“Ignore The Prophets Of Economic Doom”: Why The Government Should Help The Unemployed Even If It Might Not Work
The United States is now starting its sixth year of mass unemployment, a grinding economic disaster that shows no sign of relenting. As Brad DeLong has written, very soon our current mess will result in something worse than the Great Depression: “Future economic historians will not regard the Great Depression as the worst business-cycle disaster of the industrial age. It is we who are living in their worst case.” (Though the Depression was deeper, the U.S. economy recovered much more quickly.)
That is the context in which we should look at a new spate of pessimistic economic arguments about the future. On Tuesday, the famed economist Robert Gordon released a new paper arguing that future economic growth will be awful.
Here’s a section from Gordon’s abstract:
This paper predicts that growth in the 25 to 40 years after 2007 will be much slower, particularly for the great majority of the population… The primary cause of this growth slowdown is a set of four headwinds, all of them widely recognized and uncontroversial. Demographic shifts will reduce hours worked per capita… Educational attainment, a central driver of growth over the past century, stagnates at a plateau… Inequality continues to increase, resulting in real income growth for the bottom 99 percent of the income distribution that is fully half a point per year below the average growth of all incomes. [NBER]
This may be right and it may not. (Personally, I’m not at all convinced — see Kevin Drum and Tyler Cowen for a good discussion.) But the great danger is that these predictions could be self-fulfilling, discouraging Congress from taking immediate action in the face of economic trends that will overwhelm its comparatively puny efforts.
What we must remember is that there is a strong case that additional effort could solve at least part of our mass unemployment problem at low cost. We owe it to ourselves and our fellow citizens to try to restore full employment, even if it might not work.
The case against the stagnationist position goes something like this: America is not primarily suffering economically because of the factors Gordon pointed out. Rather, as during the Great Depression, we’ve suffered a collapse of aggregate demand, and institutional arrangements and political gridlock prevent us from fully addressing the problem through monetary or fiscal stimulus. This dynamic is also quite similar to that of the Great Depression — it took World War II to break through the political gridlock and get enough deficit spending to restore full employment.
If the stagnationists are right, then government attempts to restore employment with monetary or fiscal stimulus will result in little more than inflation. But they might be wrong, and the relative downside risks to their positions aren’t even close to comparable. A bit of moderate inflation is no big deal — it came in at around 4 percent during most of Reagan’s term, and the Fed has the tools to easily rein inflation back in if it rises above the central bank’s target rate of 2 percent. In fact, a little inflation could even help matters, by eroding household debt burdens and reducing real interest rates.
On the other hand, mass unemployment is an ongoing economic and humanitarian catastrophe.
It’s like if your house is on fire, and you’re worried that spraying it with a firehose might break some windows. Maybe true! Also a terrible set of priorities!
So whether Gordon and others have a good theoretical case for their pessimism is not remotely enough to justify inaction on unemployment. Policymakers should keep that at the front of their mind.
By: Ryan Cooer, The Week, February 19, 2014
“America’s ‘We’ Problem”: Being Rich In Today’s America Means Not Having To Come Across Anyone Who Isn’t
America has a serious “We” problem — as in “Why should we pay for them?”
The question is popping up all over the place. It underlies the debate over extending unemployment benefits to the long-term unemployed and providing food stamps to the poor.
It’s found in the resistance of some young and healthy people to being required to buy health insurance in order to help pay for people with preexisting health problems.
It can be heard among the residents of upscale neighborhoods who don’t want their tax dollars going to the inhabitants of poorer neighborhoods nearby.
The pronouns “we” and “they” are the most important of all political words. They demarcate who’s within the sphere of mutual responsibility, and who’s not. Someone within that sphere who’s needy is one of “us” — an extension of our family, friends, community, tribe – and deserving of help. But needy people outside that sphere are “them,” presumed undeserving unless proved otherwise.
The central political question faced by any nation or group is where the borders of this sphere of mutual responsibility are drawn.
Why in recent years have so many middle-class and wealthy Americans pulled the borders in closer?
The middle-class and wealthy citizens of East Baton Rouge Parish, Louisiana, for example, are trying to secede from the school district they now share with poorer residents of town, and set up their own district funded by property taxes from their higher-valued homes.
Similar efforts are underway in Memphis, Atlanta, and Dallas. Over the past two years, two wealthy suburbs of Birmingham, Alabama, have left the countywide school system in order to set up their own.
Elsewhere, upscale school districts are voting down state plans to raise their taxes in order to provide more money to poor districts, as they did recently in Colorado.
