Saturday Reads: Dismal Science Edition
Posted: February 4, 2012 Filed under: Economy, income inequality, morning reads, poverty, unemployment, We are so F'd | Tags: Paul Krugman, social safety net, unemployment 62 Comments
Good Morning!
I’m going to concentrate on the economy this morning. You better grab some coffee.
The unemployment rate dropped yesterday for a variety of reasons. I thought I’d talk a little about that first. The job growth was fairly strong this month in every sector but government. This improved the labor outlook for some of the workers hardest hit by the last recession. However, it was a mixed report–although you wouldn’t know that from the stock market–in that it still showed a number of people who are working part time that don’t want to be and again, a large number of people simply disappeared from the labor force. Temp jobs surged. Wage growth is “meager” as shown by graphs in this blog post by Tim Duy. He also notes that the employment to population ratio remains at a levels not seen since the early 1980s. This is an interesting situation. We’re still in a huge hole. At this growth rate, it will take us until 2019 just to gain back the jobs we had in 2008.
One interesting trend pointed out at Zero Hedge by Tyler Durden is that older workers are increasing the number of hours worked. There appears to be a basic shift in many of the ‘normal’ labor habits. Durden calculates an alternative measure to the unemployment rate by including workers that the BLS ignores. He uses the long-term average labor force participation rate instead of the number of people that are participating now which is shrinking in a very odd way.
… do the following calculation with us: using BLS data, the US civilian non-institutional population was 242,269 in January, an increase of 1.7 million month over month: apply the long-term average labor force participation rate of 65.8% to this number (because as chart 2 below shows, people are not retiring as the popular propaganda goes: in fact labor participation in those aged 55 and over has been soaring as more and more old people have to work overtime, forget retiring), and you get 159.4 million: that is what the real labor force should be. The BLS reported one? 154.4 million: a tiny 5 million difference. Then add these people who the BLS is purposefully ignoring yet who most
certainly are in dire need of labor and/or a job to the 12.758 million reported unemployed by the BLS and you get 17.776 million in real unemployed workers. What does this mean? That using just the BLS denominator in calculating the unemployed rate of 154.4 million, the real unemployment rate actually rose in January to 11.5%. Compare that with the BLS reported decline from 8.5% to 8.3%. It also means that the spread between the reported and implied unemployment rate just soared to a fresh 30 year high of 3.2%.
So, the deal is that the labor force participation rate is at a 30 year low. That’s still the number that puzzles and bothers me despite the good looking job growth. Why are people leaving the job market? As shown in Durden’s numbers, it’s not baby boomers. Here’s some speculation by Edward Harrison of Credit Write Downs who is concerned like me. Look at the graph on the right from Durden that shows why reason number three isn’t the explanation right now. The blue line is the participation rate by the older workers (55+) and as you can see it’s headed straight up.
My take on this: A declining labor force participation rate is a bad thing. It says people are dropping out of the labor force. So despite the bullish headline figure, the question still remains as to how robust the jobs market is.
Here are three things to consider:
- Cyclical: that’s the point I made above. Low participation is a negative signal.
- Structural: A lot of people have been pointing to long-term unemployment as a sign that the jobs market is weak. This makes sense and it should put downward pressure on the participation rate as people drop out of the labor force. The difference here is that if the problem is structural and not cyclical, the so-called output gap will continue to be large as throngs of people remain out of the labor force.
- Secular: The first cohorts of boomers started to retire last year. I know many people that were close to retirement when the recession began in 2007 that have had to change plans. Some have delayed retirement because of financial turmoil. But many others have accelerated retirement unwillingly because they were forced out of the labor force. Expect the loss of boomers to put downward pressure on the labor force for years to come.
My guess is that all three factors are affecting the labor force participation rate here. But I am beginning to think that the structural and secular forces are starting to predominate.
I’m still thinking that younger people may be holding up in school for awhile until things get better but I’d have to do some research to see if the university population is up. I also think that there’s the discouraged worker factor too. I actually know a lot of folks that are just hanging in there and cashing in their IRAs or have gone back to school and are living on student loans and or going back and forth between short term jobs and contract work. I guess we’ll see if the trend holds, but to me it’s a worrisome one. If things were really getting better, those folks should be entering the job market now driving the participation rate up. Since I’m a financial economist and not a labor economist, I really don’t know the flows well enough to speculate on anything beyond a theoretical level. It’s not my research area.
