"Not Really Labor’s Day"

Economist Nancy Folbre @ NYT's Economix:

The annual holiday supposedly celebrating labor has long lacked much celebratory feel. Over the last 30 years, employment has become more precarious and real wages for most workers have stagnated. Since 2008, in particular, the corrosive impact of persistent unemployment and declining wages on American workers has been felt at holiday picnics and parades.

The seasonally adjusted July unemployment rate of 7.4 percent showed a slight decline from last year’s 8.2 percent, but the gains came largely as a result of declining labor force participation rather than job creation.

The larger measure of underemployment (known as U-6) that includes people working part time because they cannot find full-time work, and those who want a job and have looked for one in the last 12 months but have given up currently looking, was a seasonally adjusted 14 percent in July, compared with 14.9 percent a year earlier.

Public policies could help. As Jared Bernstein explained in an earlier Economix post, the federal government could become an employer of last resort. A new report from the Urban Institute outlines several specific strategies to lower long-term unemployment in particular.

Scary Thought on Labor Day Weekend: Obama's Economic Team Think They Are Doing a Good Job

Dean Baker @ Center for Economic & Policy Research:

Ezra Klein gives us some terrifying news in a Bloomberg column today. President Obama's economic team think they are doing a great job, hence the desire to bring back former teammate Larry Summers as Fed chair. This is terrifying because the economy this Labor Day is described by a set of statistics that can only be described as horrible.

We are almost 9 million jobs below the trend level of employment. The number of people involuntarily working part-time is still up by almost 4 million from its pre-recession level. Wages have been stagnant for a decade and show no signs of increasing any time soon.

And, according to the Congressional Budget Office, the economy is still operating more than $1 trillion (6 percent) below its potential. Oh, and by the way, the financial sector is more concentrated than ever, with top honchos drawing the same sort of paychecks they did before the crisis.

I could go on but what's the point? This is an economy that under other circumstances we would all say is awful. The Obama team can pat themselves on the back for saying its better than a second Great Depression, but that's a bit like saying that the 1962 Mets didn't lose all their games. Horrible is horrible.

" The Audacity of the Fight for Higher Wages"

Jared Bernstein @ NYT's Economix:

I was struck Thursday by the juxtaposition of two stories in the news (two and half, really).

First, the banks had another banner quarter in terms of profits, up $42 billion, or 23 percent from last year.  News reports emphasized lower loan losses, meaning the banks had to mark down or charge off fewer nonperforming loans.  That increases the share of their capital that they can put to work spinning off profits, something they are very good at.

A classic case of it takes money to make money.

At the other end of the economy were the striking fast-food workers, calling for an increase in their pay to $15 an hour (the average for these workers is around $9, up from $8.66 in 2009).

I also noted — this is the half-a-report I mentioned above — that in the upward revision to second-quarter gross domestic product that came out on Thursday, corporate profits were  again up near record highs as a share of national income while compensation fell again and is now at the lowest share it has been since the year I was born (1955 — ancient history, I know).

And yet, what I mostly heard about this was about the audacity and the economic illiteracy of the strikers.  Don’t they realize that it’s still a tough economy?  Don’t they get that their employers are not the big corporations but the franchisees who can’t afford to pay more?  Don’t they get that the increase will just have to be passed on in prices?

"Japan's pump-primed recovery proves US deficit hawks wrong"

Dean Baker @ The Guardian:

Many of the people who ridicule efforts at using government spending to boost the economy and create jobs like to turn to Japan to warn countries from following that route. After all, Japan's budget deficit last year was more than 10% of GDP. That would be more than $1.6tn in the US economy today. Its gross debt is more than 245% of GDP. That would imply a debt of almost $40tn in the United States, which would mean a debt of $125,000 for every man, women, and child in the country.

Those are the sorts of numbers that policy types in Washington find really scary. Fortunately for the Japanese people, the folks currently running their economy are more interested in sound economic policy than pushing scare stories about debt and deficits. Rather than rushing to reduce the deficit, Japan's new prime minister, Shinzo Abe, went in the opposite direction. He deliberately increased spending to create jobs.

He also appointed a new head of Japan's central bank who is committed to raising the inflation rate. Japan has been suffering from near-zero inflation, or even deflation, since the collapse of its stock and housing bubbles in 1990. Abe's pick as head of the central bank has committed the bank to raising the inflation rate to 2%. Implicit in this commitment is the notion that the bank will buy up as many Japanese government bonds as needed to reach its inflation target.

In other words, the bank is prepared to print lots of money.

While we are still in the early days of Abe's program (he just took office at the end of 2012), the preliminary signs are positive. The economy grew at a 2.4% annual rate in the second quarter, after growing at a 3.6% rate in the first quarter. By comparison, GDP in the United States grew at an average rate of just 1.4% in these two quarters.

Median Income Still 6% Below Level at Start of Recession in ’07

Robert Pear @ New York Times:

Median household income has begun to recover over the last two years, but households still have not come close to regaining the purchasing power they had before the financial crisis began, a new study says.

"Why are we rushing to get rid of Fannie & Freddie?"

Barkley Rosser @ Econospeak:

"How many Virginians does it take to change a light bulb?
Five: One to change the bulb and four to talk about how great the old bulb was."

I think I am turning into my late father, a conservative in the old traditional way of defending existing institutions and practices.  Here I go, about to defend Fannie Mae and Freddie Mac, whom all Very Serious People know should go as soon as possible.  President Obama thinks they should go, and we have two bills in Congress that will lead to that outcome, one in the Senate co-sponsored by Dem Sen. Warner of VA (my state) and Rep Sen. Corker of TN, both VSPs in good standing, while in the House Banking Chair Hensarling (R-TX) also has such a bill.  I mean wow, we have both the president and VSPs from both parties in Congress on this.  It must be great.  I mean, we all know that they were responsible for all the problems in the housing market that led to you know what!

