Tag: jobs

Ed Glaeser Makes Lamentably Rare Case for the Freedom to Trade

Support for free trade, especially from politicians, often rests on tired mercantalist arguments about the benefits of exports and jobs. That can backfire, as we’ve seen recently with trade figures showing that the U.S. trade deficit with Korea has widened since the Korea-U.S. Free Trade Agreement came into force. That’s why I’ve argued that relying on rhetoric about all the exports and jobs that free(r) trade will create is a dangerous game: where, might trade skeptics ask, are all those exports you promised us, and why should we support trade liberalization if the results we were promised don’t materialize? So I was thrilled today to see a small post on Bloomberg.com from Harvard economics professor Ed Glaeser calling for the president to make a strong push for a U.S.-EU trade agreement, because of the benefits it would bring U.S. companies and consumers:

He should use his address to make the U.S. a leading voice once again for economic freedom: the freedom of consumers to buy European goods and the freedom of producers to sell their goods on the other side of the Atlantic.

It is gratifying to see a principled case for free trade, resting on a foundation of freedom, in the media. Here’s hoping President Obama read Professor Glaeser’s article, and heeds his advice.

The ‘New Normal’ of High Unemployment

I almost feel sorry for the Obama administration’s spin doctors. Every month, they probably wait for the unemployment numbers from the Bureau of Labor Statistics with the same level of excitement that people on death row wait for their execution date.

This has been going on for a while, and today’s new data provide another good example.

As the chart below indicates, the White House promised that the unemployment rate today would be almost 5 percent if we enacted the so-called stimulus back in 2009. Instead, the new numbers show that the jobless rate is 7.9 percent, almost 3.0 percentage points higher.

Obama Unemployment

I enjoy using this chart to indict Obamanomics, in part because it’s a two-fer. I get to criticize the administration’s economic record, and I simultaneously get to take a jab at Keynesian spending schemes.

What’s not to love?

That being said, I don’t think the above chart is completely persuasive. The White House argues, with some justification, that these data simply show that they underestimated the initial severity of the recession. There’s some truth to that, and I’ll be the first to admit that it wouldn’t be fair to blame Obama for a bleak trendline that existed when he took office (but I will blame him for continuing George W. Bush’s policies of excessive spending and costly intervention).

That’s why I think the data from the Minneapolis Federal Reserve are more damning. They show all the recessions and recoveries in the post-World War II era, which presumably provides a more neutral benchmark with which to judge the Obama record.

A Four-Picture Indictment: Final Pre-Election Jobs Report Is Not Good News for Obama

In some sense, President Obama is fortunate. I predicted a long time ago that he would win re-election if the unemployment rate was under 8 percent.

Well, the new numbers just came out and the unemployment rate is 7.9 percent.

So even though his stimulus failed, and even though his class-warfare tax policy is like a dark cloud over the economy, and even though his plans to further increase the burden of government spending will accelerate America’s descent into a Greek-style fiscal quagmire, he may dodge the proverbial bullet.

You can see my latest election prediction by clicking here, and you can even cast a vote in my reader poll. But let’s set aside the crystal ball nonsense and focus on public policy.

Below are four images that summarize Obama’s dismal performance.

We’ll start with a chart showing what President Obama claimed would happen to unemployment if we enacted his so-called stimulus compared to the actual real-world results.

As you can see, the joblessness rate currently is more than 2.5 percentage points higher than Obama claimed it would be if we implemented his Keynesian plan.

Now let’s look at some updated images of how this “recovery” compares to previous recoveries in the past six decades, based on data from the Minneapolis Federal Reserve Bank. We’ll start with the unemployment rate. Take a wild guess which president has presided over the red line at the bottom.

Previously, I’ve compared Obamanomics and Reaganomics,but this image may be even better because it shows all business cycles and confirms that the Obama years have been the worst in post-World War II history.

And we see something similar if we look at GDP growth. Once again, go out on a limb and guess who is responsible for the weakest recovery since World War II.

Last but not least, this info-graphic is a bit dated, but Obama’s dismal track record would not change if we added the past few months of data.

Defenders of the White House argue that all these bad numbers are a legacy of the dismal situation that Obama inherited. That’s partially true. Obama should not be blamed for the depth of a recession that began before he took office.

