James Pethokoukis

Politics and policy from inside Washington

Why the U.S. may have a long-term unemployment problem

Nov 30, 2009 20:27 UTC

Wachovia’s John Silvia:

In recent years, permanent layoffs have surpassed temporary layoffs and this is reflected in the rapid rise in the mean duration of unemployment. In addition, the disparity of unemployment by education levels signals that the demand of employers for more highly educated workers does not fit well with the available supply of workers. Current policy initiatives have perverse economic effects. Health care mandates will likely raise the cost of labor and thereby discourage hiring.

Second, the increase in the minimum wage has clearly negatively impacted hiring teenage workers evident in the recent increase in teenage unemployment rates. Cap-and-trade will likely increase the cost of energy and transportation for employers and thereby reduce any funds left to hire workers. At present, the uncertainty about potential micro policies is more than offsetting any positive impact on jobs from the fiscal stimulus.

COMMENT

Just lost my job of 32 years along with 62 others in my department.Our job losses were DIRECTLY attributable to impact on the business from new federal regulations enacted under the Obama/Pelosi/Reid administration.Hope for change, VOTE for change… and soon.America can’t take much more anti-business/anti-competitive/anti-weal th idiocy from Washington and the leftist nannies running NGO’s.

Posted by Doc | Report as abusive

Here is a way to create jobs

Nov 30, 2009 20:10 UTC

From Gary Becker:

My favorite approach it to try to stimulate the economy by cutting income taxes, especially corporate income taxes and other taxes on capital, both physical and human capital. Such tax cuts will stimulate investments in the economy, and in this way increase the demand for workers.

Of course, tax cuts at this moment would add to the deficit and increase the size of the government debt at a time when the debt has already grown rapidly. Tax cuts may also take time before they raise investments and jobs. On the other hand, tax cuts that add significantly to the growth rate of GDP will have only modest, and possibly even negative, effects on the ratio of the debt to GDP while they increase investments and the demand for workers. This seems to me to be an attractive way to approach solutions to the unemployment problem at the jobs summit this Thursday.

If you believe ObamaCare will be deficit neutral …

Nov 30, 2009 20:06 UTC

….  then you must believe all of the following (via The Health Care Blog):

Health reform adds a heap of new cost saving political obligations on Congress. A partial list:

1)that Congress not extend the five-year shelter for states from their share of the cost of a 15 million person Medicaid expansion (e.g. more than a 30% increase). Presently, states are sheltered from Medicaid cost sharing for this expansion until 2014, but then have to find $34 billion in new money to pay their share. States, who are drowning in Medicaid costs already, will press hard to have their existing matching requirements reduced, as they have been for S/CHIP in the two bills.

2)that any “public option” health plan be self-supporting after an initial start up investment, which must be repaid. Recent CBO analysis suggested that because it will attract a ton of sick people, public plan premiums may end up costing more than private insurance unless they are either heavily subsidized or else impose Medicare rates unilaterally. Who will sign up if it’s so expensive?

3)that premium subsidies to help support a 21 million-person expansion in private insurance coverage not rise if health insurance premium growth exceeds present estimates. The premium subsidies are a huge new entitlement- $574 billion over a decade in the more generous House bill. Neither Congress nor the CBO have the faintest idea how health insurers’ costs will be affected by all the proposed restrictions on their underwriting practices. The subsidy cost estimates are, therefore, a Jules Verne moon shot. What happens if, as seems likely, they are way too low?

4)that Congress let stand recommendations of the proposed (by the Senate anyway)

“independent” Medicare Commission that would reduce spending below a target

(and not fiddle with the deficit neutrality rule which requires them to find offsetting revenues if the cuts are not implemented). This Commission was forbidden by Senate charter from affecting hospital payments (45.5% of the program’s cost in 2007!), not an auspicious beginning. The House has thus far predictably refused to let go of Medicare’s reins.

5)that Congress not tamper with the health benefit package employers are mandated to provide or individuals are mandated to carry. In both bills, the relatively restrained “opening” benefit package is left under the (political) control of the Secretary of Health and Human Services. If there is benefit creep (chiropractic, podiatry, in vitro fertilization, massage therapy, reiki, you name it), the required premium subsidies will have to increase apace.

How confident are you that Congress will bite all these bullets and exercise fiscal restraint when confronted with organized advocacy? The CBO kabuki dance on health reform’s deficit neutrality has pivoted around the risible assumption that Congress will actually enforce laws, like the Part B cap, that require, at some future point, fiscal discipline

An offer China couldn’t refuse … or could it?

Nov 30, 2009 20:00 UTC

Dan Drezner on the trade deal he would offer the Chinese:

Hey, Wen, you’re right about the unfair tire tariffs and the like.  Let’s make a trade deal:  you allow the yuan to appreciate, say, 20% against the dollar over the next twelve months.  In return, we will announce a voluntary two-year moratorium on any new anti-dumping and escape clause measures targeted against Chinese imports.  What do you say?