Well, except maybe not.  Buried in the Saturday Real Estate section of the Washington Post today we have Kenneth Harley raising some questions.  Yes, indeed, both of these entities are most certainly open to serious criticism.  To varying degrees they have had histories of mismanagement and even corruption.  They were buying lots of subprime mortgages at the peak of the housing bubble.  Republican critics even claim that they were prime instruments in getting the whole bubble going because they supposedly pressured banks to lend to inappropriate poor minority home buyers under pressure from Clinton, although most observers do not buy this case.  Furthermore, they essentially went belly up with the bust and needed to be bailed out by a government takeover.  The case looks pretty strong for at least reforming them, if not outright getting rid of them.

However, Harley notes that they are now making money and paying off their loans.  Furthermore, not only have they been funding many housing market deals during these recent years of a desperately weak housing market, they were the only entity in the US that was doing so at the pit of the crash (a point Harley does not make).  Indeed, Harley reports that "Economists at Moody's Analytics estimate that dumping the companies and switching to a plan advocated by Sens. Bob Corker (R-Tenn) and Mark Warner (D-VA) 'would increase the interest rate for the average mortgage borrower' by one-half to three-quarters of a percentage point."  And, it should be noted that in contrast to the Hensarling plan in the House, the Corker-Warner plan actually does propose putting in place a housing market equivalent of the FDIC to provide insurance for housing lenders in the absence of the evil Fannie and Freddie.  Presumably the rates would go higher under the no-backdrop-at-all-plan of Hensarling.

Inside a Subprime Mortgage Bundle...6 years later

Peter Eavis @ NYT's Dealbook:

A subprime deal came back to haunt Fabrice Tourre, a former Goldman Sachs trader, when a federal jury in Manhattan found him liable for civil securities fraud.
He is not the only one feeling the pain of a subprime transaction six years on.

Hundreds of thousands of subprime borrowers are still struggling. Some of their mortgages ended up in another Goldman deal that was done at the same time as Mr. Tourre was working on his own financial alchemy.

In February 2007, just before everything fell apart, Goldman Sachs bundled thousands of subprime mortgages from across the country and sold them to investors. This bond became toxic as soon as it was completed. The mortgages slid into default at a speed that was staggering even for that era.

Despite those losses, that bond still lives. It has undoubtedly left its mark on ordinary borrowers. But the impact of the deal spread ever further. It touched the bankers who sold the deal. It even landed on taxpayers, who ended up owning a large slice of the Goldman bond.

Does Walmart create jobs?

Kathleen Grier @ Salon:

Contrary to Walmart’s self-glorifying mythology, the retailer is anything but a job creator — in fact it is a huge job killer. Not only that, destroying jobs is an essential component of Walmart’s anti-worker business model. Let’s put aside Walmart’s happy talk and examine the cold, hard facts.

First, let’s look at the impact of Walmart on local labor markets. The largest, most rigorous study conducted on the subject is this peer-reviewed article from 2008. Its lead author is economist David Neumark, who is no wild-eyed liberal. (See, for example, this anti-minimum wage op-ed he wrote for the Wall Street Journal).

Earlier studies did not adequately deal with selection bias: i.e., the problem that when and where Walmart chooses to open new stores is not random, but tends to be correlated with other variables. Those confounding variables make it difficult to determine whether local employment outcomes are causally related to Walmart‘s entry, or to something else. I’ll skip the technical details, but suffice it to say Neumark and his co-authors devised a sophisticated methodology that accounts for the selection bias. Using data from over 3,000 counties, their results show that when a Walmart store opens, it kills an average 150 retail jobs at the county level, with each Walmart worker replacing about 1.4 retail workers. These results are robust under a variety of models and tests.

Other strong studies found similar results. A 2008 peer-reviewed study that looked at Maryland concluded that Walmart’s presence significantly decreased retail employment, by up to 414 jobs. And a 2009 study by Loyola University found that the opening of a Chicago Walmart store was “a wash,” destroying as many jobs as it created: “There is no evidence that Wal-Mart sparked any significant net growth in economic activity or employment in the area,” according to the report. In short, when Walmart comes to town, it doesn’t “create” anything. All it does is put mom-and-pop stores out of business.

Justice for all...

The Daily Show on "Too Big To Jail"

The Daily Show with Jon Stewart
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The economy is worse than the lower unemployment rate suggests

Wonkblog/ Ezra Klein @ WaPo:

From the Center on Budget and Policy Priorities:

The core issue here is that the unemployment rate only counts people actively looking for work. That means there are two ways to leave the ranks of the unemployed. One way — the good way — is to get a job. The other way is to stop looking for work, either because you’ve retired, or become discouraged, or begun working off the books.

The yellow line on the left shows the official unemployment rate since 2008. It’s fallen from over 10 percent to under 8 percent. But the red line on the right shows the actual employment rate — that is, the percentage of working-age adults with jobs. What should scare you is that the red line has barely budged.

At the beginning of 2007, the employment rate was 63.3 percent, and the unemployment rate was 4.7 percent. By the end of 2009 — so, after the worst of the recession — it had fallen to 58.3 percent, and unemployment was up to 9.9 percent. Today, it’s 58.7 percent, even though unemployment has fallen to 7.6 percent. That means a lot of the people who’ve left the rolls of the unemployed haven’t gotten a new job. They’ve just left the labor force altogether.

Some of that’s natural. The population is aging, and the labor force was expected to shrink. But it wasn’t expected to shrink this much. The economy is a lot worse than a glance at the unemployment rate suggests. And instead of doing anything to help those people get back to work, Washington canceled the payroll tax cut, permitted sequestration to go into effect, and is now arguing about whether to shut down the federal government — and possibly breach the debt ceiling — in the fall.

"Sex, Money & Gravitas"

 Krugman @ NYTs:

Can a woman effectively run the Federal Reserve? That shouldn’t even be a question. And Janet Yellen, the vice chairwoman of the Fed’s Board of Governors, isn’t just up to the job; by any objective standard, she’s the best-qualified person in America to take over when Ben Bernanke steps down as chairman.

Yet there are not one but two sexist campaigns under way against Ms. Yellen. One is a whisper campaign whose sexism is implicit, while the other involves raw misogyny. And both campaigns manage to combine sexism with very bad economic analysis. 

