Democrats See Signs of Hope in Job Trends

WTF?

New York Times writer Michael Luo is probably being a smart-ass. In the piece he argues that states with lots of close races this November are seeing job growth, even if unemployment overall remains near 10 percent, which is unbelievably high. (There have been three quarters of growth, but jobs aren't being created in net as states slash budgets and Europe's sovereign debt crisis keeps investors cautious.) Things could be worse. But this little opinion really bothered me:

While much attention has been paid to the nation’s stubbornly high unemployment rate, political scientists have found little correlation between that measure and midterm elections results. Instead, they have found more broad-based indicators, particularly real personal disposable per capita income, which measures the amount of money a household has after taxes and inflation, to be better gauges.

 The blog post he links to seems wrong to me. The "politcal scientist" blogger links to some left wing blogs (some I like - Talking Point Memo, Krugman, Nate Silver - some anti-Obama blogs I don't like - Lawyers, Guns and Money, Hullabaloo, Freakonomics - and some that are so-so - Eschaton.

The blogger pulls this out of his butt:

So why might income growth matter but unemployment not matter for elections? It's possible that unemployment fluctuations disproportionately affect people at the lower end of the income spectrum -- people who aren't terribly likely to vote in midterms and, if they do, are probably voting Democratic anyway. Growth in disposable income, however, affects everybody, including the moderate voters who will switch party allegiances from time to time.

It's also possible that high unemployment means low aggregate demand mean low growth which means low growth in disposable income.

High unemployment means a loose labor market. This guy just confirms my low opinion of "political scientists." I like "economists" much better and "political economists" most of all.
---------------------

NB: I've included a new label "The Dark Ages" in honor of Professor Krugman, a true Hypatia for our time. (Looking forward to seeing the Rachel Weisz movie Agora. I did see Get Him to the Greek, which has a Krugman cameo, and thought it was pretty good.) Simon Johnson believes Krugman should replace the departing Peter Orszag as budget director. Yes we can!

South American teams are all doing well in the World Cup Tournament. Brazil and Argentina are leading contenders to win it. And no doubt Latin America has turned to the left since the Cold War. (I was led to believe that Capitalism would bare its teeth after winning the Cold War.)

Larry Rohter writes about Oliver Stone's new movie about Latin America. Tariq Ali helped write the screenplay.

But other questionable assertions relate to fundamental issues, including Mr. Stone’s contention that human rights, a concern in Latin America since the Jimmy Carter era, is "a new buzz phrase," used mainly to clobber Mr. Chávez. Mr. Stone argues in the film that Colombia, which "has a far worse human rights record than Venezuela," gets "a pass in the media that Chávez doesn’t" because of his hostility to the United States.

As Mr. Stone begins to speak, the logo of Human Rights Watch, which closely monitors the situation in both Colombia and Venezuela and has issued tough reports on both, appears on the screen. That would seem to imply that the organization is part of the "political double standard" of which Mr. Stone complains.  

"It’s true that many of Chávez’s fiercest critics in Washington have turned a blind eye to Colombia’s appalling human rights record," said José Miguel Vivanco, director of the group’s Americas division. "But that’s no reason to ignore the serious damage that Chávez has done to human rights and the rule of law in Venezuela," which includes summarily expelling Mr. Vivanco and an associate, in violation of Venezuelan law, after Human Rights Watch issued a critical report in 2008. 

A similarly tendentious attitude pervades Mr. Stone’s treatment of the April 2002 coup that briefly toppled Mr. Chávez.

Stone sort of exemplifies the problem of the "anti-war" Left here.

Initial reviews of "South of the Border" have been tepid. Stephen Holden in The New York Times called it a "provocative, if shallow, exaltation of Latin American socialism," while Entertainment Weekly described it as "rose-colored agitprop."

Libertarian Julian Sanchez writes about libertarian Dave Weigel.

I have an unfortunate tendency to call liberatarians "glibertarians," but theses two guys are much, much better than your typical "conservative" or Republican.