Thomas Fran has written an interesting post at Alternet on “Why We Got Ayn Rand Instead of FDR”.
An appropriate metaphor for the conservative revival is the classic switcheroo, with one fear replacing another, theoretical emergencies substituting for authentic ones, and a new villain shuffling onstage to absorb the brickbats meant for another. The conservative renaissance rewrites history according to the political demands of the moment, generates thick smokescreens of deliberate bewilderment, grabs for itself the nobility of the common toiler, and projects onto its rivals the arrogance of the aristocrat. Nor is this constant redirection of public ire a characteristic the movement developed as it went along; it was present at the creation. Indeed, redirection was the creation.
…
Here, in one sentence, was a key to the amazing success the Right would shortly enjoy. They had an answer to the bailout outrage, and it was not modulated by lawyerly subtleties or votes-taken-with-nose-held, like the House Democrats who had voted for the TARP. “Let the failures fail”: it was a line that would allow the revived Right to depict itself as an enemy of big business, rooting for the collapse of the megabanks. The Tea Partiers may have looked ridiculous in their costumes, but their central demand was anything but.
Not all “failure” is the same, however. What the newest Right has in mind is something philosophical, something both personal and sweeping. It demands liquidation across the board, a sort of deserved doomsday for the borrowing-based way of life. But in the great die-off it delights in imagining, the real culprits of 2008 have a way of disappearing from view.
If we watch closely, we can see the cards being switched. Whenever our tea-partying friends warm to the subject of letting-the-failures-fail—and they do so often—sooner or later they inevitably turn from the bailed-out banks to those spendthrift “neighbors” identified by Santelli, those dissolute people down the street who borrowed in order to live above their station.
This could be why the Republican Presidential Wannabes sound so down right Dickensian. We’ve had school children offered up as janitorial help. We’ve had Willard talking about enjoying a good firing and ranting on about how he’s not worried about the poor because they are safe in their safety nets. Instead of pointing to the business welfare queens, we’ve got poor children being held up as not having the fortitude and values. As Krugman says, Willard doesn’t feel any one’s pain.
Now, the truth is that the safety net does need repair. It provides a lot of help to the poor, but not enough. Medicaid, for example, provides essential health care to millions of unlucky citizens, children especially, but many people still fall through the cracks: among Americans with annual incomes under $25,000, more than a quarter — 28.7 percent — don’t have any kind of health insurance. And, no, they can’t make up for that lack of coverage by going to emergency rooms.
Similarly, food aid programs help a lot, but one in six Americans living below the poverty line suffers from “low food security.” This is officially defined as involving situations in which “food intake was reduced at times during the year because [households] had insufficient money or other resources for food” — in other words, hunger.
So we do need to strengthen our safety net. Mr. Romney, however, wants to make the safety net weaker instead.
Specifically, the candidate has endorsed Representative Paul Ryan’s plan for drastic cuts in federal spending — with almost two-thirds of the proposed spending cuts coming at the expense of low-income Americans. To the extent that Mr. Romney has differentiated his position from the Ryan plan, it is in the direction of even harsher cuts for the poor; his Medicaid proposal appears to involve a 40 percent reduction in financing compared with current law.
So Mr. Romney’s position seems to be that we need not worry about the poor thanks to programs that he insists, falsely, don’t actually help the needy, and which he intends, in any case, to destroy.
Still, I believe Mr. Romney when he says he isn’t concerned about the poor. What I don’t believe is his assertion that he’s equally unconcerned about the rich, who are “doing fine.” After all, if that’s what he really feels, why does he propose showering them with money?
The New York Review of Books has an entire list of economics books up that have to do with austerity and income inequality. The heading basically sums it up. We’re more unequal than you think. Here’s a review of two that I found particularly interesting.