Let’s start with the more extreme, open campaign. Last week, The New York Sun published an editorial attacking Ms. Yellen titled “The Female Dollar.” The editorial took it for granted that the Fed has been following disastrously inflationary monetary policies for years, even though actual inflation is at a 50-year low. And it warned that things would get even worse if the dollar were to become merely “gender-backed.” I am not making this up. 

True, The Sun is a marginal publication, with strong gold-bug tendencies, and nobody would pay much attention if the rest of the right had ignored or distanced itself from that editorial. In fact, however, The Wall Street Journal immediately followed up with its own editorial along the same lines, in the course of which it approvingly quoted The Sun piece, female dollar and all. 

The other campaign against Ms. Yellen has been subtler, involving repeated suggestions — almost always off the record — that she lacks the “gravitas” to lead the Fed. What does that mean? Well, suppose we were talking about a man with Ms. Yellen’s credentials: distinguished academic work, leader of the Council of Economic Advisers, six years as president of the San Francisco Fed, a record of working effectively with colleagues at the Board of Governors. Would anyone suggest that a man with those credentials was somehow unqualified for office? 

Sorry, but it’s hard to escape the conclusion that gravitas, in this context, mainly means possessing a Y chromosome. 

Both anti-Yellen campaigns, then, involve unmistakable sexism, and should be condemned for that reason. As it happens, however, both campaigns have another problem, too: They’re based on bad economic analysis. 

The Summers of our discontent

Jason Linkins @ Huffington Post:

Way way back at the end of this period of time that we like to call "the 1990s," Time magazine featured Alan Greenspan, Robert Rubin, and Larry Summers on its cover and called them "The Committee To Save The World." And that was basically the moment that put the American economy on the Darkest Timeline. Somewhere, out there, there is a parallel universe where Brooksley Born, Sheila Bair, and ... I don't know, let's say a bottle of sriracha were appointed to the same committee, and there, the economy is humming and Elizabeth Warren didn't even need to run for Senate.

How did that work out?

In the intervening years since the Frio Trio were plastered all over your dentist's office, Greenspan has been forced to admit that his overarching theories were kinda-sorta all cocked up. Rubin ... well, he at least fell into a swimming pool at a big Wall Street to-do at the 2012 Democratic National Convention, in the most cosmically just thing that has ever happened at a political event. But Larry Summers has proven to be the sort of dread beast that even Ash Williams couldn't send off to a spectral dirt nap. Now, it is being rumored that Summers is atop the list of possible replacements for Ben Bernanke at the Federal Reserve.

Lordy, it was just 18 months ago that we were forced to ruminate on the possibility that Summers might end up leading the World Bank. At the time, the best (among many!) arguments against this came from Felix Salmon, who recognized that running the World Bank called for "a very high level of cultural and interpersonal sensitivity," and not, say, a high level of whatever personality traits lead one to opine, "I think the economic logic behind dumping a load of toxic waste in the lowest-wage country is impeccable."

Obamacare is still driving Republicans crazy

 Professor Krugman @ NYTs:

Leading Republicans appear to be nerving themselves up for another round of attempted fiscal blackmail. With the end of the fiscal year looming, they aren’t offering the kinds of compromises that might produce a deal and avoid a government shutdown; instead, they’re drafting extremist legislation — bills that would, for example, cut clean-water grants by 83 percent — that has no chance of becoming law. Furthermore, they’re threatening, once again, to block any rise in the debt ceiling, a move that would damage the U.S. economy and possibly provoke a world financial crisis.

Yet even as Republican politicians seem ready to go on the offensive, there’s a palpable sense of anxiety, even despair, among conservative pundits and analysts. Better-informed people on the right seem, finally, to be facing up to a horrible truth: Health care reform, President Obama’s signature policy achievement, is probably going to work. 

And the good news about Obamacare is, I’d argue, what’s driving the Republican Party’s

intensified extremism. Successful health reform wouldn’t just be a victory for a president conservatives loathe, it would be an object demonstration of the falseness of right-wing ideology. So Republicans are being driven into a last, desperate effort to head this thing off at the pass.

Some background: Although you’d never know it from all the fulminations, with prominent Republicans routinely comparing Obamacare to slavery, the Affordable Care Act is based on three simple ideas. First, all Americans should have access to affordable insurance, even if they have pre-existing medical problems. Second, people should be induced or required to buy insurance even if they’re currently healthy, so that the risk pool remains reasonably favorable. Third, to prevent the insurance “mandate” from being too onerous, there should be subsidies to hold premiums down as a share of income. 

U.S. Health Care Spending...Again

The world's least cost-effective health care system. Shirley Wang @ WSJ:

That the U.S spends a lot of money on health care is a refrain many Americans are familiar with, but the latest health expenditure data from the Organization for Economic Co-operation and Development still are striking. Here’s a graph of health-care expenditure as a percentage of gross domestic product for the 34 member nations of the OECD between 1980 and 2012. As you can see, there’s one country whose expenditure begins to distinguish itself from all the others — the U.S.

In 2011, the most recent year in which most of the countries reported data, the U.S. spent 17.7% of its GDP on health care, whereas none of the other countries tracked by the OECD reported more than 11.9%. And there’s a debate about just how well the American health-care system works. As the Journal reported recently, Americans are living longer but not necessarily healthier .

"Much of Dodd-Frank is dying on the vine"

Erika Eichelberger @ Mother Jones:

The Dodd-Frank financial reform act of 2010 turns three years old this month. But because of intense Wall Street lobbying, only about a third of the provisions it requires have actually been made into rules by Wall Street regulators, and many have gaping loopholes designed by industry lobbyists. A new analysis by the Sunlight Foundation, a non-profit that advocates for government transparency, starkly illustrates why regulatory agencies are so swayed by industry: over the past three years, those whose job it is to police Wall Street have met with big banks 14 times more often than pro-reform groups to discuss proposed Dodd-Frank rules.