You know that feeling you get when a melodramatic soccer player flops to the ground in a World Cup match? I get sort of offfended and disappointed, like "that's unsportsmanlike and cheap." It brings the whole proceedings down a notch. That's what I feel about the Journolist leaker and Tucker Carlson and his website and Fishbowl DC. As Sanchez points out the leaker could have been someone from the extreme partisan left or simply someone with a grudge against Weigel and/or the Washington Post.

House and Senate FinReg bills reconciled.

On a party-line vote, the House conferees voted 20-11 to approve the bill; the Senate conferees voted 7-5 to approve.

...
At two minutes before midnight Thursday, some 14 and a half hours after they began work Thursday morning, members of the House-Senate conference committee approved a final revision of the measure known popularly as the Volcker Rule.

The rule, named for Paul Volcker, the former Federal Reserve chairman who proposed the measure earlier this year, restricts the ability of banks whose deposits are federally insured from trading for their own benefit. That measure had been fiercely opposed by banks and large Wall Street firms, who viewed it as a major incursion on some of their most profitable activities.

"One goal of these limits is to reduce participation in high-risk activity that can cause significant losses at institutions which are central to the financial system," Senator Christopher Dodd, the Connecticut Democrat who shepherded the financial bill through the Senate, said. "A second goal is to end the use of low-cost funds " to which insured depositories have access -- to subsidize high-risk activity."

Banks managed to wrangle limited exceptions to the rule that would allow them to continue some investing and trading activity. The agreement limits banks’ investments in hedge funds or private equity funds to no more than 3 percent of a fund’s capital; those investments could also total no more than 3 percent of a bank’s tangible equity.

Many Wall Street firms, including Goldman Sachs, Morgan Stanley and others, have long engaged in significant amounts of trading for their own accounts, a practice that commercial banks and their parent companies were traditionally less inclined to adopt.

 The Wall Street institutions might not have been subject to the new rules except for their decisions during the 2008 financial crisis to convert themselves into bank holding companies in order to gain access to the emergency lending authority of the Federal Reserve.

That was funny when the Masters of The Universe went running to the government for protection.

Regarding Blanche Lincoln's banning of derivative trading by banks, a group of centrist House Democrats held the entire package hostage over loosening the restrictions. Centrist pro-business Melissa Bean of Illinois and several members from New York (i.e. Wall Street) led the good fight . It has always been a source of confusion to me how Wall Street backs Democrats, even though lately they've been tipping towards Republicans.

The Crash Years

David Leonhardt has a nice piece* about Bernanke and When Caution Carries Risk:

The main historical lesson of financial crises is that governments are usually too passive. They respond in dribs and drabs, as Japan did in the 1990s and Europe did in 2008. Or they remove support too quickly, as Franklin Roosevelt did in 1937, and then the economy struggles to escape its funk.

Look around at the American economy today. Unemployment is 9.7 percent. Inflation in recent months has been zero. States are cutting their budgets. Congress is balking at spending the money to prevent state layoffs. The Fed is standing pat, too. Bond investors, fickle as they may be, show no signs of panicking.

The reason the states' budgets are bad is the recession and high unemployment, not that they spent too much in the good years. The recession and high unemployment is a result of the bursting of the housing bubble. The markets should know this.

And as Krugman points out:

I hold no brief for weak financial regulation in America. But it’s a bad sign that Germans still think of this as a made-in-America crisis. The truth is that the European housing bubble was as big or bigger than the US bubble; not in Germany, true, but it was German capital exports that fed the bubbles in Spain and Ireland. This was a North Atlantic crisis, roughly equally severe on both sides of the ocean.

True, Europe has better automatic stabilizers whereas our Senate won't do anything more about high unemployment. Ezra Klein reports the "tax extenders" bill failed to pass:

A quick list of presidents who wouldn't have been inaugurated if 57 percent of the vote was insufficient: Barack Obama, George W. Bush, Bill Clinton, George H.W. Bush, Ronald Reagan, Jimmy Carter, Richard Nixon, Lyndon Johnson, John F. Kennedy, Dwight D. Eisenhower, Harry Truman ... I could go on.

