blue Dog Dems fretting over the deficit. And you can forget the Republicans.

And yes, I know: Only about half the current stimulus has been spent, so it will be awkward to make the case that we need a larger one.

But here's the problem. Everything else on the table -- a new jobs tax credit, more loans to small businesses, more help to troubled homeowners, another extension of unemployment insurance, another round of subsidies to first-time home buyers -- are small potatoes relative to the importance and likely effect of a larger stimulus. Some of these initiatives may do some good, but even combined they'll barely make a dent in the growing numbers of jobless Americans.

Meanwhile, the states are slicing their budgets, laying off workers, and ratcheting up taxes. That's because state tax revenues are falling off a cliff, and almost every state is barred by its constitution from running a deficit. That means the states are actively implementing an anti-stimulus plan.

Let's be clear about this. The national rate of unemployment will almost surely hit 10 percent; we'll know Friday whether it already has. This is more a psychological and political threshold than an economic one (it doesn't include everyone who's too discouraged to look for work, or working part time who'd rather be working full time, or working fewer hours in an ostensible full-time job, or otherwise fully employed but being paid less; the Bureau of Labor Statistics' payroll survey, also due Friday, provides a more accurate picture). But it nonetheless represents a degree of hardship this country hasn't seen in decades.

Public approval of Obama’s handling of the economy has slipped to 46 percent in an Oct. 30-Nov. 1 CNN poll, from 59 percent in March. Remember, Obama was elected in part because the public didn't have confidence in McCain's ability to manage the economy. In exit polls last November, almost two-thirds of voters listed the economy as the nation's top issue. If the job numbers don't start moving in the right direction, not only will Obama's poll ratings continue to drop but congressional Dems will all be in trouble.

That should be Obama's selling point to the Blue Dogs. He should tell them the economy needs a bigger stimulus in order to show improved job numbers by the mid-term elections. And he should make sure they understand that they're more politically endangered next November if the the job numbers aren't moving in the right direction by then than if they vote for a larger stimulus now.

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