“Why should we pay for them?” is also reverberating in wealthy places like Oakland County, Michigan, that border devastatingly poor places like Detroit.
“Now, all of a sudden, they’re having problems and they want to give part of the responsibility to the suburbs?” says L. Brooks Paterson, the Oakland County executive. “They’re not gonna talk me into being the good guy. ‘Pick up your share?’ Ha ha.”
But had the official boundary been drawn differently so that it encompassed both Oakland County and Detroit – say, to create a Greater Detroit region – the two places would form a “we” whose problems Oakland’s more affluent citizens would have some responsibility to address.
What’s going on?
One obvious explanation involves race. Detroit is mostly black; Oakland County, mostly white. The secessionist school districts in the South are almost entirely white; the neighborhoods they’re leaving behind, mostly black.
But racisim has been with us from the start. Although some southern school districts are seceding in the wake of the ending of court-ordered desegregation, race alone can’t explain the broader national pattern. According to Census Bureau numbers, two-thirds of Americans below the poverty line at any given point identify themselves as white.
Another culprit is the increasing economic stress felt by most middle-class Americans. Median household incomes are dropping and over three-quarters of Americans report they’re living paycheck to paycheck.
It’s easier to be generous and expansive about the sphere of ”we” when incomes are rising and future prospects seem even better, as during the first three decades after World War II when America declared war on poverty and expanded civil rights. But since the late 1970s, as most paychecks have flattened or declined, adjusted for inflation, many in the stressed middle no longer want to pay for “them.”
Yet this doesn’t explain why so many wealthy America’s are also exiting. They’ve never been richer. Surely they can afford a larger “we.” But most of today’s rich adamantly refuse to pay anything close to the tax rate America’s wealthy accepted forty years ago.
Perhaps it’s because, as inequality has widened and class divisions have hardened, America’s wealthy no longer have any idea how the other half lives.
Being rich in today’s America means not having to come across anyone who isn’t. Exclusive prep schools, elite colleges, private jets, gated communities, tony resorts, symphony halls and opera houses, and vacation homes in the Hamptons and other exclusive vacation sites all insulate them from the rabble.
America’s wealthy increasingly inhabit a different country from the one “they” inhabit, and America’s less fortunate seem as foreign as do the needy inhabitants of another country.
The first step in widening the sphere of “we” is to break down the barriers — not just of race, but also, increasingly, of class, and of geographical segregation by income — that are pushing “we Americans” further and further apart.
By: Robert Reich, The Robert Reich Blog, February 14, 2014
“Writing Off The Unemployed”: Republican Imperviousness To Evidence Goes Along With A Stunning Lack Of Compassion
Back in 1987 my Princeton colleague Alan Blinder published a very good book titled “Hard Heads, Soft Hearts.” It was, as you might guess, a call for tough-minded but compassionate economic policy. Unfortunately, what we actually got — especially, although not only, from Republicans — was the opposite. And it’s difficult to find a better example of the hardhearted, softheaded nature of today’s G.O.P. than what happened last week, as Senate Republicans once again used the filibuster to block aid to the long-term unemployed.
What do we know about long-term unemployment in America?
First, it’s still at near-record levels. Historically, the long-term unemployed — those out of work for 27 weeks or more — have usually been between 10 and 20 percent of total unemployment. Today the number is 35.8 percent. Yet extended unemployment benefits, which went into effect in 2008, have now been allowed to lapse. As a result, few of the long-term unemployed are receiving any kind of support.
Second, if you think the typical long-term unemployed American is one of Those People — nonwhite, poorly educated, etc. — you’re wrong, according to research by the Urban Institute’s Josh Mitchell. Half of the long-term unemployed are non-Hispanic whites. College graduates are less likely to lose their jobs than workers with less education, but once they do they are actually a bit more likely than others to join the ranks of the long-term unemployed. And workers over 45 are especially likely to spend a long time unemployed.
Third, in a weak job market long-term unemployment tends to be self-perpetuating, because employers in effect discriminate against the jobless. Many people have suspected that this was the case, and last year Rand Ghayad of Northeastern University provided a dramatic confirmation. He sent out thousands of fictitious résumés in response to job ads, and found that potential employers were drastically less likely to respond if the fictitious applicant had been out of work more than six months, even if he or she was better qualified than other applicants.
What all of this suggests is that the long-term unemployed are mainly victims of circumstances — ordinary American workers who had the bad luck to lose their jobs (which can happen to anyone) at a time of extraordinary labor market weakness, with three times as many people seeking jobs as there are job openings. Once that happened, the very fact of their unemployment made it very hard to find a new job.
So how can politicians justify cutting off modest financial aid to their unlucky fellow citizens?