But the tax extender bill failed in the Senate today. It only got 57 percent of the vote. If there's anything encouraging here, it's that Olympia Snowe is making noises about a standalone vote for unemployment benefits. But there's really not much that's encouraging here, and that's particularly true if you're a small business that can't find a loan, or an unemployed person who can't find work. As far as the Senate is concerned, the recession is over. The election has begun.

At least Bernanke has performed better than the European Central Bank has, but he could be doing much better and as Leonhardt writes, is risking an awful lot over mythical concerns that the "market" will lose confidence. But as people keep pointing out, the market should recognize that the deficits are a result of the bursting of the housing bubble; the recession - less tax revenue, more outlays - and emergency measures, not a recklessly wasteful and out-of-control government. It was not "fiscal excess" as Alan Greenspan and David Brooks baselessly assert.

Former deputy secretary at the Treasury Brad DeLong says, "Confidence in the safety and soundness of U.S. Treasury bonds is greater than--well, greater than it has ever been in my lifetime."

The blowers of the housing bubble are ultimately responsible for the deficits and debt - along with those who refuse to reform health care and/or voted for Bush's budget-busting tax cuts for the rich. (Bill Clinton showed us how to get to budget surpluses during his Presidency, which wasn't that long ago. You need a growing economy. It's not that hard.)

Martin Wolf writes:

Festina lente - hurry slowly - is advice we have inherited from the ancient Romans. Western policymakers should now take it to heart. Confronted with huge fiscal deficits, many have concluded that they should hurry fiscal tightening on as fast as possible, in the hope that it will prove expansionary. What are the chances that they will be right? Small, I believe. Moreover, rather better alternatives are on offer. But their drawback is that they are unorthodox: alas, many "sound" people prefer orthodox recessions to unorthodox recoveries.

Krugman approvingly quotes Adam Posen (pdf) of the Bank of England’s Monetary Policy Committe. "On those claiming that the ECB [European Central Bank] has lost its purity by buying bonds to help avert economic catastrophe:

Cultures which make a public fixation of virginal maturity, of a stylized maiden’s reputation, tend to be backward superstitious cultures that impede people exercising autonomy and making responsible choices.

At least the Chinese are making noises about allowing their currency to rise, which means they're gaining confidence in the global economy. It's not a sure thing, like Obama's July 2011 pullout date for Afghanistan, but they're talking about it. It's possible.
--------
* Dean Baker has a quibble with it.

Is Mark Kirk Blowing the Illinois Senate Race? by Eric Kleefeld

With the situation getting worse, Kirk found himself this week in a situation that no politician wants to be seen in -- apparently avoiding reporters, after he quickly left an appearance in Chicago by going out of the back door of the hotel, with reporters chasing after him.

As the NBC station in Chicago reported: "A pack of about 20 reporters at the event, expecting Kirk to stay for questions (as his opponent, Alexi Giannoulias did), ran after him through the crowded lunch tables, shouting his name. Kirk ran through the kitchen and into the back loading area, where he jumped into an SUV which was idling with its engine on. Despite the calls of reporters, the SUV then sped away."

VP Joe Biden in Chicago fundraising for Giannoulias.

Countervailing Winds

Jonathan Chait writes:

Ezra Klein has a good column this weekend pointing out that the discussion of federal deficits and the stimulus misses the fact that the federal stimulus has, at best, merely counteracted the anti-stimulus from the states. State governments must balance their budgets, which means that during recessions they cut spending and raise taxes, which in turn deepens the recession.

Mark Kirk fails to tell the whole truth again.

Representative Mark S. Kirk of Illinois, a Republican candidate for the United States Senate, has often reminisced about his time as a teacher. 

On the floor of the House, in campaign commercials and during interviews, Mr. Kirk has invoked his experience in the classroom. At a speech this spring to the Illinois Education Association, Mr. Kirk declared, "as a former nursery school and middle school teacher, I know some of what it takes to bring order to class."

A review of public comments that Mr. Kirk has made over the last decade shows that while he may refer to himself as a former teacher, he does not talk about the brevity of his experience: a year in London at a private school and part-time in a nursery school as part of a work-study program while he was a student at Cornell University.

