James Pethokoukis

Politics and policy from inside Washington

America’s battered labor market

Sep 8, 2009 13:32 UTC

David Rosenberg of Gluskin Sheff analyzes thusly:

1) Jobless claims stuck at 570k — basically in line with a sustained 200k-300k payroll losses.

2) Temp agency job losses are continuing even if at a slower pace — this is not good news.

3) Downward revisions to the prior data — these tend to feed on themselves.

4) No change in the record-low workweek.

5) The Challenger and JOLTS data reveal an ongoing decline in hiring intentions.

After last Friday’s report, we have now lost 6.9 million positions that have been cut during this recession and we have to count in the additional 2.5 million jobs that need to be created — but never were — just to absorb the new entrants into the labour market. The ‘real’ unemployment rate is now 16.8%, so to suggest that this down-cycle was anything but a depression is basically a misrepresentation of the facts.

Me: Maybe jobs will snap back. But given structural/longer-term changes in housing, finance and autos, that just seems unlikely to me.  Lots of entrepreneurial effort needed. But is the stage being set for less innovation rather than more?

The way forward on climate change …

Sep 7, 2009 15:50 UTC

This, from Tom Barnett amplifying on a Bjorn Lomborg op-ed, seems like a policy that could actually work in the real world. Reducing economic growth is a sure loser:

Instead of CO2 cuts, why not focus on adaptation? Why cut GDP growth over the century by 12-13% when the costs of adaptation will be much lower (“the majority of economic models show that unconstrained global warming would cost rich nations around 2% of GDP and poor countries around 5% by 2100.”). And Lomborg argues that putting serious technology efforts online as part of this adaptation effort can actually make it a winning proposition.

Meanwhile, “a high carbon tax will simply hurt growth if alternative technology is not ready, making us all worse off.”

In short, spend (on technology) to save, not cut (emissions).


With reference to the above article, the short article below explains the scenario in the Asian Climate Change context.

“Green Energy : A Paradigm Shift in Sustainability”

Green energy is not something new since the discovery of the depletion of the ozone layer and global climate change as a direct impact of green house effect on a worldwide scale.

Various international conventions/agreements on the reduction of green house effect will remain forever on glossy papers if countries around the world are not serious in committing themselves towards real implementation within national boundary.

Political will power, or even real politics for that matter alone, is insufficient in promoting green energy as attested by the economics of reality in both developed and developing countries.

A paradigm shift is needed in forging a new instrument of international co-operation within the wider framework of Free Trade Agreements and joint conviction shared by stakeholders such as the OECD, major banking bodies(i.e. IMF, World bank, ADB) and leading industrial/corporate entities.

Jeong Chun-phuoc
[an an advocate of Competitive & Strategic Environmenting]

Posted by JEONG CHUN PHUOC | Report as abusive

McCain and stimulus: a counterfactual

Sep 7, 2009 15:35 UTC

From Brad DeLong:

Had John McCain won the presidential election of 2008, at the start of 2009 he would have in all likelihood proposed a trillion dollar fiscal stimulus bill–3/4 tax cuts and 1/4 aid to states–and he might have picked Tim Geithner for his Treasury Secretary. Democrats would have called for fewer tax cuts, more state aid, and some government infrastructure spending initiatives in the fiscal policy mix, but the need for the government to cushion the recession would have brought them into line. When Obama took office he bid $800 billion for his fiscal stimulus bill–about 1/3 spending, about 1/3 aid to states, about 1/3 tax cuts–thinking that would be a plan that would win broad bipartisan assent. And he was wrong.

Me: I agree that he would have “spent money” by cutting taxes more. But there is every reason to believe that large payroll tax cuts may have better met the “targeted, timely and temporary” formula. And been more effective. Thus they could have been smaller. And then Congress could have passed a separate infrastructure bill for repair  ofvboth our transportation system and upgrading the grid.

Can Amtrak evolve into something more?

Sep 7, 2009 15:28 UTC

This analysis of Amtrak is worth reading in full. But I like this paragraph in particular:

Even though the American freight-train business has enjoyed a renaissance in the last twenty years — companies like the Burlington Northern Santa Fe and CSX are admirable for their competitive spirit and financial results — I am skeptical that Amtrak is the company that can lead the way to the re-birth of U.S. passenger service. Freight, let’s remember, only flourished when Conrail was privatized and the industry deregulated.

To be clear, the $8 billion appropriated for high-speed corridor service has yet to be earmarked, and is best understood as discretionary funding that can be doled out to the states, if not to loyal unions. For his part, Senate majority leader Harry Reid hopes to open a drawbridge to fund high-speed rail service between Anaheim and Las Vegas.

Somehow, it is hard to imagine that the U.S. can restore its economic prosperity by rushing heavy rollers to the blackjack tables in Vegas.


