Category - Unemployment

[cross-posted]

James Hamilton, at Econbrowser, notes that he’s surprised by the 0.75% increase in average house prices (as measured by the S&P/Case-Shiller Index of twenty cities). He also says he’s skeptical because of the backlog of unsold homes, likely increases in foreclosures, and high, rising unemployment, especially since Calculated Risk is, too. I agree that there’s reason to be skeptical, especially since this rise in prices is likely to be a surge of people cashing in on the Obama stimulus package’s $8,000 tax credit for first-time home buyers, which expires this fall. If prices continue to rise beyond that critical point, I’d say my skepticism (and CR’s and Hamilton’s) are wrong.

Robert Kuttner notes an interesting tidbit from, wouldn’t you know it, the Wall Street Journal: since 2001, wages in Europe have been keeping up with inflation and the employment rate has also been rising. Yet in the US, wages have been falling behind the inflation rate and the employment rate has also been sagging. This flies in the face of the conventional economic “wisdom,” which assumes that businesses will hire more workers when the (real, i.e., adjusted-for-inflation) wage is lower. Oh that wacky reality!

[Conflict of interest alert: Kuttner’s post is on his blog promoting his new book, Obama’s Challenge. I work for the publisher of the book.]

[The following is a guest post emailed in to the Center for Popular Economics by a reader of CPE’s newsletter]

by Ben Leet

I am a retired school teacher who has done research on the U.S. economy partly for personal reasons and also because I had been teaching at a school in a poverty neighborhood in Oakland. There were many murders, crimes and depressing events in the neighborhood where I taught. Children brought in bullets that had passed through their walls, or one described a murder that happened in his back yard. Those were the worst examples, but violence was not uncommon. Bad economics, I concluded, contributed to poor student performance, poor behavior, and stunted emotional development. Here are the salient facts I’ve uncovered that point to a society mired in inequality.

Here are the problems we face:

Jared Bernstein (among many many many many many others, including Jonathan, who beat me to the punch below) dissects todays job numbers at EPI’s Job Picture. Particularly telling is this graph:

It shows that year-on-year job growth (a better indicator than the more volatile weekly or monthly job numbers that are widely reported) has been falling dramatically for almost a year now.

UPDATE:

Here’s an even bigger picture from Calculated Risk’s entry on the jobs numbers. In addition to the detail on the slump in job growth over the last year, it’s also easy to spot the jobless recovery under Bush’s watch. During no other recovery period has job growth been so consistently low, than under GWB. And that’s with huge deficit spending and two wars! I used to think that no one could match Warren G. Harding. But, I really must say it: Worst. President. Ever!

I admit to feeling some of that “lack of consumer confidence” myself. No pink slips at my workplace, not that I’ve heard rumor about at least, but news like this doesn’t help.

Employers cut 17,000 jobs from their payrolls in January, Labor Department figures showed. Economists had been expecting a rise of 80,000.

…

The job losses were across all sectors of the economy including manufacturing and professional services.

“The economy is in recession mode,” said Peter Morici, an economist at the University of Maryland.

On the topic of recessions and workers (employed or otherwise) and what we can expect, Working Life blogger Jonathan Tasini reports on analysis from the Center for Economic and Policy Research.

Why listen to what CEPR says? Well, for one, if the world had listened to CEPR, and, in particular Dean Baker, rather than the morons on Wall Street and on the flickering screen, we would have realized a housing bubble was a serious threat long time ago.

So, CEPR says: [click through to see for yourself]

Today’s NYTimes article on Federal Reserve Chairman Ben Bernanke’s testimony to Congress yesterday, and the simultaneous drop in the stock market, includes a few noteworthy passages:

The stock market plunged again on Thursday on bad economic news, taking little comfort from reassuring words by the chairman of the Federal Reserve or an emerging consensus about a stimulus plan that many worry could be too late.

On a day when stocks were pushed down another 3 percent on reports of more weakness in housing and manufacturing — bringing the decline this year to a stomach-churning 9 percent — all the major players in Washington agreed on the need for putting extra money into people’s hands quickly.

President Bush publicly confirmed for the first time that he would propose a package of emergency measures, outlining its basic principles on Friday, in an effort to restore the eroding confidence of investors and consumers. The package is expected to include more than $100 billion in one-time tax rebates for individuals and an opportunity for businesses to rapidly write off their capital investments.

…

Adding to the pessimism, which drowned out the reassurances by Mr. Bernanke that a recession could be averted, were reports that manufacturing activity could be slowing even more than analysts had expected, and that housing starts dropped 14 percent last month and reached their lowest level in 16 years.

Mr. Bernanke insisted that despite concerns about “slowing growth,” the economy remained “extraordinarily resilient.”

I say “noteworthy” in light of Dean Baker’s ongoing crusade to right the wrongs in mainstream media reporting on the economy–and in mainstream economists’ ability to figure out what exactly is happening in the real world. Several of his recent posts deal with the failure of most economists to recognize when a recession begins until long after the fact: “economists have an enormous bias against seeing recessions. Virtually no economist saw the recession coming in 2001, even after the stock bubble was already well on its way to deflating (okay, none of them saw the bubble either). This includes all the official forecasters, CBO and OMB both projected solid growth in 2001.” Scroll through all of Dean’s recent posts and you’ll see more of the same clear-eyed view.