John F. Burns on Afghanistan:

In the summer of 2010, Kandahar, again, is at the heart of the matter. Gen. Stanley A. McChrystal, the American commander, has been signaling for months that the crucial engagement of the war, aimed at loosing the tentacles the Taliban have wound around the city and its outlying districts, would begin sometime this spring or summer. True to the form he set since taking command in Kabul last year, when he warned that the war was on its way to being lost unless radical new strategies were adopted, the general has left no room for illusion. In effect, he has said, the struggle for Kandahar may determine the outcome of the war.

U.S. troop reductions are to begin in July 2011.

A report prepared by the London School of Economics says Pakistani intelligence still exerts a great sway on Afghan Taliban almost nine years after 9/11.

Drawing on interviews with Afghan Taliban commanders and former Taliban ministers and officials, the report suggests that Pakistan’s premier intelligence service, the Inter-Services Intelligence agency, or ISI, supports the Taliban insurgency as a matter of official policy to contain the influence in Afghanistan of its rival India. Both serving and retired officials from the Pakistani intelligence agency are carrying out that policy, the report says.

Although many of the specifics of the report could not be independently verified, the bulk of its conclusions are very much in line with what Afghan officials, and some Western officials, have often alleged: that Pakistan has maintained its longstanding relationship with the Afghan Taliban to retain its influence in Afghanistan.

In other words, the Pakistanis are waiting for us to leave to continue their contest against their neighbor India in Afghanistan. So, nuclear Pakistan and nuclear India are fighting it out in Afghanistan and in Kashmir. India has a widespread Maoist insurgency. India is unable and/or unwilling to improve its infrastructure and leads the world in road fatalities.

India overtook China to top the world in road fatalities in 2006 and has continued to pull steadily ahead, despite a heavily agrarian population, fewer people than China and far fewer cars than many Western countries.

While road deaths in many other big emerging markets have declined or stabilized in recent years, even as vehicle sales jumped, in India, fatalities are skyrocketing -- up 40 percent in five years to more than 118,000 in 2008, the last figure available.

Video of India's Highway of Death. "Every day in India, 320 people are killed in traffic accidents, the highest rate in the world. What will happen as new roads are built and thousands of drivers are taking the wheel?"

Why should an international investor invest in India? Why should an international businessperson do business with India? Their cheap labor costs? I have a feeling those doing business with India will come to be sorry.

Dean Baker on David Brooks's magical thinking.

In his worst column so far this year, Brooks writes:

Some theorists will tell you that if governments shift their emphasis to deficit cutting, they risk sending the world back into recession. There are some reasons to think this is so, but events tell a more complicated story. 

A theorist named Ben Bernanke, chairman of the Federal Reserve Bank who was appointed by Bush and kept on by Obama, i.e. the most powerful man in the federal government, said yesterday that "This very moment is not the time to radically reduce our spending or raise our taxes, because the economy is still in a recovery mode and needs that support."

For example, retail sales declined in May. This is just one month, but it's a weak report.
Brooks:

Alberto Alesina of Harvard has surveyed the history of debt reduction. He’s found that, in many cases, large and decisive deficit reduction policies were followed by increases in growth, not recessions. Countries that reduced debt viewed the future with more confidence. The political leaders who ordered the painful cuts were often returned to office. As Alesina put it in a recent paper, "in several episodes, spending cuts adopted to reduce deficits have been associated with economic expansions rather than recessions."

Someone should Fisk that paper. At the very beginning of his column Brooks writes "Sixteen months ago, Congress passed a stimulus package that will end up costing each average taxpayer $7,798. Economists were divided then about whether this spending was worth it, and they are just as divided now."

And then a couple of paragraphs later "Over all, most economists seem to think the stimulus was a good idea..." Were economists divided into two camps where most thought the stimulus was a good idea and a minority of ambitious, know-nothing suck-ups didn't?

Paul Krugman on Chermany.

You know the answer, don’t you? Yep: everyone is counting on the US to become the consumer of last resort, sucking in imports thanks to a weak euro and a manipulated renminbi. Oh, and while they rely on US demand to make up for their own contractionary policies, they’ll lecture us on how irresponsible we’re being, running those budget and current account deficits.