Amtrak is definitely not the entity to make 21st Century rail service viable, but that doesn’t mean that high speed rail service can’t happen. Joseph Vranich is a former Amtrak employee who turned against Amtrak because he feels that it is a hindrance against the types of rail service that America needs. His book “Derailed” has endorsements from members of the Cato Institute and the American Enterprise Institute.

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Will Obama kill all the Bush tax cuts?

Sep 7, 2009 15:11 UTC

Might the POTUS get rid of all the Bush tax cuts, even the ones for the middle class? Larry Summers certainly has hinted at this. And I missed this one from the WaPo a couple of weeks back:

As president, Obama has called for maintaining some of those policies –he would extend some of the Bush tax cuts beyond their 2010 expiration date, for example. But in light of the new deficit figures, Orszag hinted that Obama may revisit some of those decisions when he submits his next budget in February.“Whatever their cause, the administration is very concerned about those outyear deficit figures,” Orszag said, “and getting those deficits under control is a top priority of this administration.”


In recent history the government spends beyond its receipts and turns to the taxpayer and tells him it is his fault because he isn’t paying enough. The answer in Washington and the state capitals is always the taxpayer must pay more tax, work harder, volunteer more and cut back on his lifestyle.
It is time for the taxpayer to tell Washington and their states that we pay too much, it is time for government to cut its lifestyle, quit building grandiose legacies to themselves, serve the people and lift the burdens they keep strapping on people’s backs.
The so called social welfare programs even place great burdens on the backs of the people they are supposed to help. They hold these people down while distributing the cost burden to the producer.
It is enough: it is time to free this people from the gifts of government. Let government protect us from invasion and let us make our living and our choices without their interference.

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Kudlow: Obamanomics and the jobless recovery

Sep 7, 2009 15:01 UTC

The great Lawrence Kudlow tells a hard truth, I think, about the economy and the day after tomorrow:

The threat of higher payroll taxes and energy costs is more than enough to deter new hiring. Taxes on upper-end investors are going to rise, too, and there may be a health-care surtax on top of that. And don’t forget that small businesses pay the top personal tax rate, which is going up. Oh, and how about the recent minimum-wage hike? Yet another business cost.

So while the government doles out money for transfer payments and one-time temporary tax credits, the ensuing increase in the private-sector tax-and-financing burden becomes a complete deterrent to new job creation, as well as capital formation.

We’re going to recover. Improved ISM reports for manufacturing and services, along with better profitability for big corporations, suggest we’re looking at a mild, V-shaped recovery of 3 percent. But it will be a jobless recovery.

Another banking crisis would not be good

Sep 4, 2009 17:52 UTC

Curious Capitalist Justin Fox notices that time is running out on financial reform:

Earlier this year, when this regulatory crackdown was still in the hypothetical future, it was easy to sound tough about it. But now the big banks are making money again. The global economy seems to be recovering. The time to start cracking down is coming soon. Because if big financial regulatory reform doesn’t happen in the next year or so, it may never happen.

Me: I do know this: We can’t afford another banking crisis anytime soon. American debt-to GDP is already going from 33 percent to at least 80 percent by 2019. Another one and we just might have to follow Andrew Mellon’s advice and liquidate, liquidate, liquidate.


Dear James,
After reading your short article on banks in America,i started smiling.
I have not seen anywhere,except in developed countries like America,Germany,England and some western countries banks are in serious troubles,and their crisis are multiplying day by day.
Because of no proper banking regulations and loopholes of functioning and maintaining their day today operations.
Who are all suffering?Only deposit holders,saving bank pass holders and retired people.
This is not a good sign at all.
Hereafter,there should be very strict regulations,transparent banking transactions,and a very good audit mechanism for creating,consolidating confidences from public and for correct,balanced growth for smooth transition to real good results.

How high unemployment undercuts Obama’s agenda

Sep 4, 2009 17:43 UTC

At the end of the 2000 film “The Perfect Storm”, a Gloucester swordfish boat captain (played by George Clooney) finally accepts that his crew won’t escape a monster hurricane in the North Atlantic. “She’s not gonna let us out,” he says as the trapped vessel moves from the eye of the storm and back into the raging winds.

The White House economic team can probably relate. The nation’s unemployment rate jumped to 9.7 percent in August, said the Labor Department, after dipping to 9.4 percent in July. “That drop in July had been too good to be true,” sighed Nigel Gault, the chief U.S. economist at IHS Global Insight. Merely the eye of the storm, perhaps.

To be sure, the pace of monthly job losses is abating, falling to 216,000 compared with a high of 741,000 in January. It now also seems unlikely that the unemployment rate will hit a post-World War II high of 10.8 percent. Good news all. But the employment declines do continue nonetheless, with more than 7 million jobs lost since the recession began in December 2007

Also continuing to decline is President Obama’s approval rating, which has plunged to 53 percent from 61 percent during the past three months, according to an average of polls calculated by RealClearPolitics. Almost nothing poisons a president’s popularity like high unemployment.

