Relevant and even prescient commentary on news, politics and the economy.

Jobs as the Measure of Economic Success, and Rick Perry’s Texas

by Linda Beale

Jobs as the Measure of Economic Success, and Rick Perry’s Texas

We have had a warped sense of how to measure economic success in this country at least since George W. Bush started talking about the “ownership” society.  Of course, we should have guessed that moniker was problematic from the start, since it was ‘invented’ by a guy who bragged about representing the ‘have-mores’ while the economy was rapidly becoming a bi-polar, class-based society of have-mores and have-nots.

Most of the media looks at the gyrations of the Dow Jones Industrial, the S&P 500 and similar indexes of stock pricess and then says our economy is good (if they’re up) or bad (if they’re down).

Folks, that’s only true for those who own most of the financial assets–the rich folks at the top of the scale.  It’s not true for the companies. As Ali Velshi noted in the Daily Show clip on the earlier blog post, companies intrinsic values don’t change by dropping 5% overnight, gaining 3% overnight and then dropping 4% overnight.  The companies are still plodding along doing what they’re doing.  What changes is the attitudes of those secondary investors–more and more of them just quick traders out to arbitrage a temporary price difference who don’t give a damn about the company’s fundamentals.

Now, if you happen to own a few shares of a company that tanks, you clearly care about that stock price plunge.  And if your retirement account is large and heavily invested in stocks, then you care as well.  But fact is, the way we really should measure the economy is by how much and what kind of work it offers to ordinary Americans.  What’s the jobs count?  And what do those jobs pay?

And those numbers are important only relative to other numbers.  You don’t know whether you have a mice or an elephant in terms of job creation unless you know how much your population has grown alongside the growth of those jobs.  This is why the same record on job creation can be made to look good to the naive hearer  (“more than 5 million jobs in 8 years”) or terrible (“only 3 jobs per 1000 new citizens in 8 years”), depending on whether the hearer gets information on the number of new job seekers as well as the number of new jobs available for those seekers.

So Rick Perry brags about his Texas record.  I’ve already posted on the many problems in Texas, some of which Perry is responsible for and most of which he is responsible for not addressing.

What about jobs?  Yes, there is still an oil and gas ‘one-note’ economy that creates directly and indirectly new jobs as the oil and gas industry grows (for now).  Many of those jobs are minimum wage and lots of them are not very secure.   But our question is what about the new jobs to new job seekers ratio–are jobs growing, so that unemployment is going down?  or are jobs growing but not at the same rate that the population is growing?    The fact that the unemployment rate has increased to just below the national average at 8.2% suggests that jobs aren’t growing as fast as the population and maybe that jobs are even shrinking.

Here’s someone else’s take on this question.  The staff at ThinkProgress and the Center for American Progress Action Fund produced a report that delved a little deeper into the Texas jobs numbers and concluded: Texas Ranks Dead Last in Total Job Creation, [when] Accounting for Labor Force Growth, Aug. 17, 2011.

Here are a few facts from the report:

1) Between 2008 and 2010, jobs actually grew at a faster pace in Massachusetts than in Texas.

2) “Texas has done worse than the rest of the country since the peak of national unemployment in October 2009.”

3) The unemployment rate in Texas has been steadily increasing throughout the recession.

4) While over 126,000 net jobs were created in Texas over the last two and a half years, the labor force expanded by over 437,000, meaning that overall Texas has added unemployed workers at a rate much faster than it has created jobs.

5) if there is a real “miracle” here, it is North Dakota, which has seen over 27,000 new jobs and a labor force expansion of only 3,700, resulting in about 24,000 new jobs for workers who previously had none.