Massive Flow Of Bullshit Continues To Gush From BP Headquarters

new unemployment claims fell

A Labor Department report Thursday said new claims for unemployment fell by a less-than-forecast 3,000 to a seasonally adjusted 456,000. While that figure fell short of economists’ forecast for a drop to 448,000, investors were heartened by data showing total claims last week dropped by the largest amount in almost a year. Total unemployment benefit rolls fell by 255,000 to 4.5 million.

The drop in total claims provides some hope that laid-off workers are starting to find new jobs. It was welcome relief after the Labor Department said last week that private employers slowed their hiring in May to the lowest levels since January.

In response to a question from Representative Paul Ryan of Wisconsin, Bernanke wasn't as dire as the House Republicans' point man on the budget:

"If markets continue to stabilize, then the effects of the [European sovereign debt] crisis on economic growth in the United States seem likely to be modest," Mr. Bernanke testified. "Although the recent fall in equity prices and weaker economic prospects in Europe will leave some imprint on the U.S. economy, offsetting factors include declines in interest rates on Treasury bonds and home mortgages, as well as lower prices for oil and some other globally traded commodities"

Department of Overrated

I've always believed Jeffrey Sachs to be overrated. First he inflicts massive austerity on the former Soviet Union via "shock therapy" during the '90s, then he turns around and advocates for the world's poor as maybe some kind of penance. These days he's writing misguided Op-Eds calling for more austerity, which surprises Brad DeLong, who writes:

Whenever I build a model in which expansionary fiscal policy fails to reduce unemployment, it is for one of three reasons:

1. Expectations of the present and future deficits cause the price level to jump now, so that increased nominal spending does not translate into increased real demand (i.e., Mitterand ca. 1981)
2. The expansionary effect of higher deficits is offset by higher interest rates that crowd out private investment and exports, offsetting the stimulative effect of the fiscal policy (i.e., Kohl ca. 1982)
3. Households expecting higher future tax liabilities cut back on their spending and boost their savings now, thus offsetting the stimulative effect of the fiscal policy (i.e., I can't think of a historical episode).

Jeff Sachs writes:

Time to plan for post-Keynesian era: Taking office in January 2009, President Barack Obama inherited the largest peacetime budget deficit in US history. By increasing it further, he made it his rather than his predecessor’s. He and his advisers ignored one of the key insights of modern macroeconomics: that the result of fiscal policy depends not only on current taxes and spending but also on their expected trajectories in the future. The US was not in a credible position to raise an already enormous deficit "temporarily" because the prospect for future deficit cutting was and remains extremely clouded. America has absolutely no consensus on how to restore budget balance, as it is trapped between a federal government that provides too few public investments and services and a public that is almost maniacal in its opposition to tax rises. One cannot build a credible long-term fiscal policy by starting off in the wrong direction, with larger rather than smaller deficits...

In the model in which Sachs is working--I think--the passage of the ARRA was coupled with a massive jump in U.S. long-term interest rates as financiers lost confidence in the ability of the U.S. to solve its long-run fiscal problems. The consequent appreciation of the dollar reduced exports and the steep rise in interest rates reduced investment spending so that the fact that the government was spending money didn't boost employment relative to what it would otherwise have been.

The problem, of course, is that U.S. Treasury rates did not jump at all.

(Via Krugman) Responding to DeLong's post in part, Krugman writes:

Something like that, I believe, is going on here. Calling for austerity and tight money feels courageous, tough-minded, and virtuous; it allows the economist making such calls to take the pose of a Serious Person standing firm against the easy-money guys.

Yes, I know that’s insulting. But what’s so striking is that in all three cases I’ve cited you had highly trained economists -- that is, people who have spent their whole lives arguing in terms of carefully laid out models -- making arguments that aren’t backed by any model I can see.

Krugman's cameo in the movie Get Him to the Greek.

(via DeLong)

Associated Press reports:

One sign of better economic times is when more people start finding jobs. Another is when they feel confident enough to quit them.