And why think that the job market or the president’s approval rating will improve dramatically during the next year or so? Let’s assume a snappy recovery in 2010 with GDP growth of 3.5 to 4 percent. That’s the JPMorgan forecast. But despite a mild V-shaped recovery, the firm’s economists still see an average unemployment rate of 9.4 percent in the fourth quarter of that year.

Even the superbulls at First Trust Advisors, looking for 4.5 percent GDP growth in 2010, don’t see unemployment breaking much below 8.5 percent. Keep in mind that those rates are almost double what Americans have come to expect the past two decades. It’s going to seem like a jobless recovery to many voters.

The labor market isn’t going to let Team Obama out. Its troubles will continue to drain the president’s popularity and perhaps result in large losses for congressional Democrats in the 2010 midterms. If Obama still wants to pass big change from a position of moderate bargaining strength — and while he still has maximum muscle on Capitol Hill — it needs to be now. This would mean centrist proposals like healthcare reform that would expand coverage while also making it easier for individuals to purchase their own private insurance, or a climate change bill where revenue from carbon emission allowance auctions would offset payroll taxes rather than given away to companies or spent by government.

Rahm Emanuel, White House chief staff, famously said that you “never want a serious crisis to go to waste.” With the moment of acute economic crisis past and a long “muddling through” begun, the president’s time of opportunity is nearing an end.


But is’nt it so that, would the democrats have opposed the spending of the main part of the pre-crisis deficit (i.e. on the war in Iraq), they would have been marked as being unpatriotic or may-be even traitors?And, as far as te bail out for the banks is concerned, that was the only possibillity for the economy to sort of survive, if that had’nt come through the problems would still be there to a far bigger extend and then we would not have been given time to rebuild at all.So I think it was the best option for the Democrats to voted with the previous president in that case.Remains the big problem of export of work, did you see today’s info on this agency about the current deficit on the trade balance? (what are the main causes behind this deficit….?)The opposition is very good in turning facts around, see the lies about healthcare and the like (obama’s birth certificate) and then of course the lies that were part of the selling process for the Iraq war…and the political mess (trustworthiness) that followed.That money spent on supporting the economy should also be spent on products made locally, not on the other side of the globe at slave’s wages to increase profits for shareholders.If they would earn a decent wage out there and if their governments would look for improvement for the life of the poorest we would not have this problem. Everybody would be better ofBut of course in a free market economy we have to live with that or……should we do something about it?best regards,JB

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Government’s real role in healthcare

Sep 4, 2009 17:22 UTC

Some wise words from economist Andrew Samwick over at Capital Gains and Games:

1) The scenario I envision is that the public option does nothing to control costs.  Its payment system is set up to resemble Medicare, and it is the growth in real, age-adjusted Medicare expenditures per capita that has most people concerned about long-term deficits.  But with a public option, there will now be recourse for every citizen to petition the government to get a better deal on its health insurance premiums.  The pressure will be enormous to subsidize the public option, just as there has been enormous pressure to offer services in Medicare that increase its cost at (future) taxpayer expense.

2) There is no way to keep politics out of the operation of an entitlement program as complicated as Medicare.  Legislators simply cannot help themselves.  Staying with the follies of former Senator Stevens to whom Stan referred in his post, recall what he did for Medicare payments in Alaska on his way out the door.  I have argued that the government does have an important role to play in the regulation of health insurance markets (Community rating, Guaranteed issue, Ex post risk adjustment, and an individual mandate, with Medicaid for a fee as the backup option).  To the extent possible, it should stay out of the business of delivering health care.  Markets should determine the allocation of goods and services, not legislators and bureaucrats.
Me: The compromise is obvious, unless you want to basically phase out private health insurance. And this what many Dems really want to do. That is the problem.

What does 9.7 percent unemployment mean for Democrats?

Sep 4, 2009 17:09 UTC

Marc Ambinder looks at this question and concludes a) that anything under 10 percent is better than expected, b) 0.3 percent makes a big difference politically, and c) Team Obama will be able to more or less successfully blame Bush. His bottom line:

The economy is expected to play a big role in the 2010 elections, with Democrats bearing the brunt of a worsening situation. That’ll depend a lot on the duration of the decline, just how bad things get, and what direction they’re heading as November 2010 approaches. Right now, 9.7 percent doesn’t tell us a whole lot about how that will play out.

Me: How about this instead: Unemployment is killing the White House, and it doesn’t need to get a 0.1 percent worse to continue to suck the life out of this administration. Obama’s approval ratings are down 8 points in three months. People have become accustomed to very low rates of unemployment and short recessions. Those expectations are politically devastating to Democrats.