James Pethokoukis

Politics and policy from inside Washington

COMMENT

Areas hardest hit appear to be the “rust belt” and high population states. Could it be that pro-free market policies accepted on faith over the last 30 years have not produced wealth for the nation. The Honda Accord came out in 1980 and US Auto Management has not been able to beat it. I guess you could say Reaganomics and the Honda Accord were too much for American Business to negotiate. National planning is needed to balance business’s short term planning problem. Hiring more MBAs will not fix this threat to national security.

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The 9.6 percent unemployment rate and the 2010 midterms

Sep 3, 2010 15:26 UTC

Today’s dismal unemployment report fully locks in the autumn political narrative:

1) Democrats will a) say the job numbers show a slowly recovering economy back from the brink, b) ask for voter patience, c) blame Bush and d) charge Republicans want to kill Social Security.

2) The GOP will say the report shows Obamanomics has failed,  surely (again) highlighting the infamous Romer-Bernstein unemployment prediction.

3) President Obama also seems unlikely to propose any new ideas that would be economic gamechangers. (The WH pushed back hard on media reports that it is considering a $300 billion payroll tax cut.)

4) More likely is a smattering of smaller ideas that Democrats can use to depict Republicans as obstructionists.

5) I would also guess nothing gets done on the expiring Bush tax cuts until at least after the election.

COMMENT

Yes it is true that US came out of recession and unemployment rate is coming down, but the rate is still slow. Barack Obama is thinking of new ideas to work upon to come out of this disastrous situation of unemployment rate. Sooner or later it’ll be possible to come out of it. From the last 4-5 months stock market is fluctuating and the rate of interest is also low.
http://www.mikeastrachan.com/

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Did Goldmans Sachs just douse Dems 2010 election hopes?

Jun 18, 2010 15:25 UTC

Liberal pundits and economists such as Paul Krugman have no use for the White House “Summer Recovery” PR tour. (Note that it isn’t called the “Prosperity Tour.”) They continue to attack the Obama administration for worrying too much about the budget deficit and too little about high unemployment. The White House response has been three-fold.

1) We’re not obsessed with the deficit. “That’s obvious,” Republicans would undoubtedly and snarkily reply, pointing out that under President Barack Obama budget’s plan, deficits would average $1.2 trillion a year for the rest of his term. But the serious White House point is that deficits are only an economic problem in the intermediate and long run. Certainly, both Obama administration and Federal Reserve officials argue, financial markets don’t seem too concerned at the moment given the continued low level of U.S. bond yields. That is why Obama hasn’t rushed to propose some immediate austerity program such as deep cuts in entitlements or a broad-based tax increase. America isn’t Greece. At least not yet.

2) There is no appetite in Congress to pass a pricey jobs bill. As the difficulty in getting the Senate to pass the deficit-expanding “jobs bill” reveals, debt fears are starting to take hold on Capitol Hill. (Or at least fears that voters are starting to worry about all the red ink.) Consider these failed Senate votes a reality check for liberal groups clamoring for a “New New Deal.” The union-backed Economic Policy Institute, for example, wants to spend $400 billion to create nearly 5 million jobs this year. The think tank would try and pay for it with a tax on stock, bond and currency trading. But there is little support for that in Congress, and even the Treasury Department thinks it a bad idea.

3) The labor market may just surprise you — and in a good way! There is a statistical relationship called Okun’s Law (really more of a rule of thumb) between GDP growth and job growth. A simple Okun analysis leads to the conclusion that the unemployment rate rose higher than was warranted given the severity of the Great Recession Why? Perhaps businesses, fearing another Great Depression, panicked and just hacked their workforces to bits. Okun’s Law was suspended, but only temporarily perhaps.