But he should be held at least somewhat accountable for an anemic recovery—particularly since he promised “hope” and “change” and then continued the big-spending, pro-cronyism policies of the Bush years.

The moral of the story, needless to say, is that free markets and small government are the keys to growth and prosperity.

The Defense Lobby, Americans for Tax Reform, and the Texas Chainsaw Massacre

Bloomberg’s Roxana Tiron reports that Congress is nearing a deal to postpone some of the most contentious provisions of last year’s Budget Control Act (BCA) until March 2013, or later. This is good news for the Aerospace Industries Association (AIA), which has been lobbying since late last year to undo at least that portion of the BCA that pertained to the Pentagon’s budget (i.e. that portion that threatens to cut most deeply into its members’ profits).

Although the mechanics of sequestration’s across-the-board cuts are problematic, the scale of the Pentagon build-down would be modest by historical standards. And yet, the mere suggestion that sequestration might actually occur has sent the industry into apoplexy. The AIA’s campaign has included the release of a new report claiming that the BCA cuts could result in over 1 million lost jobs, and warnings that hundreds of thousands of workers would be receiving pink slips just a few days before the November elections.

In short, sequestration is a horror show, a Texas Chainsaw Massacre, and the AIA’s public relations effort is designed to scare the wits out of the audience. “Sequestration,” explains Della Williams, the chief executive of Fort Worth-based Williams-Pyro Inc., “is surgery with a chain saw.”

But just as some people aren’t easily scared by campy slasher flicks, there are still a few people in Washington—especially Grover Norquist, President of Americans for Tax Reform (ATR)—who are cheering for the guy with the chainsaw.

The two sides squared off in separate events last Thursday. At the Bloomberg Government Defense Conference, AIA President Marian Blakey, Reps. Norm Dicks (D-WA) and Randy Forbes (R-VA) and Sens. Carl Levin (D-MI) and John McCain (R-AZ) called for bipartisan compromise on taxes in order to fund further Pentagon spending increases. Judging from the number of times that speakers invoked his name, Norquist posed a greater threat to national security than China or Iran. Levin, in particular, scorned ATR’s famed taxpayers’ pledge, and suggested that it was largely responsible for the impending catastrophe.

Norquist is characteristically unfazed by all this special interest pleading for more money. While Blakey and her congressional friends were attempting to rally the troops and rustle up more money, Norquist was reaffirming his opposition to higher taxes—including the closing of tax loopholes that generate more revenue—at a meeting on Capitol Hill. There is no Pentagon budget escape hatch in ATR’s pledge. If the defense industry wants more, it will have to get it from elsewhere in the budget.

The fight over sequestration, taxes, and the defense budget reveals text book cases of two perennial public policy realities: the politics of concentrated benefits, diffuse costs; and the economics of the seen vs. the unseen.

With respect to the first case, the defense industry, broadly defined, benefits disproportionately from Pentagon spending. And that industry can count many interested parties within its coalition. In addition to the defense companies, including the executives and the shareholders, there are also the workers’ at these firms (often represented by a union). Then there are the mayors and local officials who represent communities that are home to defense firms.

Given what is at stake, it is understandable that all of these groups have amped up their lobbying efforts to fend off sequestration. To take just one example, a single F-35 will cost, on average, nearly $125 million ($112.5 million for the aircraft, plus another $22 million for the engine). Prime contractor Lockheed Martin spent $15 million on lobbying in 2011 and is expected to spend even more this year. Such expenses can easily be justified to investors and shareholders if they are seen as protecting the company’s cash cow.

Individual taxpayers, by contrast, have little incentive to organize, and even less incentive to pool their money to fight against the AIA. The cost of the F-35, spread around to every taxpayer, amounts to about a dollar (if we just count the 122 million people who paid federal income taxes). Generally speaking, people do not scrutinize where every tax dollar goes; indeed, payroll tax withholding causes Americans to ignore what they pay in monthly taxes.

A few groups, including Norquist’s ATR, try to offset this imbalance of interests, and they have been reasonably successful. But Norquist’s pledges would be worthless if voters didn’t agree with him. But many do. In this poll (.pdf), for example, half of all respondents were opposed to having their taxes go up in order to pay for higher Pentagon spending.