The Sunlight Foundation reviewed three years worth of meetings that banks, industry lobbyists, corporations, and financial reform advocacy groups had with the Commodities Futures Trading Commission (CFTC), the Treasury Department and the Federal Reserve, and found that these regulators had met 2,118 times with financial institutions, and only 153 time with pro-reform groups. Here's what that looks like, via the Sunlight Foundation:

Inflation-Mania Cranks & Crackpots

Conservative policy analyst Bruce Bartlett @ NYT's Economix on the "Inflationphobes," who are apparently a...uh...bunch of cranks and crackpots:

When the most recent recession began in December 2007, there was no reason at first to believe that it was any different from those that have taken place about every six years in the postwar era. But it soon became apparent that this economic downturn was having an unusually negative effect on the financial sector that threatened to implode in a wave of bankruptcies. The Federal Reserve reacted by doing exactly what it was created to do — be a lender of last resort and prevent systemic bank failures of the sort that caused the Great Depression and made it so long and severe.

As the Fed lent freely to banks and other financial institutions, its balance sheet grew very rapidly. The reserves of the banking system grew concomitantly; reserves are funds that banks have available for immediate lending that theoretically should lead to credit expansion and new investment by businesses, durable goods purchases by households and so on.

 

Federal Reserve Bank of St. Louis

 

During the inflation of the 1970s, most economists became convinced that if the Fed adds too much money and credit to the financial system it will inevitably cause prices to rise. Since the increase in the money supply in 2008 and 2009 was unprecedented, many economists reacted fearfully to the Fed’s actions.

Given the order of magnitude of the increase in bank reserves, from virtually nothing to more than $1 trillion almost overnight and now to more than $2 trillion, it was not unreasonable to be concerned about the potential for Zimbabwe-style hyperinflation.

But inflation fell rather than rising. In the five and a half years since the start of the recession, the consumer price index has risen a total of 10.2 percent. In the five and a half years previously, it rose 17.7 percent. That is, the rate of inflation fell by almost half.

Now, I don’t expect all the people who filled The Wall Street Journal’s editorial page in 2008 and 2009 predicting an imminent rise in inflation to offer a mea culpa, but at some point I think the inflationphobes should at least stop saying that hyperinflation is right around the corner.

Whither Dodd-Frank?

Wonkblog @ WaPo:

Sunday is the third anniversary of the Dodd-Frank Act. To get a sense of how

implementation has been going, I asked 16 people at the forefront of the debate to answer two questions: What has gone better than you had expected? And what has gone worse? – Mike Konczal

Sheila C. Bair served as the 19th chairman of the Federal Deposit Insurance Corp. for a five-year term, from June 2006 through June 2011.

“Things that went better than expected: just about all of the rules where an agency could act alone, e.g., the FDIC’s rules on resolution authority and deposit insurance premiums; the CFPB’s rules on mortgage lending standards; the CFTC’s rules on moving standardized domestic swaps to centralized clearing.

“Things that were bigger problems than expected: just about all of the rules where inter-agency coordination and agreement were required: e.g. tougher bank capital standards, the Volcker Rule, risk retention for securitizers. Between agency squabbling and industry lobbying, Sisyphus could move faster than the agencies in moving these rules.”

Michael S. Barr is a  professor of Law at the University of Michigan Law School and former assistant secretary of the treasury for financial institutions, where he was a key architect of the Dodd-Frank Act.

“The opponents of financial reform are losing. There’s a strong, new Consumer Financial Protection Bureau, looking out for American households, and Senate Republicans finally relented and confirmed, by a lopsided vote, Rich Cordray as director of the bureau.

Capital requirements are going up, derivatives are coming out of the shadows and major financial firms will be subject to strict supervision and wind-down authority regardless of corporate form. But much remains to be done, from LIBOR reform to the Volcker Rule, and the financial industry will continue to try to lobby, litigate and legislate their way out of the tough new rules. Now is not the time to lose hope, stop fighting or give in, but to renew the commitment to making the financial system fairer and safer.”

Bernanke: Congress itself poses the greatest risk to growth

Binyamin Applebaum @ NYTs:

WASHINGTON — The Federal Reserve’s chairman, Ben S. Bernanke, emphasized on Wednesday that the central bank remains committed to bolstering the economy, insisting that any deceleration in the Fed’s stimulus campaign will happen because it is achieving its goals, not because it has lowered its sights. 

Mr. Bernanke said he still expected to reach that point in the coming months but, in what may have been his final appearance before the House Financial Services Committee, he cautioned that Congress itself posed the greatest risk to growth. 

“The risks remain that tight federal fiscal policy will restrain economic growth over the next few quarters by more than we currently expect, or that the debate concerning other fiscal policy issues, such as the status of the debt ceiling, will evolve in a way that could hamper the recovery,” he told the committee. 

The sluggish economy has been a constant background for Mr. Bernanke’s biannual testimony. Unemployment, at 7.6 percent, remains stubbornly above the Fed’s goals. 

Inflation has sagged to the lowest pace on record. Growth continues at a “modest to moderate pace,” the Fed said Wednesday in its monthly beige book survey of economic conditions across the country, released separately from Mr. Bernanke’s testimony.

"A Call to Battle on Bank Leverage"

Former chief IMF economist Simon Johnson @ NYT's Economix:

On Tuesday, federal banking regulators opened an important new phase of the debate on how safe very large financial institutions should become. The next round of argument will be intense; the focus has shifted to the specific and high-stakes question of how much leverage big banks can have – i.e., how much of each dollar on their balance sheet they should be allowed to fund with debt rather than with equity.

The people who run global megabanks would rather fund them with relatively more debt and less equity. Equity absorbs losses, but these very large companies are seen as too big to fail – so they benefit from implicit government guarantees. A higher degree of leverage – meaning more debt and less equity – means more upside for the people who run banks, while the greater downside risks are someone else’s problem (the central bank, the taxpayer or, more broadly, you).