There are worries … and then there are worries

Nov 30, 2009 19:49 UTC

David Goldman sums it up:

Far more worrying [than Dubai] is the commercial real estate problem in the United
States, the continued high rate of homeowner deliquency, the huge
backlog of foreclosures–in short, the whole range of problems that stem
from an effective unemployment rate (including “discouraged” and
underemployed workers) of 17.5%. The cumulative effect of the popping
of innumerable mini-bubbles, none of which are large enough to take
down the system but all of whom together constitute a millstone around
the neck of the banking system, will keep lending weak and the economy
in very, very prolonged recession.

COMMENT

…but the stock market is still up…and housing prices are risingand if I click these ruby slippers together and chant “There’s no place like home. Nam Myoho Renge Kyo.” surely things will get better without actually having to institute appropriate and sensible public policy.

Posted by bryan | Report as abusive

Dubai and Islamic finance

Nov 30, 2009 19:43 UTC

Some great stuff from the great John Carney:

The market has recovered from the initial panic over a possible default on debt issued by Dubai World, and many are assuming that the United Arab Emirates will stand behind the bonds.

But under Islamic financing rules, creditors may be required to take a haircut. Guarantees on debt are prohibited by the shariah, which requires investors to accept risk in exchange for profits. Indeed, there were already questions about the legality of Dubai World’s debt arising from the principal guarantee of the bonds.

In recent years, there has been something of a backlash against some of the more aggressive types of Islamic financing, many of which have been structured to mirror Western bonds to make them more attractive to Western investors. Abu Dhabi, the UAE state expected to bail out Dubai World, may be hesitant to do anything that would be seen as disrupting the profit and loss sharing required by shariah.

COMMENT

I have been following the Nakheel sukuk for nearly a year now and I re-read the prospectus to find out what the creditors could expect if there were a default:http://investhalal.blogspot.com/ 2009/11/what-can-nakheel-sukuk-holders-e xpect.html

Obama’s reverse stimulus on its way

Nov 27, 2009 20:42 UTC

Jed Graham of IBD highlights the coming fiscal drag in a pretty picture:

0112509ibd

Me: What would that mean for GDP growth? A pre-financial crisis analysis by Goldman Sachs predicts, for instance, found that getting rid of all the Bush tax cuts at the end of 2010 would cause a 3 percentage point drop in the economy in 1Q 2011.  In any event, anti-growth fiscal policy is one more reason to believe in the dreary New Normal

COMMENT

Rick,Which is presumably why the chart cuts off at 2013 instead of showing the out years when the net impact of the reform will be neutral.

Posted by Chi Democrat | Report as abusive

Does Washington really get the jobs crisis?

Nov 27, 2009 18:46 UTC

David Rosenberg of Gluskin Sheff doesn’t think so:

These attempts to stimulate consumption at a time when household spending relative to GDP is already at an all-time high are not going to carry much of a multiplier impact. There is a youth unemployment crisis, a skills crisis, a crisis among the ability of small businesses, who have been responsible for 65% of the new hiring in the U.S.A. over the past 15 years — to secure financing for working capital purposes, there is a crisis in terms of a declining manufacturing capital stock, and the programs we get are these old and tired Keynesian attempts at temporary boosts to consumer demand. It truly boggles the mind, and as we show below, American taxpayers are still a long, long way from paying for all these transitory fiscal policies out of Washington.

Me: When I hear folks start talking about new WPA and CCC programs, I know they’re out of ideas.

COMMENT

Thanks for the post and for sharing the very useful information related to job crisis.

Cap-and-trade prospects looking dodgy

Nov 27, 2009 18:33 UTC

Kim Strassel is right, cap-and-trade looks terminal for 2010 and beyond. Sure, the EPA could try to push its own draconian carbon regulation. But I think that would cause a firestorm on Capitol Hill. Strassel:

Polls show a public already losing belief in the theory of man-made global warming, and skeptics are now on the offense. The Competitive Enterprise Institute’s Myron Ebell argues this scandal gives added cover to Blue Dogs and other Democrats who were already reluctant to buck the public’s will and vote for climate legislation. And with Republicans set to pick up seats, Mr. Ebell adds, “By 2011 there will hopefully be even fewer members who support this. We may be close to having it permanently stymied.” Continued U.S. failure to act makes an international agreement to replace Kyoto (which expires in 2012) a harder sell.

More Washington budget gimmickry

Nov 27, 2009 18:18 UTC

Karl Rove makes a good point:

The administration says it is now instructing agencies to either freeze spending or propose 5% cuts in their budgets for next year. This won’t add up to much unless agencies use the budgets they had before the stimulus inflated their spending as their baseline in calculating their cuts.

For example, if the Education Department uses its current stimulus-inflated budget of $141 billion instead of the $60 billion budget it had before Mr. Obama moved into the White House, freezing its budget will do nothing to fix the fiscal mess the president has created.

Me: Indeed, one thing to watch out for is how these elevated, stimulus-related spending levels become incorporated into budget baselines.

COMMENT

There are some that have credibility on the deficit (Bartlett, Rubin etc.) there are others that do not. Those who cite folks like Rove and claim to be anything other than polemic deserve derision. Do you perceive Karl Rove as a legitimate expert? Can you rebut the substance of my comment which directly rebuts Rove’s alleged insight?

Posted by Chi Democrat | Report as abusive
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