“Give Jobs A Chance”: To Err Is Human, But To Err On The Side Of Growth Is Wise
This week the Federal Reserve’s Open Market Committee — the group of men and women who set U.S. monetary policy — will be holding its sixth meeting of 2013. At the meeting’s end, the committee is widely expected to announce the so-called “taper” — a slowing of the pace at which it buys long-term assets.
Memo to the Fed: Please don’t do it. True, the arguments for a taper are neither crazy nor stupid, which makes them unusual for current U.S. policy debate. But if you think about the balance of risks, this is a bad time to be doing anything that looks like a tightening of monetary policy.
O.K., what are we talking about here? In normal times, the Fed tries to guide the economy by buying and selling short-term U.S. debt, which effectively lets it control short-term interest rates. Since 2008, however, short-term rates have been near zero, which means that they can’t go lower (since people would just hoard cash instead). Yet the economy has remained weak, so the Fed has tried to gain traction through unconventional measures — mainly by buying longer-term bonds, both U.S. government debt and bonds issued by federally sponsored home-lending agencies.
Now the Fed is talking about slowing the pace of these purchases, bringing them to a complete halt by sometime next year. Why?
One answer is the belief that these purchases — especially purchases of government debt — are, in the end, not very effective. There’s a fair bit of evidence in support of that belief, and for the view that the most effective thing the Fed can do is signal that it plans to keep short-term rates, which it really does control, low for a very long time.
Unfortunately, financial markets have clearly decided that the taper signals a general turn away from boosting the economy: expectations of future short-term rates have risen sharply since taper talk began, and so have crucial long-term rates, notably mortgage rates. In effect, by talking about tapering, the Fed has already tightened monetary policy quite a lot.
But is that such a bad thing? That’s where the second argument comes in: the suggestions that there really isn’t that much slack in the U.S. economy, that we aren’t that far from full employment. After all, the unemployment rate, which peaked at 10 percent in late 2009, is now down to 7.3 percent, and there are economists who believe that the U.S. economy might begin to “overheat,” to show signs of accelerating inflation, at an unemployment rate as high as 6.5 percent. Time for the Fed to take its foot off the gas pedal?
I’d say no, for a couple of reasons.
First, there’s less to that decline in unemployment than meets the eye. Unemployment hasn’t come down because a higher percentage of adults is employed; it’s come down almost entirely because a declining percentage of adults is participating in the labor force, either by working or by actively seeking work. And at least some of the Americans who dropped out of the labor force after 2007 will come back in as the economy improves, which means that we have more ground to make up than that unemployment number suggests.
How misleading is the unemployment number? That’s a hard one, on which reasonable people disagree. The question the Fed should be asking is, what is the balance of risks?
Suppose, on one side, that the Fed were to hold off on tightening, then learn that the economy was closer to full employment than it thought. What would happen? Well, inflation would rise, although probably only modestly. Would that be such a bad thing? Right now inflation is running below the Fed’s target of 2 percent, and many serious economists — including, for example, the chief economist of the International Monetary Fund — have argued for a higher target, say 4 percent. So the cost of tightening too late doesn’t look very high.
Suppose, on the other side, that the Fed were to tighten early, then learn that it had moved too soon. This could damage an already weak recovery, causing hundreds of billions if not trillions of dollars in economic damage, leaving hundreds of thousands if not millions of additional workers without jobs and inflicting long-term damage as more and more of the unemployed are perceived as unemployable.
The point is that while there is legitimate uncertainty about what the Fed should be doing, the costs of being too harsh vastly exceed the costs of being too lenient. To err is human; to err on the side of growth is wise.
I’d add that one of the prevailing economic policy sins of our time has been allowing hypothetical risks, like the fiscal crisis that never came, to trump concerns over economic damage happening in the here and now. I’d hate to see the Fed fall into that trap.
So my message is, don’t do it. Don’t taper, don’t tighten, until you can see the whites of inflation’s eyes. Give jobs a chance.