The resulting picture comparing Texas to other states in terms of job creation considering labor force increase or decline is the following (note that Michigan’s ‘top’ rating is due to some job creation but primarily to loss of labor force as people without jobs leave the state;  neither Michigan nor Texas has the ‘right stuff’)


Also posted at Ataxingmatter

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The Effect of Individual Income Tax Rates on the Economy, Part 2: The Great Depression and the New Deal, 1929 – 1940

by Mike Kimel

The Effect of Individual Income Tax Rates on the Economy, Part 2: The Great Depression and the New Deal, 1929 – 1940

This post is the second in a series that looks at the relationship between real economic growth and the top individual marginal tax rate.

Last week I had a post looking at the relationship between the state of the economy and the top individual marginal tax rate from 1913, the first year for which there were individual income taxes, to 1928. Because there is no official data on GDP for that period, I used recessions as a proxy for how well (or poorly) the economy was doing. I note that there was no sign whatsoever that the economy did better during periods when income taxes were non-existent (the post also looked back to 1901), or were low, or were falling, than when tax rates were high or were rising between 1901 and 1928.

This post extends the analysis to the period from 1929 to 1940, 1929 being the first year for which official real GDP data is available from the Bureau of Economic Analysis. 1940 is the end of FDR’s first eight years in office, and serves as a decent bookend to the New Deal era given America’s entry into WW2 in 1941. Top individual marginal tax rate figures used in this post come from the IRS.

The following graph shows the growth rate in real GDP from one year to the next (black line) and the top marginal tax rate (gray bars). In case you’re wondering, I’m using growth rate from one year to the next (e.g., the 1980 figure shows growth from 1980 to 1981) to avoid “what leads what” questions. If there is a causal relationship between the tax rate and the growth rate, the growth rate from 1980 to 1981 cannot be causing the 1980 tax rate.

Notice that tax rates fell from 77% in 1920 and 1921 to 24% in 1929, the year the Great Depression began. (As noted in the last post, the so called Roaring 20s was a period when the economy was often in recession.)

Figure 1

In 1932, tax rates rose to 63%, and by 1933, the economy was growing quickly. That doesn’t match with what people believe, I know. It seems these days its commonly accepted that FDR, who took office in 1933, created the Great Depression or at least made it worse, and that only WW2 saved us. In part to address that issue, the graph below shows growth only during the New Deal era, 1933 – 1940 (no WW2!!!). To put the growth in perspective, I’ve added two lines. One represents the fastest single year growth during the Reagan administration, and the other shows the average of the single year growth rates during the Reagan administration. I figured it would be a good comparison, the Reagan administration being today’s gold standard for all that is good and pure.

Figure 2.

As the graph shows, in all but two years from 1933 to 1940, the t to t+1 growth rate was faster than in every single year of the Reagan administration. In fact, the average of the yearly growth rates during this period was about a percent and a half faster than Reagan’s best year.

And yes, there was a sharp downturn shortly after the tax hike in 1935, but its hard to credit that tax hike with the downturn when immediately after the economy continued on a rocket trajectory.

Now, whenever I point something like this out, I get told the same thing (at least by folks who are smart enough not to argue with the data): the rapid growth in the New Deal era occurred simply because the economy was slingshotting back from the Great Depression, and if anything the New Deal policies slowed the recovery. The problem with that argument, of course, is that because the unfortunate events of 2007-2009 witnessed the biggest economic decline since the end of WW2, the economy should be primed for the fastest spurt of growth in the past 60 years. After all, the policies we’ve been following before, during and since that decline have not been very New Dealish at all: top marginal tax rates are 35%, not 63% or 79%, there are no work relief programs, and Glass Steagal Act, passed as part of the New Deal, borders on irrelevant. Yet I think its safe to say just about everyone is in agreement that sort of growth isn’t going to happen anytime soon.

It is also safe to say that for the first two periods covered in this series (i.e., 1901 – 1928 and 1929 – 1940), we once again haven’t seen any sign of the purported relationship between higher lower marginal tax rates and faster economic growth. No doubt that relationship shows up later on. Next post in the series: WW2 and the immediate post-War era.