Robert Frank’s The Darwin Economy and Thomas Edsall’s The Age of Austerity provide much-needed information and analysis to explain why so much of the nation’s money is flowing upward. Frank, an economist at Cornell, draws on social psychology to shatter many myths about competition and compensation. While he doesn’t explicitly cite the classical French economist Jean-Baptiste Say, much in his exposition echoes Say’s axiom that “supply creates demand.” This doesn’t mean that if items are put on display, people will automatically buy them. Consumers decide what or if they’ll purchase, and clearly can only do so if they have the credit or money. Even so, the items they decide they want have been created by the suppliers, who put things on the shelves.
Frank carries this a step further. In recent years, he argues, the products and enjoyments set before us have become increasingly enticing—including houses, vacations, television programs, video games, electronic devices, and the attractions of the Internet. In many cases, the rich acquire them first; since what they have and do becomes widely known, emulation descends down the line.
Nor are these just Tiffany trinkets. Frank’s most vivid examples are newly built houses. As the very rich installed grander entrance halls and rarely used bathrooms, the professional classes felt they should have a semblance of such amenities. “By 2007,” Frank writes, “the median new single-family house built in the United States had an area of more than 2,300 square feet, some 50 percent more than its counterpart from 1970.” Indeed, it’s revealing that this expansion was happening as people were having fewer children. However, these homes—along with more elaborate wardrobes, holidays, and technical gear—are costly. If they were to be bought, salaries needed to keep pace.
Hence, I would argue, an unstated but still real compact was made between the employers and the new upper-middle class. Their pay would be raised to support their ascending status. As the samplings in Table B show, while real earnings for the overall workforce have risen only 7 percent since 1985, professions like physicians and professors have done several times better. Incomes of lawyers and executives, for their part, have soared much further than anyone would have forecast a few decades ago.2
One of the reasons the poor do so poorly is that the states have tax structures that are very regressive. If you didn’t see me link to this down thread yesterday, take a look at how regressive state taxes really are. Kevin Drum includes a table where you can check on how bad your state treats you.
And then there are state taxes. Those include state income taxes, property taxes, sales taxes, and fees of various kinds. How progressive are state taxes?
Answer: They aren’t. The Corporation for Enterprise Development recently released a scorecard for all 50 states, and it has boatloads of useful information. That includes overall tax rates, where data from the Institute on Taxation and Economic Policy shows that in the median state (Mississippi, as it turns out) the poorest 20 percent pay twice the tax rate of the top 1 percent. In the worst states, the poorest 20 percent pay five to six times the rate of the richest 1 percent. Lucky duckies indeed. There’s not one single state with a tax system that’s progressive.
So, hopefully, you’re still awake! What’s on your reading and blogging list today.
peej
Carissa
ecocatwoman
mablue2
peggysue22
quixote
skydancingguestblogger
Mona (aka Wonk the Vote)
Sky Dancing 
I have a question. What if we have reached peak employment and the number of jobs is leveling off? Is there anything that simply increases (besides my weight & age), either in the natural world or in the economy? I mean during the housing bubble, the only voices that most people heard were: housing values NEVER GO DOWN, this isn’t a bubble, prices will continue to increase indefinitely. Are we doing the same thing with employment?
Personally I think that our Age of Consumerism was/is due to massive advertising. Having been born in 1950, I have grown up with the television. Yes there were sponsors/ads on radio and early television, but not to the extent we’ve experienced in the past 20 or 30 years. My parents lived through the Great Depression & WWII – both times of great frugality. My mother didn’t have a credit card until 1968, when she was 53. This “recession” has made it necessary for a large percentage of our population to reevaluate their spending habits and many to consume much less & use their credit cards less frequently, if possible. And if we reduce or level off our spending habits, how can we return to the employment rates we had before? Obviously it will depend upon whether this economic downturn will have a lasting effect on spending habits and what percentage of people will make it a habit to spend less impulsively or with such abandon.
I think supply, instead of demand, has driven our economy due to the bombardment of constant ads. Hell, some people only watch the Super Bowl to see the ads. It’s become almost like an awards program and the game itself is incidental. We have been programed to buy, buy, buy. Only the lack of money has curtailed that madness, IMHO. If retailers, either in stores or online, aren’t selling as much they don’t need as many employees. Add to that the increase in worker productivity and mechanization of many jobs.