By: Paul Krugman, Op-Ed Columnist, The New York Times, September 15, 2013
“The Great Divide”: The Stagnation Of American Education
For most of American history, parents could expect that their children would, on average, be much better educated than they were. But that is no longer true. This development has serious consequences for the economy.
The epochal achievements of American economic growth have gone hand in hand with rising educational attainment, as the economists Claudia Goldin and Lawrence F. Katz have shown. From 1891 to 2007, real economic output per person grew at an average rate of 2 percent per year — enough to double every 35 years. The average American was twice as well off in 2007 as in 1972, four times as well off as in 1937, and eight times as well off as in 1902. It’s no coincidence that for eight decades, from 1890 to 1970, educational attainment grew swiftly. But since 1990, that improvement has slowed to a crawl.
Companies pay better-educated people higher wages because they are more productive. The premium that employers pay to a college graduate compared with that to a high school graduate has soared since 1970, because of higher demand for technical and communication skills at the top of the scale and a collapse in demand for unskilled and semiskilled workers at the bottom.
As the current recovery continues at a snail’s pace, concerns about America’s future growth potential are warranted. Growth in annual average economic output per capita has slowed from the century-long average of 2 percent, to 1.3 percent over the past 25 years, to a mere 0.7 percent over the past decade. As of this summer, per-person output was still lower than it was in late 2007. The gains in income since the 2007-9 Great Recession have flowed overwhelmingly to those at the top, as has been widely noted. Real median family income was lower last year than in 1998.
There are numerous causes of the less-than-satisfying economic growth in America: the retirement of the baby boomers, the withdrawal of working-age men from the labor force, the relentless rise in the inequality of the income distribution and, as I have written about elsewhere, a slowdown in technological innovation.
Education deserves particular focus because its effects are so long-lasting. Every high school dropout becomes a worker who likely won’t earn much more than minimum wage, at best, for the rest of his or her life. And the problems in our educational system pervade all levels.
The surge in high school graduation rates — from less than 10 percent of youth in 1900 to 80 percent by 1970 — was a central driver of 20th-century economic growth. But the percentage of 18-year-olds receiving bona fide high school diplomas fell to 74 percent in 2000, according to the University of Chicago economist James J. Heckman. He found that the holders of G.E.D.’s performed no better economically than high school dropouts and that the rising share of young people who are in prison rather than in school plays a small but important role in the drop in graduation rates.
Then there is the poor quality of our schools. The Program for International Student Assessment tests have consistently rated American high schoolers as middling at best in reading, math and science skills, compared with their peers in other advanced economies.
At the college level, longstanding problems of quality are joined with the issues of affordability. For most of the postwar period, the G.I. Bill, public and land-grant universities and junior colleges made a low-cost education more accessible in the United States than anywhere in the world. But after leading the world in college completion, America has dropped to 16th. The percentage of 25- to 29-year-olds who hold a four-year bachelor’s degree has inched up in the past 15 years, to 33.5 percent, but that is still lower than in many other nations.
The cost of a university education has risen faster than the rate of inflation for decades. Between 2008 and 2012 state financing for higher education declined by 28 percent. Presidents of Ivy League and other elite schools point to the lavish subsidies they give low- and middle-income students, but this leaves behind the vast majority of American college students who are not lucky or smart enough to attend them.
While a four-year college degree still pays off, about one-quarter of recent college graduates are currently unemployed or underemployed. Meanwhile, total student debt now exceeds $1 trillion.
Heavily indebted students face two kinds of risks. One is that they fall short of their income potential, through some combination of unemployment and inability to find a job in their chosen fields. Research has shown that on average a college student taking on $100,000 in student debt will still come out ahead by age 34. But that break-even age goes up if future income falls short of the average.
There is also completion risk. A student who takes out half as much debt but drops out after two years never breaks even because wages of college dropouts are little better than those of high school graduates. These risks are acute for high-achieving students from low-income families: Caroline M. Hoxby, a Stanford economist, found that they often don’t apply to elite colleges and wind up at subpar ones, deeply in debt.