As always, if you want my spreadsheets, drop me a line. I’m at my first name which is mike and a period and my last name which is kimel at gmail period com.

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G7 expansion? Not even close. Canada’s in a league of its own

by Rebecca Wilder

Disclaimer: I’m in Germany, and the keyboard takes some getting used to. Therefore, some of my posts in the coming week will be short and sweet (so that I don’t include characters lik ö, which is sure to turn some heads). Furthermore, blogger spellcheck doesn’t work in English here.

The Q2 real GDP data across the G7 are now in, except for Canada who is always the last to release their statistics. We now know that the G7 expansion has been nothing short of pathetic. Why? Because among the G7, ONLY Canada – the G7 consists of the US, UK, Germany, France, Canada, Italy, and Japan – has fully regained its GDP lost during the recession (it had by Q3 2010 no less). Canada’s in an expansion league of its own.

Hence, the G7 ex Canada remain in “recovery” mode through Q2 2011 and roughly 3.5 years since the previous cyclical peak (see table in reference of post).

(Note: I differentiate “recovery”, or regaining output lost, from “expansion”, or growing beyond the previous cyclical peak, in this post.)

The chart above illustrates real GDP (just “GDP” from here on out) across the G7 around the peak of each country’s GDP during the last cyle, point 0. Only Canada has fully recovered its real GDP lost, having expanded to a level that is near 2% over its previous peak through Q1 2011.

A full business cycle can be measured as the bottom of a recession to the bottom of the next recession, or the trough to trough measure. In the US, the latest cycle lasted 91 months from the trough of the 2001 recession to the trough of the 2007-2009 recession. And here we are, 14 quarters since the peak in Q4 2007, of which GDP is 0,42% below. For comparison, GDP fully retraced the peaks previous to the 1981-82 and 1990-91 recessions in 7 and 6 quarters, respectively (by my quick count).

Even Germany, the wunderkind of euro area growth had not regained its GDP lost as of Q2 2011. And don’t even get me started on Japan.

The ECB is tightening; US Congressional leaders are recklessly endangering the economy; and some euro area governments are pushing through even further fiscal spending cuts to calm market angst. This stinks of policy mistakes – and here in the US, we’re patting ourselves on the back because the economic data do not scream recession yet?


Rebecca Wilder

Reference: Business cycle peak dates for chart above

Also posted at Newsneconomics

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Long term fiscal problems 2007…PGL

Angry Bear PGL wrote this post in 2007 reflecting the shape of politics and media soundbites of this current and constant election campaigning over the current two years to 2012 elections:

In case Mr. Romney hasn’t seen my question. let me restate it. How will you address the long-run fiscal problem, that is, will you raise income taxes or will you impose that backdoor employment tax increase known as “entitlement reform”, which really means cutting Social Security benefits? Until Mr. Romney answer this question clearly let’s not pretend he has a serious position paper on taxes.

The whole post is below the fold. (hat tip Daniel B)

Stephen Dubner says Mr. Romney does and points to a NYTimes oped written by Greg Mankiw as that position paper:

But perhaps the very most interesting thing about the Mankiw piece is the lead: “Do the rich pay their fair share in taxes? This is likely to become a defining question during the presidential campaign.” This is a classic in winking understatement, for Mankiw was not only an advisor to Bush, but is also (as duly noted in the bio on his piece) an advisor to Mitt Romney on Romney’s current campaign. I applaud Mankiw, the Times, and Romney for having the courage to produce what is essentially a position paper on taxation in the pages of the Times. As long as everyone’s cards are on the table, which they are here, I see no harm. But I sure would have liked to see the e-mails back and forth between the Mankiw and the Romney camp as the Times piece was being edited; and it sure will be interesting to see how this trenchant piece of tax commentary plays out in Romney’s campaign. I can just imagine one of his opponents whipping out the Mankiw article a few weeks or months from now and waving it in his face – “So the rich pay too much tax, huh?”