If one buys this theory, then eventually there should be some payback for that psychological overreaction. At some point soon, unemployment should fall way faster than what the rate of economic growth would indicate according to Okun’s Law. At least this is what the White House —  and congressional Democrats hope. And if they are right, the job market might well unexpectedly strengthen right into the November midterm elections, helping avert the worst for Democratic House and Senate incumbents. No Republican tsunami.

But a brand new study from the economics team at Goldman Sachs throws cold water on all this. Their analysis is that the deviations from Okun’s Law were within the historical norm, so no sharp rebound (bold is mine):

It is a common belief that employment and hours worked fell more sharply during and after the 2007-2009 recession than can be explained by moves in real GDP, or in more technical terms, that “Okun’s law”—the empirical relationship between jobs and GDP—broke down during and after the recession. Many forecasters believe that this implies a large amount of pent-up hiring, as the “error” in Okun’s law proves temporary and firms hire aggressively in order to return staffing levels to more normal levels relative to production.

In contrast, we have argued that the relationship between employment and GDP remains quite similar to past cyclical norms, and that employment growth will therefore follow GDP growth without a “special hiring dividend.” … The bottom line is that there is no convincing evidence for a breakdown in Okun’s law, and hence no particular reason to expect a large amount of pent-up hiring during the recovery. … Overall, we see no evidence for any meaningful deviation of the unemployment rate from its historical relationship with real GDP.”

And here is a chart to help visualize the point:

goldmanchart

Bottom Line: Unemployment of 9.5 percent or so for the rest of the year seems baked into the cake (this is what the Fed and the economic consensus see) unless GDP growth starts to boom. And good luck finding forecasters who believe that. So far, this recovery has fit into the slow-growth, New Normal paradigm. Although it was a deep recession just like in 1981-82, the recovery has only been half as robust. Voters may not blame Democrats for the Great Recession, but they will likely hold them accountable for the Not-So-Great Recovery.

COMMENT

Goldman Sachs has doused a lot of people’s hopes. Why would they leave out the Democratic Party?

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American job insecurity

Apr 26, 2010 14:11 UTC

Two interesting polls from Gallup show why a few ticks in the unemployment rate here and there are really besides the point. (Thanks to Jim Geraghty of NR.)  This downturn has scarred the American psyche. The first chart shows how worried workers are about finding a comparable job if they ever lose their current one. The second chart shows that they are still pretty worried about losing their existing job.

gallup2

gallup1

Why U.S. labor markets may stay in a funk

Mar 22, 2010 18:16 UTC

“The Labor Market in the Great Recession” is an interesting new paper that looks at where the job market may be heading, as well as how it has fared the past few years. The latter points first:

Unemployment rose from a pre-recession minimum of 4.4 percent to reach 10.1 percent in October 2009. This increase—5.7 percentage points—is the largest postwar upswing in the unemployment rate. It dwarfs the rise in joblessness in the two most recent recessions in 1990 and 2001, when in each case unemployment rose by approximately 2.5 percentage points. It dominates even the severe recession of 1973/4 (4.25 percentage points) as well as the combined effects of the double recession of the early 1980s (5 percentage points). There is little doubt that the present downturn is the deepest postwar recession from the perspective of the labor market.

But will the deep downturn be followed by a rapid rise? Don’t count on it, the authors say:

The resemblance of these trends to the similar breakdown in match efficiency that accompanied the European unemployment problem of the 1980s raises the concern of persistent unemployment, or hysteresis, in U.S. unemployment going forward. We consider a range of possible sources that might lead to hysteresis, including sectoral mismatch, extension of unemployment insurance (UI) benefits, duration dependence in unemployment outflow rates, and persistence in unemployment brought about by reductions in the rate of worker flows, what Blanchard (2000) has termed sclerosis.