Some Republicans justified last week’s filibuster with the tired old argument that we can’t afford to increase the deficit. Actually, Democrats paired the benefits extension with measures to increase tax receipts. But in any case this is a bizarre objection at a time when federal deficits are not just falling, but clearly falling too fast, holding back economic recovery.
For the most part, however, Republicans justify refusal to help the unemployed by asserting that we have so much long-term unemployment because people aren’t trying hard enough to find jobs, and that extended benefits are part of the reason for that lack of effort.
People who say things like this — people like, for example, Senator Rand Paul — probably imagine that they’re being tough-minded and realistic. In fact, however, they’re peddling a fantasy at odds with all the evidence. For example: if unemployment is high because people are unwilling to work, reducing the supply of labor, why aren’t wages going up?
But evidence has a well-known liberal bias. The more their economic doctrine fails — remember how the Fed’s actions were supposed to produce runaway inflation? — the more fiercely conservatives cling to that doctrine. More than five years after a financial crisis plunged the Western world into what looks increasingly like a quasi-permanent slump, making nonsense of free-market orthodoxy, it’s hard to find a leading Republican who has changed his or her mind on, well, anything.
And this imperviousness to evidence goes along with a stunning lack of compassion.
If you follow debates over unemployment, it’s striking how hard it is to find anyone on the Republican side even hinting at sympathy for the long-term jobless. Being unemployed is always presented as a choice, as something that only happens to losers who don’t really want to work. Indeed, one often gets the sense that contempt for the unemployed comes first, that the supposed justifications for tough policies are after-the-fact rationalizations.
The result is that millions of Americans have in effect been written off — rejected by potential employers, abandoned by politicians whose fuzzy-mindedness is matched only by the hardness of their hearts.
By: Paul Krugman, Op-Ed Columnist, The New York Times, February 9, 2014
“It’s Lonely At The Top”: Will Republicans Ever Realize That Deifying Business Owners Is Bad Politics?
Last week, congressional Republicans got together at a Chesapeake Bay resort to contemplate their political fortunes. In one presentation, House Minority Leader Eric Cantor delivered a bit of shocking news to his colleagues: Most people are not, in fact, business owners. It would be a good idea, he suggested, if they could find a way to appeal to the overwhelming majority of Americans who work for somebody else. Their aspirations don’t necessarily include opening up their own store or coming up with an amazing new product, so the prospect of lowering the corporate tax rate or slashing environmental regulations may not make their pulses quicken with excitement. They’re more concerned with the availability of jobs, the security of health care, and the affordability of education. “Could it actually have taken Republicans that long to realize they should address such problems, especially when Democrats have made huge gains appealing directly to middle-class voters?” asked conservative journalist Byron York, who reported on the meeting. “Apparently, yes. And even now, not all House Republicans are entirely on board. ‘It’s something that’s been growing and taking time for members to get comfortable with,’ says a House GOP aide, ‘because they did spend the last decade talking about small business owners.'”
You’re probably surprised at the Republicans’ surprise. But it isn’t so much about a numerical misconception—I’m sure that with the possible exception of a couple of the most lunkheaded Tea Partiers, the GOP members of Congress don’t actually think that most Americans own businesses—as it is about a moral hierarchy they’ve spent so much time building up, both in their rhetoric and their own minds.
We all believe that some people are just more important than others, and for conservatives, no one is more important than business owners. Remember how gleeful they were when President Obama said “you didn’t build that” when discussing businesses during the 2012 campaign? Sure, he was taken out of context (he was talking about roads and bridges, not the businesses themselves), but Republicans genuinely believed they had found the silver bullet that would take him down. He had disrespected business owners! Surely all America would be enraged and cast him from office! They made it the theme of their convention. They printed banners. They wrote songs about it. And they were bewildered when it didn’t work.
Just like those members of Congress listening incredulously to Eric Cantor, they couldn’t grasp that the whole country didn’t share their moral hierarchy. After years of worrying primarily about the concerns of people who own businesses, they’ve elevated to gospel truth that the businessman’s virtue is unassailable, that his rewards are justly earned, and that no effort should be spared to remove all obstacles from his path. When it comes down to a choice between, say, a business owner who would like to pay his employees as little as possible and a group of employees who’d like to be paid more, conservatives don’t just see the choice as a simple one, they can’t imagine why anyone wouldn’t agree.
