What Tom Corbett Could Be Doing on Jobs

Me at Keystone Politics on what Tom Corbett could be doing on jobs:

Tom Corbett’s idea of job creation is probably “do whatever the state’s largest businesses are asking for.” But that’s just not how job creation works. Job creation comes overwhelmingly from small firms scaling up. The biggest players are rarely going to be the ones adding large numbers of new workers.

The real low-hanging fruit of job creation is to increase productivity in the high-performing metro regions. That’s Philadelphia, Pittsburgh, the Lehigh Valley, Scranton and Harrisburg:

Instead, the Republicans hit metros hard in the budget. This is the equivalent of destroying your car’s engine because you’re low on gas. Kneecapping metros is only going to make it harder to balance the budget by slowing economic growth and pushing down tax receipts.

Voters Care About Jobs, Not the Deficit


It is time for QE3.

Charlie Dent Still Does Not Know What Is Wrong With the Economy

Can we finally dispense with the notion that Charlie Dent has any clue what to do about jobs?

Here’s Dent on the terrible jobs report:

“Certainly, I am disappointed the May employment figures reveal the economy is still struggling to recover. Sadly, I am not surprised by this news. Employers are naturally reluctant to hire new workers while the President continues to call for tax increases, stands in the way of domestic energy production and turns a blind eye to a growing list of onerous federal regulations.

“It is long past time to unleash the private sector, get serious about tax reform, open markets for American producers and stop bureaucrats from stifling job creation across the country. The anti-business agenda of this Administration must end. The President can no longer be both pro-jobs and anti-employer.”

Let’s take these in order. Dent says fear of future tax rates is holding back hiring.

Joel Slemrod, former senior economic advisor to Ronald Reagan, disagrees:

High GDP countries are high tax countries,” said Joel Slemrod, an economist at the University of Michigan’s Ross School of Business. “That doesn’t mean high taxes cause the high GDP.” […] Slemrod, who served as senior staff economist for President Ronald Reagan’s Council of Economic Advisers, said raising taxes today would be risky because the economy remains fragile. But given the economy’s performance in the 1990s, returning marginal rates to their Clinton-era levels in 2013, as Obama proposes, wouldn’t be, he said. “It’s just hard to say that’s the kiss of death for economic growth,” Slemrod said.

The United States is a very low tax country. Our economy has performed very well during periods with high marginal tax rates. Clinton-era tax rates did not hold back the economy during the 90’s. That is not why businesses aren’t spending.

New oil drilling isn’t going to do anything to bring down gas prices. Dent is also offering a false choice between creating jobs and protecting the environment.

Other than the Affordable Care Act and the Dodd-Frank financial reform law, there just hasn’t been a significant increase in regulations. The Affordable Care Act regulations don’t take effect until 2014. As for the financial sector, to put it bluntly, if Dodd-Frank doesn’t reduce financial sector jobs and profits as a percentage of the economy, we should take that as a sign it’s not working. The financial sector absolutely needs to shrink as a share of the economy.

That is not what is happening. For an anti-business administration, it’s pretty weird that corporate profits are soaring to pre-crisis records.

But it’s not at all clear that the private sector is ready to be “unleashed” or is showing any signs of being ready to replace the spending the economy is losing to government layoffs. Quite the opposite. Business owners are saying they don’t want to expand because they don’t have the customers:

Businesses don’t think interest rates are the problem, and there’s no sign of government spending crowding out private borrowing:

It’s certainly not “bureaucrats” who are stifling job creation. Government employment is shrinking:

Mostly at the local level:

Now, this is what the Republicans are saying they want to happen. Government is shrinking. And they have been very explicit about how they think this game works: pay cuts for all. All of these laid off public sector workers will say to your private sector boss: “I will do this job for less money.” The Dent way clears the labor market by making everyone take a pay cut. We already had 10 years of wage gains slower than the Great Depression. How much more do the House Republicans want to push down wages?

Austerity is not creating jobs in the UK, and there is no reason to believe it will create jobs here. It doesn’t work.

The economy clearly needs more stimulus. More state and local aid, a bigger payroll tax holiday and infrastructure spending from Congress, financed by the Fed. If Dent cares about manufacturing jobs, the best thing that could happen is for the Fed to get more money into the economy.

It’s increasingly obvious that Dent devotes most of his time to his true passion, Homeland Security issues, and has taken very little time to learn about the economy beyond what he hears from financial sector lobbyists and the talking points he receives from John Boehner’s office.

The Conservative Recovery

Matt Yglesias on the conservative recovery:

Over the past year, we’ve consistently seen the economy engage in so-so private sector job growth offset by job losses in the public sector. The results are, if you ask me, bad. But in a decent world, conservatives would be forced to acknowledge that these are the results they claim to want. The private sector’s not being held back by the grasping arm of big government. Government is shrinking. And the shrinking of the government sector isn’t leading to any kind of private sector explosion.