The AIA’s other line of attack—the claim that substantial cuts in military spending will have a devastating impact on the economy, resulting in a million or more lost jobs—reveals the age-old broken-window fallacy. The AIA wants people to focus on that which is seen—defense workers who are laid off—and to ignore any consideration of how the economy as a whole will be better off if the resources that had previously gone to building planes and rockets are allocated elsewhere in the economy. These transitions are certainly difficult and painful for the individuals and firms involved, but they can be expected, all other factors being equal, to have salutary aggregate effects, especially over the long term. I’ll have more to say on that point later this week, drawing on my previous study of San Diego in the late 1950s, the early 1990s and the early 2000s.

In the meantime, I encourage you to read a succinct explanation of the broken-window fallacy from Henry Hazlitt’s Economics in One Lesson. And, if you’re really motivated, consider reading a less succinct, but more colorful, discussion of the phenomenon by Hazlitt’s intellectual forefather, the French philosopher Frédéric Bastiat.

Cross-posted from the Skeptics at the National Interest.

Obama vs. Romney on Public School Jobs

In a high-profile presser on the economy last Friday, President Obama’s central proposal was to hire more public employees. Then, in his weekly address, he argued that hiring more public school teachers would allow the U.S. to educate its way to prosperity. His Republican presidential rival, Governor Romney, has recommended precisely the opposite: reducing the size of government to boost private sector job growth–and he, too, mentions public school teachers. So… who’s right?

First, let’s look at public school employment and student enrollment over time.

As the chart makes clear, enrollment is only up 8.5% since 1970, whereas employment is up 96.2%. In other words, the public school workforce has grown 11 times faster than enrollment over the past 40 years. What difference does that make in economic terms? If we went back to the staff-to-student ratio we had in 1970, we’d be saving… $210 billion… annually.

Wait a minute, though! Research by economist Rick Hanushek and others has found that improved student achievement boosts economic growth. So if the 2.9 million extra public school employees we’ve hired since 1970 have improved achievement substantially, we might well be coming out ahead economically. So let’s look at those numbers…

Uh oh. Despite hiring nearly 3 million more people and spending a resulting $210 billion more every year, achievement near the end of high school has stagnated in math and reading and actually declined slightly in science since 1970. This chart also shows the cost of sending a student all the way through the K-12 system–the total cost per pupil of each graduating class from 1970 to the present. As you can see, on a per pupil basis, a K-12 education has gone from about $55,000 to about $150,000 in real, inflation-adjusted terms.

The implications of these charts are tragic: the public school monopoly is warehousing 3 million people in jobs that appear to have done nothing to improve student learning. Our K-12 government school system simply does not know how to harness the skills of our education workforce, and so is preventing these people from contributing to our economy while consuming massive quantities of tax dollars. So what would hiring even more people into that system do for our economy…

More Sub-Par Employment Numbers

The Labor Department just released its monthly employment report and the White House is probably not happy.

There are several key bits of data in the report, such as the unemployment rate, net job creation, and employment-population ratio.

At best, the results are mediocre. The unemployment rate generally gets the most attention, and that was bad news since the joblessness rate jumped to 8.2 percent.

What makes that number particularly painful is that the Obama Administration claimed that the unemployment rate today would be less than 6 percent if the so-called stimulus was adopted. But as you can see from the chart, squandering $800 billion on a Keynesian package hasn’t worked.

While that chart is probably embarrassing to the White House, I think the most revealing numbers come from the Minneapolis Federal Reserve Bank’s interactive website, which allows users to compare employment data and GDP data for different business cycles.

I looked at those numbers a couple of months ago, so I could compare Reaganomics and Obamanomics, and the difference is startling. The Reagan policies of lower tax rates, spending restraint, deregulation, and tight money generated much better results than the statist policies of Obama.

The most recent numbers, shown below, aren’t any better for the Obama Administration.

But I suppose the good news is that the United States is not Europe. Government is even bigger on the other side of the Atlantic and many of those nations are in the middle of a fiscal crisis and the unemployment rate averages 11 percent.