In light of this, how reassured should anyone be when Bernanke says a recession can be avoided? What are the odds that a year from now, the economics establishment won’t have determined that the recession actually started a few months back in 2007? And on top if it all, given that it took the stock market five years (and a terrorist-induced recession and boondoggle war) to largely deflate from the peak of the 1990s bubble (only in 1995 did the S&P 500’s price-to-earnings ratio drop down to the 25-year average — and even that average is well above the longer-term average [pdf chart]), how shocking can it be when it tumbles again and again in face of reality?

“Heterodox Economist” blogger Eric Nilsson has been mulling over issues of unemployment insurance. These recent posts (1, 2, 3) of his make a good introduction to his blog (that’s what they were for me).

I try to follow the rule that blog posts should be more than just a “hey, check this out,” and a link. But I guess some rules are made to be broken. I don’t have much to say about this, but it is definitely worth listening to.

NPR.org, August 8, 2007 · The first morning of my visit to Scenic Trails, I was walking the path between some trailers when I bumped into a man named Tim Szepek. He was young, tall, and solidly good-looking. I asked if I could speak to him for a moment and he agreed. We found a spot of shade beneath a tree, and I started with what I considered a casual warm-up.

“What’s it like to live around here?” I asked.

“Well,” he replied, “I’ll be honest.”

“Ain’t a day goes by when I don’t think about killing myself.”

And so began my time in Scenic Trails, a FEMA trailer park deep in the Mississippi woods where 100 families have lived in near isolation for close to two years.

[cont’d and audio versions]

By Jonathan Teller-Elsberg, CPE Staff Economist

In the U.S., talk of tax reform usually means debates about taxes on income and wealth. A little less common are discussions of flat taxes and a shift from payroll, income, investment, or property taxes to consumption taxes—that is, a federal sales tax.

We’ve seen the miserable results of lowering taxes on the rich, and we’ll be dealing with the massive government debts for decades to come. Flat taxes are simply another way to lower taxes on the rich, under the guise of simplifying the tax system. (To be sure, simplifying taxes is not exactly something to dismiss out of hand—the system is far more intimidating than it should be.) The supposed advantage of a shift to consumption taxes is that the shift away from payroll and/or other taxes should lead to more jobs. This is because a payroll tax makes it “expensive” for a business to have an employee. If the payroll tax is reduced or eliminated, the business will have more money available to hire additional workers. The problem with consumption taxes is that they tend to be regressive—meaning that they fall hardest on lower-income members of society.

Another type of tax reform that deserves more attention is the environmental tax shift (ETS), also known as the green or ecological tax shift. The idea here is to increase taxes on activities that result in environmental damage and use the money generated to reduce other taxes by the same amount. As with the consumption tax idea, most proposals center around reducing payroll taxes.

By Thomas Masterson, CPE Staff Economist

The Basic Income Guarantee (BIG) is just what it sounds like: a guaranteed basic level of income. Most proposals suggest that it be distributed to every adult citizen without regard to income or wealth. BIG would replace all of the social programs currently in place that attempt to reduce or eliminate poverty, such as welfare, unemployment insurance, and Medicaid, with a monthly payment sufficient to lift an individual out of poverty.

Interestingly, this proposal is drawing support from the right as well as the left (leftists have long supported versions of this proposal). Even Charles Murray (think “The Bell Curve”) likes it: he has written a book about it in which he seems to say that he thought it up, calling it “The Plan.” By eliminating the need to monitor for fraud and abuse of the system, BIG would actually be cheaper than our current system of multiple benefits and eligibility criteria. BIG would also get rid of the disincentive to work built into the welfare system–often working for pay leads to a decrease in benefits, making work a less attractive option. And, by allowing people to decide on their own what to use the money for (though Murray’s plan calls for $3,000 of his $10,000 annual grant to be spent for health insurance), BIG would increase efficiency. Lefties like it because it frees people from dependence on employers and gives them more bargaining power to demand good working conditions and better pay.

by Jonathan Teller-Elsberg, CPE Staff Economist

After eighteen years holding the reigns of power, Alan Greenspan has finally ended his career as chair of the Board of Governors of the U.S. Federal Reserve, as a result of legal limitations on the length of his term. As the person in charge of monetary policy in the U.S., Greenspan was, by some accounts, the single most powerful person in the world economy. His term as chair coincided with the early 1990s recession that contributed to George H. W. Bush’s loss to Bill Clinton; continued through the longest continuous period of economic growth in U.S. history; included the multi-billion dollar bailout of the Long-Term Capital Management hedge fund in 1998; persisted through the internet-inflated stock market boom and bust as the new century began; and has finished in the current period of feeble recovery.

By Jonathan Elsberg, CPE Staff Economist

A funny thing happened on the road to liberation. The U.S. military has discovered that high unemployment among Iraqis has a lot to do with the strength of resistance to the occupation. Those parts of Iraq that suffer from the worst unemployment are also the places where militant resistance to the U.S. and its allies is the fiercest. The U.S. military’s reaction is an overt, though painfully slow-going, policy by commanders in these battle-torn areas to create jobs for Iraqis, a sort of “Keynesian militarism.”

Keynesianism, named for British economist John Maynard Keynes (pronounced “Kaynz”), is commonly distilled into the idea that governments can and should pursue “counter-cyclical” policies. These are policies that aim to boost employment and economic activity when the economy is sagging, and to tone it down when it gets overheated, to avoid a disastrous crash. Keynes famously suggested that in the face of an unemployment crisis, the government should do almost anything to create jobs, even going so far as burying money in old mines and hiring people to dig it back up.