"Income, Race and Voting

Professor Krugman ventures into Poli Sci, @ NYTs:

Still thinking about the new GOP idea — hey, let’s go for white voters! Why didn’t we think of that before? ... I’m venturing into political science territory here,and would be happy to have real experts weigh in; but I’m pretty sure I have the basics right here.

So, let’s look at some exit poll data, and cross-tab it with Census income data. In the figure below, the red lines show the income-voting relationship from the Times summary of exit polls, which also supplies the broad ethnic group data. For incomes, I use Census data on median household income for 2011, which is also available for regions. For voting I use Alabama to represent the South, Ohio to represent the Midwest.

So here’s my picture:

Contrary to what some people keep saying, people with higher incomes, other things equal, tend to vote Republican. Cut through the noise and fog, and it is true that Democrats broadly want to redistribute income down, and Republicans want to redistribute income up — and on average, voters get that (which is why “libertarian populism” is hot air). But race and ethnicity also matter, a lot. What you can see right away is that there are three groups that are fairly anomalous.

"The Lagging Public Sector"

Floyd Norris @ NYT's Economix:

Private sector employment in the United States is growing at about the same rate it did during the best days of the last decade.

The difference is in the government. It continues to shed workers.

Source: Bureau of Labor Statistics, via Haver Analytics  Year-over-year change in employment.

The above chart shows the annual change in employment for the private sector, and for government jobs, since the end of 2002.

Over the last 12 months, private sector employment rose 2 percent. That is down a little from the 2.5 percent rate early last year, but it is about the same as the rate of growth in the fall of 2005.

But government employment continues to fall. It is down 0.2 percent, which is the best year-over-year showing since 2009, when the government cutbacks were starting to be felt.

On a monthly basis, over the last 12 months the economy added an average of 191,000 jobs a month in the private sector, and cut public sector employment by 3,000 jobs a month.

Politicians lamenting the slow pace of recovery might, logically, look for ways to increase hiring in the sector that is lagging the most.

(A note on the data: I used figures before seasonal adjustments, which is possible since annual changes presumably take care of seasonal adjustment. And I dropped from the numbers the temporary surge in government jobs caused by hiring for the 2010 census. Without that change, there would have been a rise in government employment in 2010 and a much steeper decline in 2011.)

Infrastructure repair is key to growth

 Barry Ritholz @ The Big Picture:

If you have spent much time traveling around the United States, you likely have noticed that our infrastructure looks a bit worn and tired and in need of some refreshing. If you spend much time traveling around the world, however, you will notice that our infrastructure is shockingly bad. So bad that it’s not an exaggeration to declare it a national disgrace, a global embarrassment and a massive security risk.Not too long ago, the infrastructure of the United States was the envy of the world. We had an extensive interstate highway system, deep-water ports connected to a well-developed rail system and a new airport in every major city (and most minor ones). Electricity was accessible to the vast majority of the nation’s residents, as was Ma Bell’s telephone network.

That was then. In the ensuing decades, we have allowed the transportation grid to get old and out of shape. Our interstate highway system is in disrepair; our bridges are rusting away, with some collapsing now and then. The electrical grid is a patchwork of jury-rigged fixes, vulnerable to blackouts and foreign cyberattacks. The cell system of the United States is a laughingstock versus Asia’s or Europe’s coverage. There are very few things that are done better by government mandate than by the free market, but cell coverage is one of them. Broadband, almost as laughable as our cell coverage, is another.

"The Always Wrong Club"

Paul Krugman, via Floyd Norris, rounds up the usual suspects:

Aha. Floyd Norris reminds us of the 23-economist letter from 2010, warning of

dire consequences — “currency debasement and inflation” — from quantitative easing. The signatories are kind of a who’s who of wrongness, ranging from Niall Ferguson to Amity Shlaes to John Taylor. And they were wrong again.

But that won’t diminish their reputations on the right, even a bit. How do I know that? Well, also on the list — presumably because they asked him to be there — is Kevin Hassett, co-author of Dow 36,000 and also a prominent denier of the existence of a housing bubble. Fool me once, fool me twice, fool me yet again — hey, never mind.

Quite amazing.

"What to Do with the Hypertrophied Financial Sector?"

Definition:
hy·per·tro·phy  (hi-pûr-tro-fe)

n. pl. hy·per·tro·phies

A nontumorous enlargement of an organ or a tissue as a result of an increase in the size rather than the number of constituent cells.

intr. & tr.v. hy·per·tro·phied

To grow or cause to grow abnormally large.

Economist Brad DeLong:

Back in 2011, I wrote:

In 1950, finance and insurance in the United States accounted for

2.8% of GDP…. Today, it is 8.4% of GDP…. If the US were getting good value from the extra 5.6% of GDP that it is now spending on finance and insurance--the extra $750 billion diverted annually from paying people who make directly useful goods and provide directly useful services--it would be obvious in the statistics… diverting that large a share of resources away from goods and services directly useful this year is a good bargain only if it collectively has a substantial amount of what financiers call "alpha", only if it boosts overall annual economic growth by 0.3%--or 6% per 25-year generation….

Why has the devotion of a great deal of skill and enterprise to finance and insurance sector not paid obvious economic dividends? There are two sustainable ways to make money in finance: find people with risks that need to be carried and match them with people with unused risk-bearing capacity, or find people with such risks and match them with people who are clueless but who have money…

Over the past year and a half, in the wake of Thomas Philippon and Ariel Resheff's estimate that 2% of U.S. GDP was wasted in the pointless hypertrophy of the financial sector, evidence that our modern financial system is less a device for efficiently sharing risk and more a device for separating rich people from their money--a Las Vegas without the glitz--has mounted. Bruce Bartlett points to Greenwood and Scharfstein, to Cechetti and Kharoubi's suggestion that financial deepening is only useful in early stages of economic development, to Orhangazi's evidence on a negative correlation between financial deepening and real investment, and to Lord Adair Turner's doubts that the flowering of sophisticated finance over the past generation has aided either growth or stability.

Inflation is too damned low!