As a liberal, I have a different view, precisely because I don’t place the businessman at the top of my moral hierarchy. As a society we need entrepreneurs, but there are many kinds of people we need. To be clear, I’m not saying there’s anything wrong with business owners, just that the guy who owns the widget factory isn’t necessarily a better person than the guy who works on the line making widgets. Owning a business can be difficult and challenging, but so can a lot of things. I know business owners who work very hard to succeed. I also know teachers who get up at 5 in the morning every day to grade papers and plan lessons, and nurses who have to comfort the dying and change people’s bedpans. Those jobs are hard, too. And they don’t come with the prospect of great wealth if you’re good at them.
That matters too, to both liberals and conservatives. Many conservatives find wealth to be a marker of virtue—not a perfect marker, maybe, but pretty close. If you’re rich, they plainly believe, it’s probably because you worked hard for your money, and if you’re poor it’s probably because you’re lazy and unreliable. Things like unemployment insurance and food stamps only reward the indolent. The bootstraps are just there waiting to be tugged on, and if you haven’t grabbed a firm hold you have no one to blame but yourself.
As for the businesspeople themselves, it’s little wonder that so many find warmth in the embrace of the GOP, nor that they are shocked and appalled when other people criticize them. The venture capitalist Tom Perkins may have come in for a ton of ridicule when he wrote a letter to the Wall Street Journal suggesting the possibility that liberals will soon be rounding up rich people and herding them into death camps (“I would call attention to the parallels of fascist Nazi Germany to its war on its ‘one percent,’ namely its Jews, to the progressive war on the American one percent, namely the ‘rich'”), but Perkins—a guy who once killed a man with his yacht—was surely speaking for more than a few of his peers. In the Republican party they find not only tireless advocacy for policies that will help them hold and expand their wealth, but the love and admiration they so clearly crave.
In 2012 on Labor Day, that same Eric Cantor tweeted, “Today, we celebrate those who have taken a risk, worked hard, built a business, and earned their success.” Even on the day created to honor working people, the only Americans for whom he could spare a thought were business owners. Perhaps in the year and a half since, he has come to a new awareness that even if you work for someone else, like most of us do, you’re still worthy of consideration. Whether his party agrees—and whether they’ll do anything about it—is another question entirely.
By: Paul Waldman, Contributing Editor, The American Prospect, February 3, 2014
“Congress Is On The Ballot In November”: Forget The Conventional Wisdom, What The Numbers Really Say About President Obama
ABC News and the Washington Post have released a new poll indicating that the president is in trouble — and warn that both his standing and the Affordable Care Act hang over the 2014 elections. As ABC News’ Gary Langer put it: “Barack Obama starts his sixth year in office with the public divided about his overall leadership, dissatisfied with his economic stewardship and still steaming about his rollout of the health care law – all factors threatening not only the president but his party in the midterm elections ahead.
Dan Balz and Peyton Craighill write, “Obama’s general weakness and the overall lack of confidence in the country’s political leadership provide a stark backdrop to the beginning of a potentially significant election year.”
While the president surely needs to raise his standing and address many issues, this is a remarkably biased reading of their own poll. Too bad the last month has not fit the narrative of a failed president on a downward trajectory — like George W. Bush.
What is wrong with their interpretation? It’s hard to know where to start.
- They have the president’s approval rating at 46 percent. The average in all the polls is up, not down. Congressional Democrats would be quite content if the president’s approval rating were in the upper 40s. This is not a blip, but rather the trend based on multiple polls. Commentators should pay attention.
- The congressional generic vote is even, but they failed to note that Republicans had taken the lead at the end last year — and that this is an improvement for Democrats.
- Republicans in Congress are at a remarkable low, relative to the president and congressional Democrats. They are 18 points lower than the president on confidence and 8 points behind the Democrats in Congress. How could you ignore that in a congressional election year—especially when voters in this poll express a strong commitment to vote against incumbents? Did they pay attention to earlier polls from Democracy Corps that showed 50 percent (in an open-ended question) think Republicans are in control of the whole Congress?
- Health care produced one of the more amazing contortions in the poll. They focus on Obama’s handling of the rollout and bury the fact that the country is evenly split on whether they favor or oppose the law. As we have said, the issue unites Republicans and is not a winning issue for them in 2014. Maybe the voters are paying attention to Congress’ failure to extend unemployment benefits and pass a minimum-wage bill— issues that have 60 percent support. Maybe there is a reason that Republicans’ standing continues to drag them down.
Many compare Obama’s number after his inauguration and make that the standard for his standing. He took a very hard hit that hurt Democrats. But his position is improving and health care is no wedge issue. The Congress is on the ballot in November, and I urge those reporting on polls to escape the conventional wisdom about the narrative.
By: Stan Greenberg, The National Memo, January 27, 2014
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