Posted in Economic recovery on January 30, 2015|
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In the State of the Union, President Obama proclaimed the good economic news. He declared 2014 a “breakthrough year for America,” noting “our economy is growing and creating jobs at the fastest pace since 1999.” He also made the case for “middle-class economics,” promising a budget that would focus on “lowering the taxes of working families and putting thousands of dollars back into their pockets each year.”
Things appear far less rosy a week and one-half later. The Commerce Department’s growth figures for the final quarter of 2014 (released Thursday) reveal a slowing economy: 2.6 percent for the fourth quarter, compared with 4.6 percent in the second quarter and 5 percent in the third. That places real GDP growth for 2014 at 2.4 percent. The “breakthrough year” seems to be but a marginal improvement over 2.2 percent (2013) and 2.3 percent (2012). The Commerce Department also released the figures on the seasonally adjusted homeownership rate: 63.9 percent, the lowest level in 20 years.
Perhaps these figures only strengthen the case for “middle class economics”? Unfortunately, the Tax Policy Center’s analysis of the tax provisions in the SOTU reveal that the middle class (the middle quintile) would actually incur a tax increase of $7. Certainly, the provisions would have a significant impact on the top quintile (an average increase of $1,818) with the greatest hit on the top 0.1 percent ($168,006). But the increased revenues would give the greatest relief to the bottom quintile ($174), rather than the middle class. As Max Ehrenfreund (Washington Post, Wonkblog) notes: “There’s no point in calling this tax plan ‘middle-class economics,’ since its main effect is to help the poor. After all, they’re the ones who need it most, and there’s no reason to shy away from policies that benefit them.”
Well, there is a reason for calling this “middle-class economics” just like there is a reason for calling 2014 a “breakthrough year.” Unfortunately, the reason is not grounded in the empirics.
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Last week we received the “good news” about the economy. Unsurprisingly, I was a bit skeptical (here). While jobs are being created—321,000 in November alone—long-term unemployment and workplace participation rates remain abysmal. For those who would like to celebrate the recovery, I recommend Binyamin Appelbaum piece on “The Vanishing Male Worker” (NYT). As Appelbaum notes:
Working, in America, is in decline. The share of prime-age men — those 25 to 54 years old — who are not working has more than tripled since the late 1960s, to 16 percent. More recently, since the turn of the century, the share of women without paying jobs has been rising, too. The United States, which had one of the highest employment rates among developed nations as recently as 2000, has fallen toward the bottom of the list.
Many men, in particular, have decided that low-wage work will not improve their lives, in part because deep changes in American society have made it easier for them to live without working. These changes include the availability of federal disability benefits; the decline of marriage, which means fewer men provide for children; and the rise of the Internet, which has reduced the isolation of unemployment.
Welcome to the “New Normal.”
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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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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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