We constantly hear noise about the inflation bugaboo. Not because we're experiencing inflation, but because it's a convenient scare word in certain circles wedded to the economics of austerity. But, of course, inflation is the least of our problems - in fact, if anything "inflation is too damned low!"

Binyan Applebaum @ The New York Times' Economix shows that "Yes, We Have No Inflation":

 

      Source: Bureau of Economic Analysis 

Inflation remained sluggish in May. Prices continued to rise at the slowest pace in at least half a century, up just 1.1 percent over the previous year, the Bureau of Economic Analysis said Thursday. While some other measures of inflation are rising a little more quickly, the Federal Reserve regards this one as most accurate.

Slow inflation may sound like a good thing, but it’s not. Particularly not now.
Economic research suggests that inflation is best in moderation. Price increases lead to wage increases, which makes it easier to repay existing debts, like mortgages, and more attractive to incur new debts, like borrowing to start a company.

Inflation also functions as a kind of economic WD-40, easing shifts in the allocation of resources.  It is easier for struggling companies and industries to adjust by withholding cost-of-living increases than by seeking to impose wage cuts.

Perhaps most importantly, moderate inflation keeps the economy at a safe distance from deflation, or general price declines, which can freeze activity as would-be buyers wait for lower prices. Such a buffer would be particularly valuable now because the Fed is already stretching the limits of its ability to stimulate the economy, leaving the United States unusually vulnerable to any new shocks...

"How Austerity Has Failed"

Martin Wolf @ New York Review of Books focuses on Europe's massive policy failure:

Austerity has failed. It turned a nascent recovery into stagnation. That imposes huge and unnecessary costs, not just in the short run, but also in the long term: the costs of investments unmade, of businesses not started, of skills atrophied, and of hopes destroyed.

What is being done here in the UK and also in much of the eurozone is worse than a crime, it is a blunder. If policymakers listened to the arguments put forward by our opponents, the picture, already dark, would become still darker.

How Austerity Aborted Recovery

Is Ben Bernanke abandoning the real economy?

 Economist Jared Bernstein worries about the Fed Chairman:

OK, clearly the markets aren’t listening to me—not exactly a surprise.  But they’re not

listening to Ben either, who’s been saying that the economy’s getting a bit better, so interest rates are going up.  And at some point, sooner than later, he and his buds are going to start adding a bit less juice to the punch bowl.  Surely, markets, (he’s saying) you didn’t think this easy money party was going to last forever?  After all, central banks in healthy economies don’t have $3.4 trillion balance sheets and hold rates at zero.

Here’s a little sample of what’s on the wires re markets and Ben right now—if they were going out, they’d need couples’ therapy (“Markets, I think Ben is trying to tell you something…can you tell Ben why you’re having trouble hearing him?”).

Bernanke and Markets, Crazed and Confused

Bernanke Speaks, and Markets Tumble

Bernanke Sneezes, Global Markets Catch a Cold

So I don’t really know what to make of the markets and I suspect they’re just going to be volatile for a while.  Like I said yesterday, it’s the real economy I’m worried about, and I used to have a friend in Ben when it came to that.  Now, I’m not so sure.

OMFG - Niall Ferguson opens his mouth again!

Niall Ferguson, that stain on Harvard University's increasingly shaky reputation, was last seen attacking John Maynard Keynes for "the gay." He's back - Dean Baker does the debunking:

Harvard's standing in economic policy debates took a big hit when the famous Reinhart-Rogoff 90 percent debt-to-GDP growth cliff was shown to be the result of a simple spreadsheet error. Niall Ferguson's strange rant in the Wall Street Journal about the United States becoming the land of government regulation continues the downhill slide.

The gist of the piece is that the country is going down the road to economic stagnation and suffocating bureaucracy because of excessive regulation. The Affordable Care Act (ACA) is the main villain in this story.

It's fair to say that just about everything in the piece is wrong. Starting with the meat, rather than being some horrible burden for small businesses, the main effect of the ACA on the vast majority of small businesses will be to provide them with a subsidy if they offer their workers insurance. The mandate only applies to firms that employ more than 50 workers, most of whom already provide insurance that would meet the mandate anyhow. So these engines of innovation will grind to a halt if the government offers them subsidies for insurance? Interesting theory.

Ratings Agency Fraud & the Financial Crisis - Who knew?

Matt Taibbi talks with Chris Hayes about the collusion between ratings agencies
and banksters that fueled the financial crisis.  The question remains - will anyone
go to jail for this fraudulent conspiracy?  Not likely.

Visit NBCNews.com for breaking news, world news, and news about the economy

Stephen Colbert explains the current housing market

Taxes and income inequality

Kevin Drum @ Mother Jones:

Here's a remarkable chart from EPI. Actually, no: Strike that. It's true that in a normal world it would be remarkable, but in the world we live in it's actually totally unsurprising. It illustrates the rise in income inequality over the past three decades (top dark blue line),  and as you can see, it's been rising steadily. Totally unsurprising.

But then author Andrew Fieldhouse did another calculation. The middle blue line shows rising inequality after you account for taxes and transfers. But what if we had the same tax system we did in 1979? Well, inequality still would have gone up, but it would have gone up significantly less (bottom light blue line). In other words, during an era in which the rich were getting richer anyway, we deliberately set out to reduce their tax burdens so that they could become even richer...

Instead of trying to ameliorate the effects of a broad economic trend, we've done everything we possibly can to accelerate it. That includes tax policy, financial deregulation, trade policy, anti-labor policy, and much more. And since there's approximately zero evidence that any of this has actually increased economic growth, it means that U.S. policy for the past 30 years has been aggressively dedicated to shifting income share away from the poor and middle class and into the pockets of the already rich...

The foreclosure horrors continue

More than a year after the national mortgage settlement over robosigning crimes, the systematic abuses continue. Bloomberg:

Bank of America Corp. (BAC), the second-biggest U.S. lender, rewarded staff with cash bonuses and gift cards for meeting quotas tied to sending distressed homeowners into foreclosure, former employees said in court documents.

