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

What’s Happening to Consumers?

This is interesting, and not in a good way:

NEW YORK (CNN/Money) – Consumer confidence plunged last week, matching its steepest drop on record in more than 18 years of weekly polling by ABC News and Money magazine.

This follows a sharp fall in the consumer confidence by the University of Michgan that was reported last week. What’s happened in the last month to shake consumer confidence so much? I honestly don’t know. But it can’t be good.

Kash

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Jobs Forecast

Kash and I (and Brad) had a lot of fun last week laughing at the laughable jobs forecasts in the current Economic Report of the President. We all wish they were true, but we’d all also like to win the lottery — and the odds of each are about the same

Via The Left Coaster, I see that Treasury Secretary Snow and Commerce Secretary Evans don’t believe the foreceasts either:

Treasury Secretary John W. Snow distanced himself on Tuesday from the Bush administration’s official prediction that the nation would add 2.6 million jobs by the end of this year. … But on a tour through Washington and Oregon to promote the president’s economic agenda, Mr. Snow and Commerce Secretary Donald L. Evans both declined to endorse the White House prediction and cautioned that it was based on economic assumptions that have an inherent margin of error.

AB

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An Important Post

I just read Kash’s American Street post, and I encourage you to do so as well. Kash and I have often argued that free trade is a good thing: while there are winners and losers, the net benefits invariably outweigh the costs so the losers can be compensated and there will still be money remaining. That argument is invariably met with, to put it mildly, skepticism by our readers. Brad DeLong frequently makes the same arguments, with the same results.

This skepticism comes in two forms. The first simply refuses to believe that it can ever be better to pay workers in other countries, rather than in the US, to produce the goods that we consume. It’s very difficult to argue with such people; even pointing out that their logic implies that we would be better off if we were still an agricultural-based society accomplishes little. The second line of skepticism grants the long run and overall benefits of free trade, but points out that we never actually compensate the losers. For instance, in a recent post Atrios wrote

And, all such arguments [for free trade] ignore the transition effects. Some temporary employment/underemployment can result as regulations, technology, and terms of trade change. The industry-specific skills of workers can suddenly be devalued, negatively affecting both them and potentially the overall productive capacity of the economy. Labor force participation may decline for years, as discouraged workers drop out of the labor force.

Economists need to stop having a fetish about the “size of the pie.” It’s one measure of welfare, but it isn’t a particularly meaningful one. Absent policies to temporarily offset transitional effects and minimize distributional consequences, “free trade” is just a fetish. [emphasis mine]

In his American Street post, Kash outlines a policy that would “temporarily offset transitional effects and minimize distributional consequences,” which is why I encourage you to take a look. Given the prominence of trade-related job losses in the news (though in truth, the economy is the bigger culprit), a program like the one Kash describes might even be popular in the general election.

AB

P.S. Where do the candidates stand on trade? We know Bush is against free trade. On the Democratic side, Kerry is a more pro-trade than Edwards:

Edwards told reporters after a speech at the College of Charleston that Kerry had voted for the North American Free Trade Agreement and other trade pacts that had helped cost Americans their jobs. Edwards was not in the Senate when NAFTA passed, but he has said he would have voted against it.

“Senator Kerry and I have very different positions on the issue of trade,” said Edwards

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Addressing the Loss of Manufacturing Jobs

Yesterday I argued that the outsourcing problem is minor compared to the decline in manufacturing jobs in the US in recent years. Today I have a new piece up at The American Street discussing what we can do about it. Enjoy.

Kash

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Outsourcing White Collar Jobs: How Big a Problem?

The outsourcing of white collar jobs has been a hot topic lately. The chair of the President’s Council of Economic Advisors, Greg Mankiw, made the front pages last week with his comments that outsourcing is “probably a plus for the economy in the long run.” There were lots of weekend articles about the issue, and a fair amount of blog writing, too. Brad DeLong, for example, has put up several posts about the brouhaha.

There are lots of good questions to ask about the outsourcing phenomenon. So I thought I would take a look at some of the relevant data to answer them.

1. Is outsourcing the cause of the poor labor market in white-collar sectors of the economy?

Probably not. The table below shows the change in employment in several industries between 1999 and 2003. The industries in the top part of the table are some that are often mentioned as being possibly outsourced. Employment has indeed declined in many of those industries. Likewise, employment has declined in manufacturing.