Doesn’t the suggestion that the rich pay too much in taxes imply that the middle class and the working poor pay too little? It does unless one thinks we ought to slash the budgets of things like the Defense Department – which is not going to happen if Mitt Romney has his way. The claim that Mr. Romney was courageous in producing a position paper on taxation is absurd on so many levels. Greg noted one:

No emails. No phone calls. No smoke signals. I am not an employee of the campaign. I am a Harvard professor, expressing my own views, sometimes publicly, sometimes privately to a candidate for President. After listening to a variety of advisers with various perspectives, Romney decides on his own what positions to take.

The other levels on which this statement about Romney’s courage is absurd goes to a couple of critiques of Greg’s “super-compelling” oped both noted by Brad DeLong. While I think Mark Thoma had a more compelling discussion of the fairness issue, my contribution, which Brad was so kind to highlight, goes to the simple arithmetic of the long-run budget constraint that Mr. Romney has yet to address:

And by looking at 2004, he is forgetting that the budget is not exactly in balance. Yes, the General Fund deficit was rather large so current tax obligations do not capture the cost of government as in all those deferred tax bills thanks to the Bush tax “cuts”. But one might try Greg did that the unified deficit is not that large … Greg leaves out the fact that we have a large Social Security surplus, which is the reason why he can argue that the “deficit” is not that large. Implicit in the use of this figure is the proposition that those payroll “contributions” we are making are NOT to become our retirement benefits down the road. As long as we are posing questions for political candidates, let’s pose this one for Mitt Romney (as Greg is one of his advisors): do you intend to slash Social Security benefits in the future as you continue to impose these employment taxes? After all, you want to maintain the Bush tax “cuts” and still have a large defense department.

In case Mr. Romney hasn’t seen my question – let me restate it. How will you address the long-run fiscal problem, that is, will you raise income taxes or will you impose that backdoor employment tax increase known as “entitlement reform”, which really means cutting Social Security benefits? Until Mr. Romney answer this question clearly – let’s not pretend he has a serious position paper on taxes.

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Some thoughts on the next presidential election

by Mike Kimel

Some thoughts on the next presidential election.

1. It seems to be a political truism that only Nixon could go to China.

2. Once a precedent is set, even taboo activities become OK. Clinton could go to China because Nixon had already gone.

3. Obama seems willing to, er, “fix” a number of programs that folks on the left hold dear like Social Security and Medicare.

4. GW was unable to tackle Social Security and Medicare, though he did express the desire to do so.

5. Under the Nixon-has-gone-to-China precedent, Social Security and Medicare will not be off limits to Obama’s successors of either party.

6. If Obama wins in 2012, what other Chinas will he visit?

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My Ignorance Amazes me but Still I Cannot Sleep

I think this business insider article by Henry Blodget is a genuine must read

A former senior analyst at Moody’s has gone public with his story of how one of the country’s most important rating agencies is corrupted to the core.

The analyst, William J. Harrington,

Sad to say (pathetic really) something was news to me

“Moody’s …. since going public in 2000.”

I didn’t know ( I have stressed my ignorance many times here but I had no idea how much ignorance I had to stress).

It sure didn’t take long.

Also how long did the longest lived publicly traded investment bank in the USA survive as an investment bank ? Did any make it over age 18 ?

Since some time in the mid 70s I had been very puzzled as to how private unregulated firms with such power could remain uncorrupt (in 2008 I started wondering how they had remained uncorrupt for so long).

“We told you so” — Bearle and Means.

update: at least I’m not naive enough to be surprised by this

MCO 27.04 -0.89 -3.19%

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This is Interesting

As regular readers know, I have been arguing since long before existed that Democrats should campaign on raising taxes on rich people (I was convinced in 1993 or 1994). One of the facts that all savvy people think they know is that people of modest means in the USA reject the proposal to soak the rich. Oddly those savvy people neglected to convince the substantial majority of US adults which has declared support for higher taxes on rich people in every poll on the subject in the past two decades (at least).