Recent data point to two warning signs going forward. First, the historic decline in unemployment outflow rates has been accompanied by a record rise in long-term unemployment. We show that this is likely to result in a persistent residue of long-term unemployed workers with relatively weak search effectiveness, depressing the strength of the recovery. Second, conventional estimates of the impact of UI duration on the length of unemployment spells suggest that the extension of Emergency Unemployment Compensation starting in June 2008 is likely to have led to a modest increase in long-term unemployment in the recession. Nonetheless, we conclude that, despite these adverse forces, they have not yet reached a magnitude that would augur a European-style hysteresis problem in the U.S. economy in the long run.

COMMENT

Jimmy was picked on when he was in school. That is why he is such an angry dork.

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The cure for high unemployment

Mar 15, 2010 17:14 UTC

Gary Becker gets straight to the point:

The only real remedy for the long-term (and other) unemployed is to have the economy grow fast, as it did after the severe recession in 1982 when unemployment peaked in December of that year at 10.8%, and then fell rather rapidly. There is no magic bullet to accomplish this, but I do believe it would help a lot if the leaders in Washington did not try to radically transform various aspects of the economy while we are recovering from a serious recession, and thereby magnify the high degree of uncertainty that is typically caused by a recession. Instead, they should be concentrating on fighting the recession, and stimulating long-term economic growth.

Me: During the 1980s, the economy notched 19 quarters of 3.5 percent GDP growth or better. In the 1990s, the economy also notched 19 quarters of 3.5 percent growth or better. So far this decade before the recession? Just eight. Or look at the number of quarters of “hypergrowth”—5 percent or better. (This was JFK’s GDP goal in the 1960s, by the way.) There were 12 in the ’80s, eight in the ’90s. So far this decade? Just a single quarter, the third quarter of 2003.

COMMENT

The high unemployment situation will not change.The jobs lost in manufacturing is the main cause of ub-nemployment and recession.
There is no sector which will replace manufacturing jobs.The West and America are blinded by cheap imports and Free Market. China and India are growing at tremendous rate and in another year they will acquire many sucessful Companies . Still time to wake up and encourage consumer goods manufacturing.Scrap minmum wage and lets compete.Make our own goods for our own benefit .we will all be happy working again

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Unemployment and the 2010 midterms

Feb 22, 2010 20:28 UTC

Charlie Cook has it exactly correct in this piece of analysis:

I’ve spent the last couple of days talking to some of the brightest Democrats in the party that are not in the White House. And it’s very hard to come up with a scenario where Democrats don’t lose the House. It’s very hard. Are the seats there right this second? No. But we’re on a trajectory on the House turning over….
There are nine months, certainly things could happen, but the odds of unemployment being below 9 percent are minimal by the time of this election. We’re probably going to have a year of basically, more or less, 10 percent unemployment, which hasn’t happened since the Great Depression. I mean, in fact, in an even-numbered year there’s only been one month of double-digit unemployment in the post-War era. One month. And now we’re going to have probably about a year.

Me: Unemployment is The Variable. Anything other than a sharp drop is terrible news for Democrats. And there seems little chance the US economy will generate the level of economic growth this year necessary to generate hundreds of thousands of job per month.

COMMENT

Dear friend,
You have already appreciated of my new found theory of world economics by email,and i acknowledged it.
Todays writing on America!s ruling parties pros and cons,likely to lose charm,popularity from Americans are imminent.
On any democratic elections, many political leaders knew very well on their present anger, failure of their expectations from ruling parties and these known thoughts will convert and give more mileage to upcoming political parties.
Here,Democratic party had en cashed it to their favor.
Now, true color comes out.
Daily, i am reading, and knowing from American friends, and relatives from overseas on America!s latest economic scenes.
Some despair had already on Americans faces.
What to say an end to this topic.
We hope that, they will do some serious introspections,analysis and where,what went wrong and for quick damage control exercises for any further set back.
Time has come to learn from India,China, South Korea,Brazil,Russia!s progress on their economic upbeat,consolidation, and growing their export,IT sectors and more job oriented schemes to jobless segments.
Best wishes to you,your family and to this great news provider to entire world.