Two-year community colleges enroll 42 percent of American undergraduates. The Center on International Education Benchmarking reports that only 13 percent of students in two-year colleges graduate in two years; that figure rises to a still-dismal 28 percent after four years. These students are often working while taking classes and are often poorly prepared for college and required to take remedial courses.
Federal programs like No Child Left Behind and Race to the Top have gone too far in using test scores to evaluate teachers. Many children are culturally disadvantaged, even if one or both parents have jobs, have no books at home, do not read to them, and park them in front of a TV set or a video game in lieu of active in-home learning. Compared with other nations where students learn several languages and have math homework in elementary school, the American system expects too little. Parental expectations also matter: homework should be emphasized more, and sports less.
Poor academic achievement has long been a problem for African-Americans and Hispanics, but now the achievement divide has extended further. Isabel V. Sawhill, an economist at the Brookings Institution, has argued that “family breakdown is now biracial.” Among lower-income whites, the proportion of children living with both parents has plummeted over the past half-century, as Charles Murray has noted.
Are there solutions? The appeal of American education as a destination for the world’s best and brightest suggests the most obvious policy solution. Shortly before his death, Steve Jobs told President Obama that a green card conferring permanent residency status should be automatically granted to any foreign student with a degree in engineering, a field in which skills are in short supply..
Richard J. Murnane, an educational economist at Harvard, has found evidence that high school and college completion rates have begun to rise again, although part of this may be a result of weak labor markets that induce students to stay in school rather than face unemployment. Other research has shown that high-discipline, “no-excuses” charter schools, like those run by the Knowledge Is Power Program and the Harlem Children’s Zone, have erased racial achievement gaps. This model suggests that a complete departure from the traditional public school model, rather than pouring in more money per se, is needed.
Early childhood education is needed to counteract the negative consequences of growing up in disadvantaged households, especially for children who grow up with only one parent. Only one in four American 4-year-olds participate in preschool education programs, but that’s already too late. In a remarkable program, Reach Out and Read, 12,000 doctors, nurses and other providers have volunteered to include instruction on the importance of in-home reading to low-income mothers during pediatric checkups.
Even in today’s lackluster labor market, employers still complain that they cannot find workers with the needed skills to operate complex modern computer-driven machinery. Lacking in the American system is a well-organized funnel between community colleges and potential blue-collar employers, as in the renowned apprenticeship system in Germany.
How we pay for education shows, in the end, how much we value it. In Canada, each province manages and finances education at the elementary, secondary and college levels, thus avoiding the inequality inherent in America’s system of local property-tax financing for public schools. Tuition at the University of Toronto was a mere $5,695 for Canadian arts and science undergraduates last year, compared with $37,576 at Harvard. It should not be surprising that the Canadian college completion rate is about 15 percentage points above the American rate. As daunting as the problems are, we can overcome them. Our economic growth is at stake.
By: Robert J. Gordon, The New York Times, September 7, 2013
“Defining Prosperity Down”: At This Point, It’s Clear That Monetary Hawkery Is Mainly A Form Of Puritanism
Friday’s employment report wasn’t bad. But given how depressed our economy remains, we really should be adding more than 300,000 jobs a month, not fewer than 200,000. As the Economic Policy Institute points out, we would need more than five years of job growth at this rate to get back to the level of unemployment that prevailed before the Great Recession. Full recovery still looks a very long way off. And I’m beginning to worry that it may never happen.
Ask yourself the hard question: What, exactly, will bring us back to full employment?
We certainly can’t count on fiscal policy. The austerity gang may have experienced a stunning defeat in the intellectual debate, but stimulus is still a dirty word, and no deliberate job-creation program is likely soon, or ever.
Aggressive monetary action by the Federal Reserve, something like what the Bank of Japan is now trying, might do the trick. But far from becoming more aggressive, the Fed is talking about “tapering” its efforts. This talk has already done real damage; more on that in a minute.