I assert that there has been a conspiracy of silence as the villagers and the MSM hide the fact that most US adults support higher taxes on the rich from almost all US adults.

This article by Rosalind S. Helderman is interesting as it shows that something has changed and something has remained the same. The article reports

Obama told residents that Republicans like Hultgren must be willing to raise taxes to reduce the deficit.

A few hours and 90 miles away, Hultgren’s own constituents had picked up the message, repeatedly hectoring the freshman congressman at a town hall meeting to raise taxes on the wealthy and corporations.

The extremely widespread solid majority view that taxes on the rich should be increased has (finally) been reported in the WAshington Post. headline person(s) part MMMMCCXXVI

The headline is interesting too. I have repeatedly criticized the headline person (or persons) for extreme centrist (or frankly Republican) bias.

The article on how a Republican congressman’s constituents gave him two earfuls is entitled “Democrats’ road tour strikes back at GOP’s stand against raising taxes.”

Odd. After the first sentence, the article reports on a Republican’s road tour. The reported news is that this Republicans constituents strike back at GOP’s stand against raising taxes. But somehow Mr or Ms headline person thinks the news is that Democrats disagree with Republicans and want to raise taxes. The headline gives no hint of any recognistion of the fact that not all tax increases are the same and that taxes can be raised on rich people without raising taxes on non rich people (and frankly I guessed the article on the parties and taxes was based on the debate over whether to cut taxes on non rich people as proposed by Obama and blocked (so far) by the Republicans).

Frankly, I think the game is up and that the people with pitchforks are about to storm the fake Trianon village.

The fact that all such predictions have proven wrong in the past doesn’t give me enough pause to prevent me from hitting the post button.

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Punch a Hippy

I think Democrats are wise to punch hippies. I grew up as a wannabe hippy and I volunteer.

Oddly a lefty blogger is convinced that what the Democratic party needs is a Tea Party of the left, but it can’t have one, because of the MSM and hippy baching progressive bloggers.

My jaw drops after the jump.

Here I admit that I am aiming for the maximum possible number of enraged comments.

If you can’t punch the hippy you want, punch the hippy puncher you’re with.

Also the Eagle flies with the dove

then eats it.

Have you looked at polls including the word “tea party” lately ? They are less popular than atheists (such as myself).

Consider the argument that the Tea Party has helped conservatism, that MSM hostility makes it impossible for leftists to do the same, and that progressive bloggers are making a strategic mistake by joining in the hippy punching.

The argument made by progressive hippy punchers is that extremists alienate most people, and that pulling a party away from the center dooms it to electoral losses (so policy moves the other way).

The claim, then, is that the tea partiers will be very bad for Republicans, because most US adults will disapprove of the Tea Partiers, disapprove of Republicans for bowing to the will of the tea partiers, and, in the end have an unfavorable view of the Republican party.

This isn’t, at the moment, a prediction. It is a description of the data. The fraction of US adults with an unfavorable view of the Republican party is the highest ever measured. The tea party rats last among 24 groups (including atheists).

I don’t think there could possibly be more evidence that progressive hippy bashers are right. Many of the most enthusiastic hippy bashers were leftists who expected huge victories in 70-72. One can over learn the lesson of 1972 but those who forget history do sometimes repeat it.

Now my praise of hippy punchers is not criticism of hippies. The punchers need someone to punch. The “professional left” is so useful that if did not exist, Obama would have to invent it. Also he clearly feels a psychological as well as political need to oppose extremists on both sides. If all leftists were reasonable, then he would feel the need to reject reasonable leftism.

But just because we insult each other doesn’t mean that we aren’t symbiotic. We just have to choose whether to be hippies or hippy punchers (I alternate which would be a problem if anyone were paying attention).

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