Mortgage workers falsified records and were told to delay U.S. loan-assistance applications by requesting paperwork that the Charlotte, North Carolina-based bank had already received, according to statements from ex-employees filed last week in federal court in Boston. The lender improperly disqualified applicants to the Home Affordable Modification Program, or HAMP, according to a May 23 statement from Simone Gordon, a loss-mitigation specialist who left the company in 2012.

Bank of America Corp. is being sued by homeowners who didn't receive permanent loan modifications after making payments under trial programs, according to court papers. Photographer: Davis Turner/Bloomberg 

“We were regularly drilled that it was our job to maximize fees for the bank by fostering and extending delay of the HAMP modification process by any means we could,” Gordon said. Managers instructed staff to “delay modifications by telling homeowners who called in that their documents were ‘under review,’ when in fact, there had been no review,” she said.

The truth about "Job Creators"

The real "Job Creators" are the Middle Class - from Hullabaloo:

Nick Hanauer, successful entrepreneur and one percenter, gave testimony on income inequality a few days ago before the U.S. Senate. His testimony in full should be posted in every break room in America:

For 30 years, Americans on the right and left have accepted a

particular explanation for the origins of  Prosperity in capitalist economies. It is that rich business people like me are “Job Creators.” That if taxes go up on us or our companies, we will create fewer jobs. And that the lower our taxes are, the more jobs we will create and the more general prosperity we'll have.

Many of you in this room are certain that these claims are true. But sometimes the ideas that we know to be true are dead wrong. For thousands of years people were certain, positive, that earth was at the center of the universe. It’s not, and anyone who doesn’t know that would have a very hard time doing astronomy.

My argument today is this: In the same way that it’s a fact that the sun, not earth is the center of the solar system, it’s also a fact that the middle class, not rich business people like me are the center of America’s economy.

"How Elite Economic Hucksters Drive America’s Biggest Fraud Epidemics"

William Black is a former bank regulator and author of "The Best Way To Rob a Bank Is To Own One"  - via Naked Capitalism:

What do you get when you throw together economic fraudsters, plutocrats and opportunistic criminals? A financial crisis, that’s what. If you look back over the massive frauds that have swept the country in recent decades, from the savings and loan crisis of the 1980s to the 2007-'08 financial crash, this deadly combination always appears.

A dangerous cycle begins when prominent economists pander to plutocrats and bought politicians, who reward them with top posts, where they promote the perverse economic policies that cause fraud epidemics. Crises develop, and millions of people are ripped off. Those who fight for truth are ignored or ruined. The criminals get wealthier, bolder and more politically powerful, and go on to hatch even more devastating cons.

The three most recent financial crises in U.S. history were driven by a special type of fraud called “control fraud” — cases where the officers who control what look like legitimate entities use them as “weapons” to commit crimes. Each time, Alan Greenspan, former chairman of the Federal Reserve, played a catastrophic role. First, his policies created the fraud-friendly (criminogenic) environment that produces epidemics of control fraud, then he failed to identify those epidemics and incipient crises, and finally, he failed to counter them.

On the lack of serious discussion or an honest opposition

Professor Krugman channels the outrage at alleged GOP "policy wonks" who are little more than ethically-challenged propagandists:

I fairly often receive mail pleading with me to take a more even tone, to have a respectful discussion with people on the other side rather than calling them fools and knaves. And you know, I do when I can. But the truth is that on most of the big issues confronting us, there just isn’t anyone to have a serious discussion with. Ezra Klein offers a nice illustration of this point today, in his takedown of Avik Roy on Obamacare in California.

The thing you want to bear in mind is that Roy is widely considered a good example of a reformist conservative, not to mention a health policy wonk. So what does this reform-minded wonk have to say about Obamacare?

Klein tries really hard to keep his temper even; too hard, I think, because I wonder how many readers will stay with him all the way through. But to cut to the chase, Roy claims that Obamacare will cause soaring insurance rates, using a comparison that is completely fraudulent — and I say fraudulent, not wrong, because he is indeed enough of a policy wonk here to know that he is pulling a fast one.

Reinhart And Rogoff's Pro-Austerity Research Now Even More Thoroughly Debunked By Studies

Mark Gongloff @ Huffington Post:

The debunking of Carmen Reinhart and Kenneth Rogoff continues.

The Harvard economists have argued that mistakes and omissions in their

influential research on debt and economic growth don't change their ultimate austerity-justifying conclusion: That too much debt hurts growth.

But even this claim has now been disproved by two new studies, which suggest the opposite might in fact be true: Slow growth leads to higher debt, not the other way around.

In a post at Quartz, University of Michigan economics professor Miles Kimball and University of Michigan undergraduate student Yichuan Wang write that they have crunched Reinhart and Rogoff's data and found "not even a shred of evidence" that high debt levels lead to slower economic growth.

And a new paper by University of Massachusetts professor Arindrajit Dube finds evidence that Reinhart and Rogoff had the relationship between growth and debt backwards: Slow growth appears to cause higher debt, if anything.

The Unemployed Need Bold, Creative Moves from the Fed

Mark Thoma @ Fiscal Times:

The Federal Reserve has increased the size of its balance sheet nearly four-fold

since the onset of the financial crisis, from around $870 billion in 2007 to $3.35 trillion today. This has caused people like Peter Schiff to predict that we are headed for a severe outbreak of inflation. An inflation problem is just round the corner we’ve been told again and again since 2008, yet inflation remains below the Fed’s 2% target, long-run inflation expectations are well-anchored, and there is little evidence in recent data that inflation is or will be a problem. 

Why is inflation so low?

More on the persistence of low inflation

Catherine Rampell @ New York Times Economix:

The personal consumption expenditures, or P.C.E., price index, which the Fed has said it prefers to other measures of inflation, fell from March to April by 0.25 percent. On a year-over-year basis, it was up by just 0.74 percent. Those figures are quite low by historical standards, and helped push consumer spending up. (Measured in nominal terms, consumer spending fell slightly in April. After adjusting for inflation, it rose.)