Still, even if we don’t and won’t have a job-creation policy, can’t we count on the natural recuperative powers of the private sector? Maybe not.
It’s true that after a protracted slump, the private sector usually does find reasons to start spending again. Investment in equipment and software is already well above pre-recession levels, basically because technology marches on, and businesses must spend to keep up. After six years during which hardly any new homes were built in America, housing is trying to stage a comeback. So yes, the economy is showing some signs of healing itself.
But that healing process won’t go very far if policy makers stomp on it, in particular by raising interest rates. That’s not an idle worry. A Fed chairman famously declared that his job was to take away the punch bowl just as the party was really warming up; unfortunately, history offers many examples of central bankers pulling away the punch bowl before the party even starts.
And financial markets are, in effect, betting that the Fed is going to offer another such example. Long-term interest rates, which mainly reflect expectations about future short-term rates, shot up after Friday’s job report — a report that, to repeat, was at best just O.K. Housing may be trying to bounce back, but that bounce now has to contend with sharply rising financing costs: 30-year mortgage rates have risen by a third since the Fed started talking about relaxing its efforts about two months ago.
Why is this happening? Part of the reason is that the Fed is constantly under pressure from monetary hawks, who always want to see tighter money and higher interest rates. These hawks spent years warning that soaring inflation was just around the corner. They were wrong, of course, but rather than change their position they have simply invented new reasons — financial stability, whatever — to advocate higher rates. At this point it’s clear that monetary hawkery is mainly a form of Puritanism in H. L. Mencken’s sense — “the haunting fear that someone, somewhere may be happy.” But it remains dangerously influential.
Unfortunately, there’s also a technical issue that plays into the prejudices of the monetary hawks. The statistical techniques policy makers often use to estimate the economy’s “potential” — the maximum level of output and employment it can achieve without inflationary overheating — turn out to be badly flawed: they interpret any sustained economic slump as a decline in potential, so that the hawks can point to charts and spreadsheets supposedly showing that there’s not much room for growth.
In short, there’s a real risk that bad policy will choke off our already inadequate recovery.
But won’t voters eventually demand more? Well, that’s where I get especially pessimistic.
You might think that a persistently poor economy — an economy in which millions of people who could and should be productively employed are jobless, and in many cases have been without work for a very long time — would eventually spark public outrage. But the political science evidence on economics and elections is unambiguous: what matters is the rate of change, not the level.
Put it this way: If unemployment rises from 6 to 7 percent during an election year, the incumbent will probably lose. But if it stays flat at 8 percent through the incumbent’s whole term, he or she will probably be returned to power. And this means that there’s remarkably little political pressure to end our continuing, if low-grade, depression.
Someday, I suppose, something will turn up that finally gets us back to full employment. But I can’t help recalling that the last time we were in this kind of situation, the thing that eventually turned up was World War II.
By: Paul Krugman, Op-Ed Columnist, The New York Times, July 7, 2013
“Pennies On The Dollar”: Congress Is Squandering The Opportunity Of A Lifetime
It’s the first Friday of the month, which means a jobs report. And this one isn’t bad. The economy added a net 195,000 jobs in June, with upwards revisions of 70,000 in April and May. Which means that, so far this year, the economy has added more than 1 million jobs. To repeat a point, this is why the 2012 election was so critical for Democrats—a Mitt Romney win would have given Republicans a chance to claim credit for the current job growth, and use the political capital to push a highly-ideological agenda.
But back to the numbers. Federal government employment dropped by 5,000, a likely result of sequestration, and part of an overall decline of public employment—since 2010, the public sector has shed more than 600,000 jobs. The unemployment rate remained unchanged at 7.6 percent, with a slight drop in long-term unemployment. Still, more than four million people have been out of work for longer than six months.
In other words, despite the improving economy, we’re still stuck in a period of mass unemployment. And, thanks the GOP’s categorical opposition to spending–and stimulus in particular—there’s no chance of relief for the economy.
