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.


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.


I’ve been gone for a while, but now I remember why I used to love this site. Thank you, I will try and check back more often. How often do you update your web site?

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.


…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.


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