“Personally I think that our Age of Consumerism was/is due to massive advertising. ”
I agree completely. Ever since I read Subliminal Seduction in about 1976 I have been of the opinion that marketing (i.e. advertising) has the potential to be quite evil. The science (or maybe art) of marketing has been perfected, and the advent of mass near-instant communication brought to us by the internet has created a monster that I doubt will ever be tamed. These days if you do it right, you can create a demand for just about anything.
We could have more employment if the government would step up. The problem is that there is an ongoing effort to privatize and demonize public goods like education and health services. The private sector is constrained by the profit motive and will only do things that make high rates of return these days and there are few customers with incomes and wealth to sustain them here. That is why the government fills the gap when there is one. There is a “peak” economy of sorts based on the combination and numbers of resources we have, the technology, and the size of the capital base, but we are far from that right now.
It’s not that I doubt that the unemployment rate could or will probably drop some more. I’m just wondering if it will ever reach the “boom time” rate. I think it’s going to take a big change in our tax code & the power that corporations & their lobbyists have over our government on all levels.
In 2008, at the beginning of the so-called recession, I was talking to 2 men who work in my building. I suggested that the Feds needed to revive FDR;s jobs plan, like the CCC. They, of course, scoffed at me. I was pleased to see this bit on Need to Know last night: http://www.pbs.org/wnet/need-to-know/video/video-marcos-villatoro-on-how-a-government-jobs-program-changed-his-fathers-life/13032/ I can only hope that more pieces like this will show up in the media and that elected officials will be watching. Maybe I’m just naive, but I think FDR;s jobs programs did an amazing amount of good for America,saved the economy and helped a helluva lot of people. FDR proved that the wealthy elite don’t have to be disconnected from everyday people.
A mature economy will settle in at about a 1 – 3% gdp growth rate. Any more than that will usually cause inflation because the supply will not keep up with the demand. Milton Friedman called the level of the economy that is sustainable before pushing too much causes inflation “Full Employment Equilibrium”. There was an earlier theory put out there called the Golden Mean economy. It was thought we couldn’t go beyond that level at some point. But, we can have continued growth, it just won’t be as gangbusters as when the economy is not at its capacity yet. Again, we’re constrained by the number of people and natural resources, the technology, the amount of capital, etc. If any of those things improves, the economy can experiences bursts of growth like in the 1990s with the use of the microcomputer and the internet. Generally, a mature economy will settle back down to its natural rate.
A kid today is considered “poor” if he/she does not own an iPod, iPhone, laptop, X-Box, and a personal credit card. Few earn these items since most parents supply these “must haves” on their own.
On the same day that 9/11 shook our senses, the president was urging everyone to continue “shopping” as a means of signaling to the bad guys that they hadn’t “won”. As if nonstop “shopping” was the balm to ease the pain.
Connie is correct in that the airwaves are inundated with nothing but “buy, buy, buy” which seeps into the conscious giving permission that you can “have it all” and if not there must be something wrong with you.
Incurred debt is regarded as a “good thing” because it means you are “helping” the economy, saving jobs, and a participant in “living the good life” even if you are unable to afford it.
“Better to look good than feel good” as they say.
Sorry for the double post above – I thought my first response was devoured by the goblins of the Internet.
For some reason it showed up in spam. I took it out then trashed it so you wouldn’t wind up as spam.
Lol
Russia and China are still being jerks about Syria:
Twitter people are all over it…
monaeltahawy Mona Eltahawy
To the people of #Russia #China: my curses r directed at ur regimes, not u. For u, I wish you what we’re fighting 4: freedom dignity. #Syria
MotherJones Mother Jones
US ambassador says “any further bloodshed” in #Syria will be on Russia and China’s hands, after UN resolution is vetoed bbc.in/A2hA4D
MagButter Maged Butter
#UN was founded to replace the League of Nations, to stop wars & provide a platform for dialogue but now UN stands for UN-Humanity #EpicFAIL
smile_wbas :))
@
@monaeltahawy how come fate of whole world is in hands of 5 countries holding #veto .we are not in world war II..hello!!the #world changed
16 minutes ago Favorite Retweet Reply
Thanks for the analysis of the BLS data. I’d like to know where those numbers for over 55 workers putting in more hours etc came from though. That does not match what I’ve seen locally but then my local economy has done much better than average.