Sort of makes you wonder whether there’s a lesson to be learned. Maybe, just maybe, bigger government means weaker economic performance.

One Year Later, Another Look at Obamanomics vs. Reaganomics

On this day last year, I posted two charts that I developed using the Minneapolis Federal Reserve Bank’s interactive website.

Those two charts showed that the current recovery was very weak compared to the boom of the early 1980s.

But perhaps that was an unfair comparison. Maybe the Reagan recovery started strong and then hit a wall. Or maybe the Obama recovery was the economic equivalent of a late bloomer.

So let’s look at the same charts, but add an extra year of data. Does it make a difference?

Meh… not so much.

Let’s start with the GDP data. The comparison is striking. Under Reagan’s policies, the economy skyrocketed.  Heck, the chart prepared by the Minneapolis Fed doesn’t even go high enough to show how well the economy performed during the 1980s.

Under Obama’s policies, by contrast, we’ve just barely gotten back to where we were when the recession began. Unlike past recessions, we haven’t enjoyed a strong bounce. And this means we haven’t recovered the output that was lost during the downturn.

This is a damning indictment of Obamanomics

Indeed, I made this point several months ago when analyzing some work by Nobel laureate Robert Lucas. And it’s been highlighted more recently by James Pethokoukis of the American Enterprise Institute and the news pages of the Wall Street Journal.

Unfortunately, the jobs chart is probably even more discouraging. As you can see, employment is still far below where it started.

This is in stark contrast to the jobs boom during the Reagan years.

So what does this mean? How do we measure the human cost of the foregone growth and jobs that haven’t been created?

Writing in today’s Wall Street Journal, former Senator Phil Gramm and budgetary expert Mike Solon compare the current recovery to the post-war average as well as to what happened under Reagan.

If in this “recovery” our economy had grown and generated jobs at the average rate achieved following the 10 previous postwar recessions, GDP per person would be $4,528 higher and 13.7 million more Americans would be working today. …President Ronald Reagan’s policies ignited a recovery so powerful that if it were being repeated today, real per capita GDP would be $5,694 higher than it is now—an extra $22,776 for a family of four. Some 16.9 million more Americans would have jobs.

By the way, the Gramm-Solon column also addresses the argument that this recovery is anemic because the downturn was caused by a financial crisis. That’s certainly a reasonable argument, but they point out that Reagan had to deal with the damage caused by high inflation, which certainly wreaked havoc with parts of the financial system. They also compare today’s weak recovery to the boom that followed the financial crisis of 1907.

But I want to make a different point. As I’ve written before, Obama is not responsible for the current downturn. Yes, he was a Senator and he was part of the bipartisan consensus for easy money, Fannie/Freddie subsidies, bailout-fueled moral hazard, and a playing field tilted in favor of debt, but his share of the blame wouldn’t even merit an asterisk.

My problem with Obama is that he hasn’t fixed any of the problems. Instead, he has kept in place all of the bad policies - and in some cases made them worse. Indeed, I challenge anyone to identify a meaningful difference between the economic policy of Obama and the economic policy of Bush.

  • Bush increased government spending. Obama has been increasing government spending.
  • Bush adopted Keynesian “stimulus” policies. Obama adopted Keynesian “stimulus” policies.
  • Bush bailed out politically connected companies. Obama has been bailing out politically connected companies.
  • Bush supported the Fed’s easy-money policy. Obama has been supporting the Fed’s easy-money policy.
  • Bush created a new health care entitlement. Obama created a new health care entitlement.
  • Bush imposed costly new regulations on the financial sector. Obama imposed costly new regulations on the financial sector.

I could continue, but you probably get the  point. On economic issues, the only real difference is that Bush cut taxes and Obama is in favor of higher taxes. Though even that difference is somewhat overblown since Obama’s tax policies - up to this point - haven’t had a big impact on the overall tax burden (though that could change if his plans for higher tax rates ever go into effect).

This is why I always tell people not to pay attention to party labels. Bigger government doesn’t work, regardless of whether a politician is a Republican or Democrat. The problem isn’t Obamanomics, it’s Bushobamanomics. But since that’s a bit awkward, let’s just call it statism.