What’s frustrating—and, given the cost of long-term unemployment to individuals, families, and communities, cruel—is that conditions are perfect for another round of large-scale government spending. Not only are there millions of potential workers (to say nothing of an overall demand shortfall), but—as Suzy Khimm notes for MSNBC—interest rates are still at historic lows. But that won’t last: “Already,” she writes, “there are early warning signs that this era of absurdly cheap borrowing will eventually come to an end: The interest rate on 10-year U.S. Treasury notes—the benchmark for long-term borrowing rates—rose to 2.66% on Monday, the highest rate since August 2011.”
There’s still time to act on this unprecedented opportunity by investing in new infrastructure: We could take advantage of these low rates, borrow, and use the cash to rebuild our roads, bridges, airstrips, and pipelines. The subsequent economic growth—from more jobs and a faster recovery—would be more than enough to pay back whatever we owe when the economy is stronger.
But Republicans have not budged from their commitment to spending cuts, monetary tightening, and other austerity-minded policies. They warn that greater public debt will lead to inflation and low growth, ignoring the extent to which inflation has held steady at just under 2 percent for the last four years, and disregarding the disastrous results of austerity in Europe, which has plunged several countries, including the United Kingdom, into a second recession. Because of this, their House majority, and their ability to filibuster in the Senate, there’s no chance Congress will move on new stimulus, or anything else that could boost the economy.
The sad fact is that the GOP’s dysfunctions—its hyper-ideological approach to government, hostility to liberalism, and opposition to compromise—will keep the United States from capitalizing on one of the great opportunities of the last 20 years. Thanks to GOP-driven gridlock and Washington’s myopic focus on debt reduction, we have squandered a once-in-a-lifetime chance to rebuild this country at pennies on the dollar, and bounce back from a long decade of mismanagement and neglect.
By: Jamelle Bouie, The American Prospect, July 5, 2013
“Rick Perry, Job Poacher”: Southern Grand Larceny With A Very Old Pedigree
Poaching on the labor of others is an ancient and honored Southern tradition, whose antebellum antecedents Texas Governor Rick Perry has recently brought up-to-date with a $1 million advertising campaign to encourage businesses to pack up and come on down to the Lone Star State where the taxes are lower than a worker’s wages.
Called “Texas is calling, your opportunity awaits,” the 30-second TV spots feature business leaders and celebrities like Dallas Cowboys running back Emmitt Smith calling Texas the “land of opportunity” and home of “creative renegades.”
On Fox News, Perry boasted, “Texas has the best business climate in the world. Over the last 10 years, 30% of all the new jobs created in America were in Texas.”
Wooing business from other states is all part of “healthy competition,” says Perry. “It’s the 50 laboratories of innovation that are out competing for the jobs to keep America at the front of the race,” the Governor insists.
Yet, when mayors and governors elsewhere talk about “growing” their economy they mean that literally – as in, creating new jobs where none existed before, from the ground up, nurtured by public-private partnerships, public investments in R&D and good schools, and other initiatives that create real value.
In Boston where I work, the South Boston Seaport District is one of the hottest real estate markets in the country right now, says Moody’s Investor Services, thanks in part to steps that Mayor Tom Menino has taken to make the area a magnet for entrepreneurs — an “Innovation District” — where start-up companies with bright ideas but not much cash can get reasonable financing and available space to help their businesses grow.
Just last week, the Boston Herald reported that the Small Business Administration called Menino’s Innovation District a model for other cities to follow who are interested in creating a cutting-edge start-up culture — “a Mecca for people from all over the world to launch out and build the next big company.”
He credited the city’s Innovation District initiative for creating a “community of entrepreneurship and creativity.”
Winslow Sargeant, chief counsel for the federal agency’s Office of Advocacy, said: “This ecosystem of innovation brings together entrepreneurs to share ideas and bring their vision to the marketplace. It presents a successful model and an ideal avenue for the public and private sectors to partner together for economic success,” he said.