Welcome Walmart Shoppers?
I’m really confused by that participation data. Again, I’m not a labor economist and I really don’t know all the current empirical research, but that really goes against what theory says it should be doing right now.
Maybe the boomers who are delaying retirement are in professional jobs where they have job security–like academic tenture. I know that my dad’s generation (of college profs) was encouraged to take early retirement to make way for the babyboomers. Now employer have to find ways to get the baby boomers to make way for the next generations, but because of the economy it’s hard now to offer generous early retirement packages like my dad got.
The state’s been successful at forcing early retirement down here now because with the budget cuts, they’ve got only tenured faculty left. And, they’ve upped their class sizes and increased their class load. A lot of quit over that if they can do it.
Frankly, that participation data may be garbage.
Thanks for this econ roundup, Dak. One thing that troubles me about the employment report is the drop in government jobs. That must indicate that cities and states are still really hurting from the economy. The federal government should be able to find a way to help with that.
Property taxes, sales taxes & tourist taxes account for much of our local government’s income. With the lowered assessed values of homes & the number of foreclosures + reduced spending & even reduced tourism, I’m sure that has impacted our local government. What do local governments rely on in other areas of the country?
Same basic thing. A few have income taxes but they are generally not very progressive with the exception of places like Minnesota.
MA uses lottery funds to support cities and towns. But property taxes are still the main source.
Exactly. I knew back in the early 90s when they all adopted balanced budgets this day would come. Obama announced an initiative to hire returning vets as police and firefighters. Maybe that will do some good. Problem is there are nuts like my governor out there that are determined to ruin the states and people aren’t paying attention to the real results. They just hear the propaganda and rhetoric.
I hope that initiative helps but federal aid to states is what’s really needed now. Of course, with this congress, it’ll never happen in any meaningful way.
David Vitter is “very disappointed” in Komen’s failure to turn itself into an anti-choice policial pac.
http://thehill.com/blogs/healthwatch/abortion/208665-effort-to-privately-defund-planned-parenthood-backfires
I personally am disappointed that David Vitter is still in Congress and not cleaning out septic tanks somewhere.
Well, Rove and Bush botched much of the Katrina effort in order to turn the state bright red. Vitter and Jindal are the direct result of Katrina and the botched Federal response which I swear was on purpose. They went out of their way to give Governor Blanco issues.
How about a job working for a diaper service?
Here’s something to add to your post on Romney:
Mitt Romney’s support among the donors in the hedge fund community exploded 444% at the end of 2011
http://www.opensecrets.org/news/2012/02/wall-street-money-continues-to-flow-romney.html
ROFLMAO. Love it!
That large surge of Wall St money to Romney is one reason I have hope for Schneiderman and the task force to kick some bankster ass.
might as clean it,since he is in it. 😆
David Vitter has no right to any opinion having to do with women, frankly.
That’s for sure!
A mormon “frontlash” for Romney in Nevada?
http://www.salon.com/2012/02/04/a_mormon_frontlash_for_romney/singleton/
86% of mormon caucus-goers support Romney. One-fourth of all 2008 Nevada caucus-goers in Nevada were mormons.
Gotta love this: http://www.huffingtonpost.com/2012/02/04/charlie-white-voter-fraud_n_1254311.html Hopefully the judge won’t reduce this to a misdemeanor.
And this from Barbra Streisand: http://www.huffingtonpost.com/barbra-streisand/mainstream-media-gop-primary_b_1253542.html
And have you seen this: http://www.slate.com/slideshows/news_and_politics/gingrichs-doodles.html#slide_1 Newter, overall savior of civilization. Someone qualified really needs to reevaluate his medication.
Those doodles are amazing. Narcissism squared.
Yep — and his leadership style is often called “Queen Bee” by family and Social Psychologists.
Are any of the candidates for Pres NOT Narcissistic gas bags?
Thanks for the Streisand link, Connie.
