Posted in Economic recovery on June 6, 2014 |
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The Bureau of Labor Statistics has released its Employment Situation Summary for May and the economy added 217 thousand jobs in May. As the Washington Post reports:
The strong report, which was released Friday, marks the fourth consecutive month that the country has added more than 200,000 jobs — a key benchmark for a healthy economy. The national unemployment rate held steady at 6.3 percent.
May’s job gains also mean the country has recaptured all the jobs lost during the recession, and employment is now at an all-time high of 138.4 million people.
On the other hand…
economists were quick to point out that the nation’s population has also grown. The share of people who have a job remains smaller than when the recession started in 2007. An analysis by the liberal Economic Policy Institute found that 7.1 million more positions need to be created to fill that gap.
ZeroHedge has a nice graphic that reflects the current situation and asks a simple question: “Is the US worker’s cup half full or half empty?
I was struck this past May when I asked my graduating seniors about their plans post-graduation. The responses, rank ordered: (1) moving home or in with friends/siblings in the hope that something will happen; (2) moving home and then off to graduate or law school; (3) unpaid internship; and (4) job (and this category included a gig on an organic farm in the Northwest). In contrast, before the collapse almost all of my seniors who were not going on to grad school had jobs locked up, the best ones having been hired months before graduation. Most of my recently graduated students seem to believe that the glass is half empty…at the very least.
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Posted in Economic recovery on May 2, 2014 |
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This has been a mixed week for economic news. On the positive front, the Bureau of Labor Statistics announced that the economy added 288,000 jobs, bringing the unemployment rate to 6.3 percent, the lowest since 2008 (see New York Times coverage here). While this would appear to provide evidence that things are, in fact, improving, there are some important caveats: 806,000 exited the labor force, bringing the labor participation rate down to 62.8 percent. Moreover, there is an interesting disjunction between the two sources of data on unemployment: the Establishment Survey figures of 288,000 new jobs does not match the more volatile Household Survey that reports a loss of 78,000 jobs (see Zero Hedge for some additional commentary and Vox for a nice overview of the differences between the two surveys).
I would be surprised if these numbers hold up once the revisions are in. The simple reason: they don’t fit with some bad economic news released earlier this week.
On Wednesday, the Commerce Department’s Bureau of Economic Analysis reported that the economy has essentially stalled, generating a 0.1 percent annual growth rate in the first quarter. As Megan McArdle commented on the GDP report:
the fact remains that we seem to be stuck. Six years after the financial crisis, we still haven’t entered anything that could really be called a “recovery.” A recovery would mean some sort of catch-up growth that reabsorbed stranded workers and capital. Instead, we’re barely limping forward, and the most cheerful thing we can say about any of it is that at least we’re no longer falling back.
For once, Megan McArdle may be the optimist. As Ylan Q. Mui (Wonkblog) notes: many are suspecting that when all the adjustments have been done, we may learn that the economy actually shrank. Newly released Census Bureau data on construction spending was far weaker than expected: “instead of the 0.2 percent boost in private nonresidential construction spending assumed in the GDP calculation, there was likely a 5.7 percent decline.”
Bottom Line: Even if economic growth is as reported on Wednesday (.1 percent), it is hard to see how this anemic performance could generate 288,000 new jobs—the best performance since January 2012. I am assuming that revisions will be forthcoming.
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I always find polls to be interesting. In my mind, one of the more fascinating things is when there is a large disjunction between individuals’ assessment of X (e.g., the environment, crime, education, the economy) as they experience it and their assessment of X as the nation experiences it. I often attribute the differences to the simple fact that the latter question is strongly influenced by the way in which X is portrayed by the media and political elites. One might be satisfied with the environment as one experiences it at home, for example, but the media provides heavy coverage of environmental catastrophes, oil and chemical spills, etc.
In the latest NBC/WSJ Poll (results here), 61 percent report being very/somewhat satisfied when asked to assess their “own financial situation today.” At the same time, when asked “how satisfied are you with the state of the U.S. economy today?,” only 28 percent say they are very/somewhat satisfied. 71 percent claim to be dissatisfied (37 percent somewhat dissatisfied, 34 percent very dissatisfied).
Another question: how well is the economy working for different types of people? Fully 81 percent believe it is working very/fairly well for the wealthy whereas only 22 percent believe it is working very/fairly well for the middle class. There is an obvious tension here, given that “middle class” is the modal category and a majority (71 percent) is very/somewhat satisfied with the economy as they experience it. Similar to the earlier example of the environment, one might hypothesize that the disjunction is a product of the way in which the economy is portrayed in the media and by political elites. (more…)
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It appears that President Obama’s address on inequality was the beginning of a larger move to the left and an embrace of economic populism. As Edward-Issac Dovere (Politico) explains:
[Obama is] connecting to progressive populism with an aggressive, spending-oriented, activist government approach to the economy personified by Elizabeth Warren and Bill de Blasio. Obama’s already backed raising the minimum wage, the start of what White House officials say will be a 2014 domestic agenda — including his State of the Union address and budget — that centers around income inequality and what the government is doing to increase economic mobility.
Obama needs his base invested to help him recover from his low poll numbers and give his party a platform as Democrats try to make the House competitive and hold onto to their majority in the Senate. And those in the coalition that won Obama two elections — young people, African-Americans, Latinos, single women and immigrants — are precisely the ones hit hardest by the doldrum economy.
Will this strategy succeed? The answer would seem to hinge on three things.