In just three years, Boston’s Innovation District initiative has brought more than 4,000 jobs to the waterfront area.
Boston has become a great place to start a business, said Sargeant, who grew up in the city. “If someone wants to start a company or if someone wants to explore what it takes to, there are people that they can talk to and places they can go to network with others.”
Among the biggest benefits of the district, the Herald says, are the start-up incubators and accelerators that offer shared work spaces. “Magic things happen” when entrepreneurs get together and share work space and ideas, said Ben Einstein, founder of Bolt, one of the companies now operating in the district.
There is another economic development model, however, one favored by Governor Perry and governors throughout the South: Don’t make money the old fashioned way by earning it or actually “creating” anything. Let the Yankees do that with their fancy schools and business incubators. Then, when companies are off the ground and up and running, steal them away like cattle-rustlers in cross-border raids by luring owners with promises of lower taxes, fewer environmental regulations and protections against uppity workers who want a fair day’s pay for an honest day’s labor.
That is what Perry really means when he says that 30% of all the “new” jobs “created” in America were in Texas – proof of which is the $1 million Texas is now spending to steal other state’s jobs away from them.
There is political as well as economic method to Governor Perry’s madness since his desperado tactics are never aimed against other Republican governors, but only blue state Democratic ones in target-rich “enemy” territory.
Perry recently traveled to New York and Connecticut on a four-day trip to lure businesses away from those states. The trip comes on the spurred-heels of earlier raids into California and Illinois where Perry showed ads depicting an emergency exit door under the headline: “Get out while you still can.”
Both Perry’s trips and the ad campaign are being paid for by a group called TexasOne, which is a coalition of corporations and local chambers of commerce.
This sort of Southern grand larceny has a very old pedigree. A cold and forbidding climate like New England’s grows a population that must be skilled at living by its wits and the “Yankee Ingenuity” that cemented New England’s reputation as home to world-class education, the textile mills of Lawrence and Lowell that gave birth to America’s industrial revolution, and the Yankee traders who invented, then sailed, world-famous clipper ships like the Flying Cloud and Sovereign of the Seas.
A hot and humid climate like the South, rich in natural resources, on the other hand, tends to spawn a class of indolent, parasitic oligarchs whose labor saving inventions consist almost entirely of exploiting the labor of others.
In short, what we have in New England is called “entrepreneurial capitalism,” which means using the state as partner to nurture good ideas and develop them into profitable companies, perhaps whole new industries.
What Governor Perry exports from Texas, on the other hand, is “crony capitalism,” using the power of the state to enrich and reward powerful insiders, not by creating new opportunities but by lowering the rewards workers get from those opportunities that already exist.
And now that the GOP has become a Southern Party, Republicans have inherited the most disreputable features of what author Michael Lind calls this “Southernomics” as well.
It was not always thus. Between the 1930s and 1970s, so-called “modern Republicans” like Dwight Eisenhower and Richard Nixon tried to level the playing field among the states — not through regressive tax and labor policies — but through revenue sharing and other public investments in infrastructure, writes Lind in Made in Texas: George W. Bush and the Southern Takeover of American Politics.
Ironically, then, modern Republicans and New Deal modernists built an infrastructure for the South and West that traditional conservatives inherited and were able to use for their own “illiberal purposes,” says Lind.
It is no coincidence, says Lind, that the two biggest companies to fail during the Bush administration – Enron and WorldCom – were both Southern.
Entrepreneurial or “bourgeois” capitalism is alien to Texas and other Southern states, he says, because “crony capitalism is the only kind familiar to the Southern oligarchs, decedents of planters who could not balance their books and knights who despised mere trade.”
The lesson from these scandals, says Lind, as well as Governor Rick Perry’s politically-motivated raids against Democratic economies, is not that capitalism is unworkable, but that “capitalism only works where there are real capitalists.”
By: Ted Frier, Open Salon Blog, July 4, 2013
Share This Blog
Unknown Feed- An error has occurred; the feed is probably down. Try again later.
mykeystrokes.com 