Steve Benen highlights the most offensive Mitt Romney falsehoods of the week at maddowblog.
http://maddowblog.msnbc.msn.com/_news/2012/02/03/10311610-chronicling-mitts-mendacity
One on One With Rep. Lynn Woolsey: “US Family Law Is Stuck in the ‘Leave It to Beaver’ Era”
http://www.truth-out.org/one-one-rep-lynn-woolsey/1328288757
Wow, she’s amazing. We need more women like her in Congress.
for sure. 🙂
thx for the link!
http://www.washingtonpost.com/blogs/ezra-klein/post/irrevocable-damage-24-hours-in-the-life-of-a-komen-executive/2012/02/04/gIQAKPLqpQ_blog.html
I’m reading this as Klein making excuses for Komen. Sort of like this is a grassroots issue — meanwhile the Corporate policy and VP Handel are still in place. The CEO and board are paid at the 1% — and Komen still has a history of fighting laws against women’s best interest.
In the long run Komen’s actions woke up a whole lot of people to the fact that Komen doesn’t live up to its image. Komen and the Religious right have managed to turn cancer into a political issue. That’s what I see — Komen is the enemy.
5th Grader Accidentally Makes Explosive in Class, Gets Co-Authorship on Subsequent Paper
Wow, co-author of a paper in “Computational and Theoretical Chemistry” at 10. Good start!
And she’s a GIRL. Take that Larry Summers.
🙂
Wow … so much for Larry Summer’s opinion of girls and science
Vulcan mind meld, dak.
My husband’s response — “I hope some corporation doesn’t write her out of the picture.”
Good story — nice to read something uplifting.
Super high praise to her teacher for taking her seriously. I’m sure that’s not the norm but it should be.
I just ‘sploded out of excitement myself 🙂
That is a very neat story, thanks for linking it here, Ralph!
RE — your question about young people not joining workforce — well I read an article which says that young women are returning to school
http://www.policymic.com/articles/3158/more-millennial-women-going-back-to-school-could-boost-future-u-s-economy
Over the last two and a half years, over 400,000 women have dropped out of the labor force.
The staggering number is worrying and indicative of a larger and more interesting trend: As employment opportunities remain dismal, especially for millennials, young women are choosing to go to school to get more qualifications instead of getting a job. In fact, there are more young women enrolled in school now than there are in the work force.
The shift in what young women are doing is interesting not only because it is telling about the current, gendered economic situation, but also because it predicts the changing role of women in our future economy.
This trend – particularly the gendered aspect of it, where women, not men, are choosing to return to school – reflects the differences in opportunities for young men and women in the workforce. Data shows that in the 2.5 years since the recovery began, men between the ages of 16 and 24 have gained 178,000 jobs, whereas women in the same category have lost 255,000 jobs.
The numbers say it all – it isn’t just harder for young women to gain employment compared to young men, these women are actually losing jobs while their male counterparts are gaining employment.
The misogynist in chief’s stimulus was mostly for the male workforce — there were complaints about his focus at the time (probably on this blog as well as other feminist blogs). Sex role stereotyping in occupations is still very rigid in the US.
I realize this is an old post – about a year old – but thought it would be interesting to share. I’m having lunch with my anti-choice friend tomorrow & decided to do some internet searching. One of her major points is that SGK was “bullied” into changing their minds about funding PP. I challenged her and haven’t heard back that the bullying began from the anti-choicers & if those tactics are good enough for them, why shouldn’t the pro-choice folks use them as well. Anyway here’s the first link I pulled up: http://newswithviews.com/Nelson/kelleigh119.htm
Question for Dak:
Maybe you can enlighten me re something I’ve always wondered — why is economics called “the dismal science.” I notice you use it in your title today so you probably know.
Because it used to be associated with the Malthusian population schools of thought where we would basically outgrew our resources because of overpopulation. Then once we reached that part, civilization would destroy itself. That’s a pretty dismal outcome. It’s part of the golden mean growth model I was mentioning to Connie. They used to think we were limited by natural resources. That was before there was a lot of technology, capital, information, etc. and economies were all basically agrarian and mining based.
Thank you, Dak.
Frank Rich has a long, brutal assessment of Romney in New York mag. I imagine Boomer and others would like it.
“bankocracy” — love that
That was great!