- Success in shifting the focus from the sluggish economy (e.g., the “jobs deficit,” problems of long-term unemployment, dramatic reductions in the labor force participation rate) to inequality in income distributions and the claim that these inequalities (rather than economic policy or the intrinsic problems of recovering from a financial crisis) have impeded recovery.
- Success in convincing voters that the correct policy response to this situation is an expansion of social policy expenditures (e.g., increases in Social Security) and a higher minimum wage
- Success in convincing voters that they should, in essence, vote themselves a raise in the 2014 midterm elections since there are limits to what can be achieved through executive action.
I am skeptical that this strategy will succeed for a host of reasons (e.g., the contours of public opinion, the likelihood that ongoing problems with Obamacare implementation will dominate the news, the President’s lack of follow through on priorities announced in the State of the Union). But given the poor economic performance since the financial collapse there is likely a growing pool of desperate voters open to these claims. They may apply a sufficiently high discount rate to the future that the long-term fiscal consequences of expanded social policy expenditures will not matter much.
For those who are interested in reading more, see Alex Pareene, “Why Elizabeth Warren Baffles Pundits” (Salon), Frank James, “Is Economic Populism a Problem or a Solution for Democrats?” (NPR) and Third Way’s John Cowan and Jim Kessler’s op-ed (WSJ), “Economic Populism is Dead”
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Last week, President Obama gave a speech on economic mobility and argued that addressing economic inequality was “the defining challenge of our time.” He stated:
But we know that people’s frustrations run deeper than these most recent political battles. Their frustration is rooted in their own daily battles — to make ends meet, to pay for college, buy a home, save for retirement. It’s rooted in the nagging sense that no matter how hard they work, the deck is stacked against them. And it’s rooted in the fear that their kids won’t be better off than they were. They may not follow the constant back-and-forth in Washington or all the policy details, but they experience in a very personal way the relentless, decades-long trend that I want to spend some time talking about today. And that is a dangerous and growing inequality and lack of upward mobility that has jeopardized middle-class America’s basic bargain — that if you work hard, you have a chance to get ahead.
President Obama asks (and answers) an important question: “if, in fact, the majority of Americans agree that our number-one priority is to restore opportunity and broad-based growth for all Americans, the question is why has Washington consistently failed to act? And I think a big reason is the myths that have developed around the issue of inequality.” According to the President, the myths include: (1) “the myth that this is a problem restricted to a small share of predominantly minority poor,” (2) “the myth that growing the economy and reducing inequality are necessarily in conflict,” and (3) “the belief that the government cannot do anything about reducing inequality.” Even if these are correctly seen as myths (the address provides some qualifications) the problem may be found in the premise. (more…)
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Ah, yes, a bit of nostalgia from the “summer of recovery”: the Car Allowance Rebate System (CARS), also known as Cash for Clunkers.
It seemed quite promising to many in the halcyon days of 2009. Citizens could trade in their old gas guzzlers (which were subsequently destroyed) for a rebate that could be applied to purchase a more fuel-efficient car. It would simultaneously stimulate the economy (and the auto industry) and improve the environment. Undoubtedly, as part of the stimulus efforts, it would pay for itself.
Ted Gayer and Emily Parker have a new paper and policy brief at Brookings on the program. (For a brief overview, see Kevin Robillard’s piece in Politico). The discussion below draws from the policy brief.
How did Cash for Clunkers perform?
- By the end of the program, 677,842 vehicles were traded for vouchers, at an overall cost of $2.85 billion (some $4,200 per rebate).
- But according to Gayer and Parker, the program only added 380,000 additional sales to what would have occurred absent the program, and these were largely sales that were pulled forward from sales that would have normally occurred in the future. “Ten months after the end of the program, the cumulative purchases from July 2009 to June 2010 were nearly the same, showing little lasting effect.”
- And while there was a short-term addition of $2 billion to GDP, it was simply pulled forward from the next two quarters.
- Cars for Clunkers did create jobs, but at a cost of $1.4 million per job.
There are some additional information in the brief on the distributional impacts (surprise: the recipients tended to be more affluent than those who purchased a new or used car during the same period without a rebate) and the environmental impacts (surprise: Cash for Clunkers was not a cost-effective means of reducing carbon emissions).
Bootlegger-Baptist coalitions (a term coined by economist Bruce Yandle) are common in politics (particularly in regulation). In essence, a Bootlegger promotes a policy that will further its economic interests. It legitimizes its efforts by forming a coalition (often implicit) with the Baptists, who appeal to higher values or the public good. A simple example: renewable fuel standards. Agribusiness secures a market for corn ethanol, and draws on environmental advocates for cover. In Cash for Clunkers, the bootlegger is easy to identify: auto dealers. Robillard’s article notes that the program retains the support of the National Automobile Dealers Association, which strongly advocated the program at its inception and lobbied quite effectively for its expansion from $1 billion to almost $3 billion. Its spokesperson noted: “There’s no question Cash for Clunkers was the best Obama administration program to date.” From the perspective of the industry, what’s not to like? It provided a de facto subsidy for the industry, and industry self-interest was veiled by tying it to the larger goals of promoting the needs of the unemployed and saving the earth. Even if the Baptists were hung out to dry (another parallel with ethanol), what’s the harm? The $2.85 billion price tag (not including interest) will fall to future generations (i.e., the children who had the brief privilege, in 2009, to ride in their parents’ new cars).
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Here are quarterly data on “usual weekly earnings” in current dollars from the Bureau of Labor Statistics. The first graph shows the first (lowest) decile of wage earners. The second shows the ninth (why not the tenth? BLS does not make that an option). These data should be relevant to the debate over whether most unemployment we’re seeing in the U.S. is structural or cyclical.
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