The jobs bill

Feb 12, 2010 18:06 UTC

1) Obama administration economists reckon the jobless rate will hover around 10 percent this year, and now say the U.S. economy will generate an average of just 95,000 jobs a month. That tallies with Team Obama’s forecast of anemic 3.0 percent GDP growth. Monthly job growth of 125,000 to 150,000 is needed to start bringing the unemployment rate down from its current 9.7 percent. That’s what would normally be expected more than two years after the onset of a recession. It’s not happening — at least not yet.

2) Enter the U.S. Senate. The centerpiece jobs proposal would spare businesses from paying payroll taxes on some new hires for the rest of 2010. Based on a Congressional Budget Office analysis, this measure might create a feeble 50,000 to 90,000 jobs.

3) Aside from the bill’s limited potential effects, short-term fixes are not what’s needed. America’s job machine didn’t suddenly break down in 2008. It has been sputtering since the Internet bubble burst. Some economists now think a decline in education, innovation and other former U.S. advantages means the realistic minimum unemployment rate has gone up from 4-5 percent to as much as 7 percent.

4) That suggests legislative efforts at improving the employment picture should focus on long-term measures to improve education and help innovative businesses. Options in the latter category include a reduction in the U.S. corporate tax rate, targeted infrastructure spending and long-term tax credits for research and development. It’s a shame Washington seems able to set politics aside to accommodate special interests, but not for what’s really needed.

COMMENT

The Jobs Bill will do little to put the most disenfranchised to work, especially poor Black and Latino youth. The majority of the Bill’s incentives go to businesses rather than direct job creation. Do they really think that businesses are bursting at the seems to hire inner city youth? When will they get it – If we don…’t provide jobs for the young people with whom we work, the majority will simply be without jobs.

Obama’s unemployment forecasts

Feb 2, 2010 19:57 UTC

Brad DeLong looks at the Obama unemployment forecasting record:

delongchart

COMMENT

Fortunately, Ben Bernanke appreciated how serious a risk the economy faced. I recall a year ago some people advocating a more hawkish monetary stance. Perhaps that highlights the relative weight they place on potential inflation versus potential unemployment. Though it remains to be seen how effectively the Fed will be able to execute its exit strategy to avoid an explosion in inflation, so far it would appear that Bernanke’s understanding of the tradeoff was appropriate.

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CBO paints nightmare scenario for Democrats in 2010

Jan 26, 2010 18:06 UTC

According to the new CBO economic and budget forecast,  the US economy will grow at just 2.2 percent next year, keeping unemployment above  10 percent. In fact, it has the jobless rate averaging 10.1 percent vs. 9.3 percent in 2009. As the CBO puts it:

First and most important, output is expected to grow fairly slowly in this recovery. Following the two previous severe recessions in the postwar period, output rebounded particularly rapidly, as did employment. Real GDP grew by 6.2 percent in the four quarters following the 1973–1975 recession and by 7.7 percent in the same period following the 1981–1982 recession. In both instances, all of the jobs lost during the recession were regained within four quarters. In contrast, GDP rose modestly and employment remained much weaker following the two most recent recessions.

Employment changed little during the four quarters following the 1990–1991 recession, when real GDP rose by 2.6 percent. And employment fell by more than 1 million in the six quarters following the 2001 recession, when real GDP grew at an average annual rate of 2.1 percent.

COMMENT

4 ways to grow GDP close to 6% and to decrease unemployment by 4 pts

1. Capital gains tax cut to effective rate of 10% on all asset classes
2. Incentivize promising job growth industries such as healthcare. Instead of crippling healthcare with burdensome regulation and government control, enable the industry by offering incentives for creation of self funded, self directed medical savings accounts. Other promising sectors are energy – export natural gas and other commodities to developing nations.
3. Dramatically reduce non-critical federal spending. Cut most foreign aid other than spending that is critical to national defense.
4. Across the board sustained coordinated income tax cut

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