More people quit their jobs in the past three months than were laid off -- a sharp reversal after 15 straight months in which layoffs exceeded voluntary departures. The trend suggests the job market is finally thawing.

Some of the quitters are leaving for new jobs. Others have no firm offers. But their newfound confidence about landing work is itself evidence of more hiring and a strengthening economy.

"There is a century's worth of evidence that bears out this view that quits rise and layoffs fall as the job market improves," said Steven Davis, an economist at the University of Chicago.

Still, the number of people quitting their jobs is nowhere near what it was before the recession. Economists expect the improvement in the job market to be fitful, rather than consistent. In May, for example, private employers added only 41,000 net jobs after adding 218,000 in April.

Yet the long-term trend points to an improving job market. The economy has created a net 982,000 jobs this year after a recession that wiped out more than 8 million of them.

David Leonhardt writes on the government's failure to help support aggregate demand:

Despite all this, there is reason to think that more stimulus may finally be on the way. Last Friday’s jobs report showed little private-sector job growth in May, which was a good reminder that recoveries from financial crises are usually rocky. The report has the potential to persuade Congress to expand the jobs bill passed by the House, which is now before the Senate.

As is, the House bill would cut taxes for businesses and temporarily extend jobless benefits, among other things. By the end of the year, it would add about 170,000 jobs, Moody’s Economy.com estimates. Expanding the bill to include extra Medicaid funds for states -- which seems politically conceivable -- could add 100,000 more jobs. Expanding it to keep teachers employed -- which is unlikely -- could add 200,000 or so.

Will another half-million jobs make the economy feel strong again? No. Will the next round of stimulus be more popular than the last one? Probably not.

Is it nonetheless the right thing to do? That’s another question entirely.

Blanche Lincoln won the primary in Arkansas probably because of the Obama administration's stimulus bill and the jobs it created. How well the Democrats fair in November will be in large part determined on how well the economy creates jobs during the remainder of the year. Presumably their fund-raising efforts will be helped by tough talk on deficits, but who knows for sure?

Full Employment by Benjamin Kunkel

There are also historical reasons for supposing that the fatal flaw in postwar capitalism lay in not-full-enough employment. The interpretation of the inflationary troubles of the ’70s as a price spiral induced by high wages (along with high oil prices) is not the only one; in the late ’70s, with inflation at its postwar worst, unemployment also ran much higher than in prior decades. In the US, the Ford and Carter administrations attempted to stimulate the economy by deficit spending and tax cuts, but so long as workers were not producing a supply of goods and services commensurate with the increased monetary demand, what could the prices of existing goods and services do but rise? Another solution would have been to create new jobs, turning out new commodities, to soak up excess currency. But this could only have been achieved at the cost, unthinkable to business, of greater power for labor. 

Vampire Squid Releases Ink Cloud of Data

The Financial Crisis Inquiry Commission issued a subpoena to Goldman Sachs.

"Goldman Sachs has not, in our view, been cooperative with our requests for information, or forthcoming with respect to documents, information or interviews," Phil Angelides, the chairman of the Financial Crisis Inquiry Commission, told reporters on a conference call.

The deputy chairman, Bill Thomas, accused Goldman of stonewalling, and said, "They may have more to cover up than either we thought or than they told us"

...

 Mr. Angelides and Mr. Thomas both said that Goldman had inundated the panel with data -- about five terabytes, equivalent to several billion printed pages -- and dragged its feet on answering detailed questions about derivatives, securitization and other business activities.

Hungary is Playing Debt Games

In Hungary -- a small, open economy that traditionally depends on exports to drive growth -- there is also a view that officials invoked the specter of a Greece-style financial meltdown to talk down the value of the forint and thus make Hungarian exporters more competitive in world markets.

Mark Kirk, the Republican candidate for the open Illinois Senate seat, did not tell the truth about his military record. James Warren discusses this and other fibbings by candidates.

Yglesias says Joe Nocera is wrong about what the House and Senate FinReg bills do about the the credit agencies and he suggests Nocera may be erring on the pessimistic side in his overall analysis.

Unrelated, Senator Charles Schumer works to save free, indie-music, pool-party concerts in Williamsburg, Brooklyn.