However, the industries listed toward the bottom of the table are by their nature completely insulated from international trade and outsourcing – and they all show declines in employment as well. In fact, they’ve lost more jobs than most industries subject to outsourcing. The conclusion is that the weak labor market is unrelated to the outsourcing phenomenon.

Because jobs have been lost equally in industries subject to international competition and those that aren’t, most economists think that the real cause of the weak labor market, in white collar jobs as well as all others, is the combination of fast productivity growth and weak demand – something that could have been fixed with proper fiscal stimulus, but wasn’t by the Bush administration. Outsourcing probably has caused additional employment drops in some select industries (such as call centers and data processing), but most of the US labor market’s troubles are not due to outsourcing.

By the way, the table also points out that by far the most serious jobs problem is in manufacturing. Job losses in white collar industries pale in comparison to the sharp fall in manufacturing jobs, in both absolute and relative terms.

2. Does outsourcing send the best-paying jobs overseas?

Not necessarily. The table also shows the average hourly wage by industry. 4 of the 5 lowest-paying “outsourceable” industries have been hard hit by job losses. But 3 of the 4 highest-paying outsourceable industries have actually gained jobs, despite the overall fall in jobs in the economy. This data suggests that outsourcing is primarily affecting relatively low-skill white collar jobs that pay relatively poorly.

3. Do outsourced white collar employees have an especially hard time finding new employment?

No. Blue collar workers have a far more difficult time finding new jobs after being displaced. The BLS does a survey every 2 or 3 years of “displaced workers” – workers who lost their jobs due to plant or company closings or moves, insufficient work, or the abolishment of their positions or shifts. Of the 441,000 workers in “Professional Services” who were displaced during the period 1999 – 2001 (the most recent data available), only 9.4% were still unemployed as of January 2002. And of those that found new jobs, 55% found jobs that paid at least as much as their old job, and 45% moved into lower-paying jobs. On the other hand, of the 1.32 million manufacturing workers who were displaced over the same period, 25.5% were still unemployed as of January 2002. Of those who found new jobs, only 35% found new jobs that paid higher than their old manufacturing jobs, while 65% moved into lower-paying jobs.

None of this means that we shouldn’t worry about the effects of outsourcing, or that we shouldn’t do something to help those affected. However, this data may provide a bit of perspective on the size of the problem. As far as economic dislocation goes, the manufacturing problem is far, far bigger in size, duration, and severity.

Kash

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Mary Beth for Maine State Representative!

Wampum’s Mary Beth Williams is running for a seat in Maine’s state house. As the war-bloggers (and I) can attest, sitting around and typing about things that annoy you is fairly easy to do; actually doing something is tougher. Mary Beth will be a great progressive voice for Maine — she’s obviously very smart, cares deeply about important issues, and understands economics. As a bonus, I suspect that Mary Beth will use Dwight Meredith as a key advisor (from afar).

So if you can spare a few bucks, click on the Mary Beth Williams image in the left sidebar to contribute via PayPal. (Note: According to Maine law, all contributions over $10 cannot be anonymous, and contributions are limited to $250 per person.)

To my knowledge, in fact, Mary Beth is the first long-time blogger to run for office. Based on the details in this post, the primary is the real hurdle, not the general election. In a primary, a few thousand dollars is actually a lot of money, so give what you can. As an added incentive, I’ll match my readers’ contributions up to $100. Just end your contributions in .89 (for example, $9.89) so they’ll know it came from this blog and then they’ll send me the bill.

AB

P.S. Olympia Snowe is up for reelection in 2006 and Susan Collins in 2008.

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Iraq After June 30th?

This AP report is just depressing:

Sunni politicians speak angrily of U.S. bias toward their Shiite rivals. Kurds are more outspoken in demanding self rule — if not independence. And someone — perhaps al-Qaida, perhaps Saddam Hussein (news – web sites) loyalists — killed more than 100 people in recent suicide bombings.

Rivalry and resentment among Iraq (news – web sites)’s ethnic and religious groups have become much more pronounced since Saddam’s ouster in April. And those tensions are rising as various groups jockey for position with the approaching June 30 deadline for Iraqis to retake power

The fault lines are emerging for a possible civil war

AB

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