When looking at price changes, a lot of economists like to strip out food and energy, since costs in those spending categories can be volatile. Instead they focus on so-called “core inflation.” On a monthly basis, core inflation was flat. But year over year, this core index grew just 1.05 percent, which is the lowest pace since the government started keeping track more than five decades ago.

                             Source: Bureau of Economic Analysis, via Haver Analytics. The core P.C.E. price index refers to the price index change for personal consumption expenditures, excluding food and energy.

Low inflation may be one reason that consumers have proven so resilient in recent months (in addition to the lift they’re getting from rising home prices). A measure of consumer sentiment released Friday by the University of Michigan surged in May, and is at its highest level since July 2007.

Thought for Memorial Day on The Hate-America Right

This can't be said too often - contemporary "conservatism" isn't conservative, it's extremist.  The GOP is batshit crazy and totally dysfunctional.  Denizens of this far Right zoo hate the America that actually exists. Ryan Cooper @ Political Animal:

The problem with the conservative movement isn’t that mainstream Republican policies are all insane (they are), it’s that the party has completely lost it. It is “ideologically extreme; scornful of compromise; unmoved by conventional understanding of facts, evidence and science; and dismissive of the legitimacy of its political opposition.” Taking the debt ceiling hostage, for example, is not the action of a conservative party. It’s the action of an extremist party, willing to risk economic Armageddon for trivial policy changes.

Honestly, to a large degree the problem is today’s Republicans don’t believe in the American system. They’re unpatriotic.

This is, I think, due to the conservative media ecosystem and the perverse incentives of minority parties in the US constitutional system. Conservative media is ruled by liars, con men and charlatans who actively profit from having Democrats in power, and who whipped the Republican base into a seething frenzy after the election of Obama.

Matters of policy have dissolved almost completely into the froth of tribal resentment and Obama hatred, which produced a huge class of new Republican house members who were slavering to attack the president with whatever tool was closest.

"Why the world faces climate chaos"

Financial Times' Martin Wolf has an excellent column on the looming climate change disaster:

Last week the concentration of carbon dioxide in the atmosphere was reported to have passed 400 parts per million for the first time in 4.5m years. It is also continuing to rise at a rate of about 2 parts per million every year. On the present course, it could be 800 parts per million by the end of the century. Thus, all the discussions of mitigating the risks of catastrophic climate change have turned out to be empty words.

Read the rest HERE @ Financial Times.

The Inflation Is Too Damned Low!

Professor Krugman @ New York Times:

Larry Ball makes the case that we would be a lot better off with a 4 percent inflation target rather than the 2 percent that is now central bank orthodoxy.

Intellectually, this position is hardly outlandish; indeed, Ball’s case is very similar to the case Olivier Blanchard made three years ago, just stated more forcefully and with more evidence.

The basic point is that a higher baseline for inflation would make liquidity
traps, in which conventional monetary policy is up against the zero lower bound, less likely and less costly when they happen. Ball estimates that if we had come into this crisis with an underlying inflation rate of 4 percent, average unemployment over the past three years would have been two percentage points lower. That’s huge — it amounts to millions of jobs and trillions of dollars of extra output.

Gangster Bankers: Too Big to Jail

This is several months old, but a "must read" by Matt Taibbi @ Rolling Stone:

The deal was announced quietly, just before the holidays, almost like the government was hoping people were too busy hanging stockings by the fireplace to notice.

Flooring politicians, lawyers and investigators all over the world, the U.S. Justice Department granted a total walk to executives of the British-based bank HSBC for the largest drug-and-terrorism money-laundering case ever. Yes, they issued a fine – $1.9 billion, or about five weeks' profit – but they didn't extract so much as one dollar or one day in jail from any individual, despite a decade of stupefying abuses.

People may have outrage fatigue about Wall Street, and more stories about billionaire greedheads getting away with more stealing often cease to amaze. But the HSBC case went miles beyond the usual paper-pushing, keypad-punching­ sort-of crime, committed by geeks in ties, normally associated­ with Wall Street. In this case, the bank literally got away with murder – well, aiding and abetting it, anyway.

 Read the rest HERE.

A Stock Market Boom in the midst of a faltering economy

James Surowiecki  @ The New Yorker takes a look at the stock market boom - driven by a growing disconnect between the welfare of Americans and the profits of "U.S." corporations:

With the stock market setting new highs on a nearly daily basis, even as the

real economy just slogs along, there seems to be one question on everyone’s mind: are we in the middle of yet another market bubble? For a growing chorus of money managers and market analysts, the answer is yes: the market is a house of cards, held up by easy money and investor delusion, and we are rushing all too blithely toward an inevitable crash. Given that we’ve recently lived through two huge asset bubbles, it’s easy to see why they’re worried. But in this case the delusion is theirs.

The bubble believers make their case with a blizzard of charts and historical analogies, all illustrating the same point: the future will look much like the past, and that means we’re headed for trouble. Smithers & Company, a London market-research firm, says that, according to a number of market indicators, stocks are, by historical standards, forty to fifty per cent overvalued. The bears admit that corporate profits are high, which makes the market’s price-to-earnings ratio look quite normal, but they insist that this isn’t sustainable.

They think that earnings will return to historical norms, and that, when they do, stock prices will be hit hard. Today, after-tax corporate profits are more than ten per cent of G.D.P., while their historical average is closer to six per cent. That’s a vast gap, and it’s why bears believe that the market is, in the words of the high-profile money manager John Hussman, “overvalued, overbought, overbullish.”

It’s certainly unusual for corporate profits to soar during a slow recovery. But the argument for a stock-market bubble is flawed: when it comes to the role that corporations play in the U.S. economy, the present looks very different from the past, which means that historical comparisons to the nineteen-fifties, let alone the thirties, tell us little. The four most dangerous words in investing may be “This time, it’s different.” But this time it is different.

Take taxes: one big reason that after-tax corporate profits are much higher than their historical norm is that corporations pay much less in taxes than they used to. In 1951, corporations had to pay almost half of reported profits in taxes. In 1965, they had to pay more than thirty per cent. Today, they pay only around twenty per cent.