More good stuff on the jobs numbers here, here and here.

The House Republican Jobs Plan is a Bad Joke

Ezra Klein surveys the wreckage:

Academic books pack about 600 words to a page. Normal books clock in around 400. Large-print books — you know, the ones for kids or the visually impaired — fit about 250. The House GOP’s jobs plan, however, gets about 200 words to a page. The typeface is fit for giants, and the document’s 10 pages are mostly taken up by pictures. It looks like the staffer in charge forgot the assignment was due on Thursday rather than Friday, and so cranked the font up to 24 and began dumping clip art to pad out the plan.

Which is odd, because there’s nothing in this plan that hasn’t been in a thousand other plans. When I asked David Autor, an economist at MIT and a specialist on labor markets, to take a look at the substance, he pronounced it a classic case of “what Larry Summers would call ‘now-more-than-everism.’”

“Here’s how it works,” Autor wrote in am e-mail. “1. You have a set of policies that you favor at all times and under all circumstances, e.g., cut taxes, remove regulations, drill-baby-drill, etc. 2. You see a problem that needs fixing (e.g., the economy stinks). 3. You say, ‘We need to enact my favored policies now more than ever.’ I believe that every item in the GOP list that you sent derives from this three step procedure.

I would ask where’s the growth? We did all this stuff during the Bush years and we had the worst job growth on record. A proper takedown of this non-plan is here.

Why Young People Need to Demand Some Inflation

Fed Governor Elizabeth Duke:

In addition, starting salaries for recent college graduates have also declined, which means that young Americans who are employed will have fewer resources for saving and investing than their predecessors. Young people are living with their parents longer, which helps conserve their limited resources but likely places a strain on their parents’ budgets.

Bryce Covert has more:

While all debt can weigh heavily on a borrower’s shoulders, there are reasons that student debt is one of the most pernicious kinds. Again from the WSJ, “student debt can carry interest rates as high as those on subprime mortgages, and it’s much harder to shed in the event of trouble. There’s no house to give back to the bank, and even bankruptcy rarely offers relief.” In fact, unlike credit card and mortgage debt, these loads can’t be discharged in bankruptcy.
It does have some paybacks. In 2009, households headed by people with at least a B.A. had 101% more annual pre-tax income than less-educated households. But recent grads may not be seeing quite the same boost — the average salary for holders of new bachelor degrees will be $36,866 this year, down almost $10,000 from $46,500 in 2009, according to the Collegiate Employment Research Institute. This may be in part due to the fact that college grads, while supposedly better suited to getting new jobs because they have fresh skills and can move where the openings are, have seen their unemployment rate double along with the labor force as a whole. In fact, the Federal Reserve Bank of San Francisco found, “[t]he labor market for recent college graduates is equally weak or even weaker than the overall market.” On top of that, it found that an increasing number of grads are taking part-time work, leaving them neither fully employed nor unemployed, simply underemployed.

If the US has some above-trend catch-up inflation in the range of 3-5% over the next few years, that would be a great deal for young people. It would increase their pay and help them pay off their debts faster. But the Fed appears ready to choke off any wage increases. This would be a disaster for young people’s future earnings and economic prospects.

The Unemployment Crisis: Still Worse Than Doing Too Much About the Unemployment Crisis

A few data points from today illustrate just how insane John Boehner’s premature call for austerity really is:

A new Urban Land Institute report says the United States needs $2 trillion in new infrastructure spending. Our infrastructure is falling apart, and PA in particular has the worst bridges in the nation.

The 10-year bond rate is now down to 3.11%, which means that bond markets are not worried about our debt levels. Indeed, this is an indication that they want us to borrow more.

We have an unemployment rate of 8.7%, which is a very conservative estimate of the real problem since it doesn’t count the people who are working part-time but want to be working full-time, or the people who are so detached from the labor market that they’ve given up looking for jobs.

About 75% of this unemployment is cyclical, not structural – meaning that it can be reduced through more stimulus.

Our capacity utilization actually declined last month:

We’re not seeing the kind of GDP numbers consistent with robust catch-up growth, so we’ve got a large output gap between what the economy could be producing, and what it is producing:

With inflation and inflation expectations very low (too low!) for the foreseeable future, all this adds up to a strong case for borrowing the $2 trillion we need to fix our infrastructure and connecting people who want to work with the unused slack capacity in the economy to increase our output.

Even if you take the Republicans at their word – a big mistake in my view – their opposition to doing this is rooted in a fear of what awful things might happen if we do too much to bring down unemployment. But there are no signs that the unintended consequences of fixing the unemployment crisis are worse than enduring the unemployment crisis. Doing nothing would be much worse than doing too much.