Top Priority: Jobs, Not Deficit

It's a mystery to me how, during the greatest sustained employment crisis since the Great Depression, our national political class remains focused on the deficit instead of putting people back to work. Robert Reich, former Secretary of Labor in the Clinton administration, takes a stab at explaining why the obsession should be with jobs.

Read Reich's article. Here's my take on it.

The deficit is caused by unemployment. When people are unemployed, all manner of safety net expenses go up. Unemployment insurance payments increase. Medicaid takes over more of the cost of medical care. Food stamp use increases. Revenue goes down as fewer people earn income. At the state level, people buy less and pay less sales tax.

All of these add to the deficit. With respect to the safety net, the deficit isn't a bug - it's a feature.

The safety net isn't just to help individual citizens. It helps businesses, by making it possible for the citizens to keep buying food, shelter and clothing. Wal-Mart thrives on the safety net.

The safety net also helps regions. Concealed by the fact that safety net programs are paid to individuals is the reality that these are enormous transfers from the more prosperous to less prosperous regions of the country. Without these transfers, Mississippi would be like Greece.

To get out of this fix, the federal government needs to spend more, not less.

Right now, the focus needs to be on putting people back to work.

The safety net is not a form of charity to individuals, though it does help keep people alive. More importantly, in a cold-hearted way, it keeps the economy alive. It keeps businesses going in bad times by sending customers through the door.

Without safety net programs, a major downturn would feed on itself and the economy would have no natural bottom to it.

Right now, only the federal government has the power to put people back to work. And there is clearly work that needs to be done. Fix our crumbling roads and bridges, for one. Bury our electrical distribution system, for another (to at least mitigate damage from future Sandys). Put teachers, firemen and policemen back to work. All of these measures would put money back in people's pockets and put people back in stores, increase orders to factories, reduce safety net expenditures, increase tax revenue and reduce the deficit.

Jobs first. The deficit will follow.

Right To Work For Less

Those of us who have studied 20th Century history, especially the history of authoritarian or fascist dictatorships have observed a pattern. Dictators seek to control the media, control the schools and control or destroy the labor unions.

I was reminded of this during the past week as the Republican government in Michigan pressed during a lame duck session to destroy unions in Michigan. Michigan is not alone. They are now one of twenty-four states with so-called "right to work" laws.

"Right to work" as many observers have noted, really means "right to work for less." The term itself is an example of Orwellian language which means the opposite of what it seems to mean. Harold Meyerson of the Washington Post does a very good job explaining the historical background. Meyerson shows the similarity in the aim of "right to work" and efforts by the Communist leadership in China to control and benefit from the profits of improved productivity.

In our country, it isn't the government, but those who control the finance system, who have stolen the lion's share of increased productivity for themselves.

Another Interesting Post On Technology, Jobs And Salaries

Here is an interesting post by economist Tim Taylor, reposted by Mark Thoma.  It addresses issues of manufacturing productivity and suggests the only bright spot is computers. And that sector isn't doing much for jobs. Capital rather than labor scarfs up the profit.

I think this fits in with my previous post on technology, jobs and salaries. Taylor's post clarifies many of the issues involved in assessing manufacturing productivity. The picture may not be as rosy as government statistics indicate. Taylor explains: "Our statistical agencies try to measure price changes, but they miss them when the price drops because companies have shifted to a low-cost supplier. So because we don’t catch the price drop associated with offshoring, it looks like we can produce the same thing with fewer inputs—productivity growth. It also looks like we are creating more value here in the United States than we really are."

"Suppose," Taylor explains, "an auto manufacturer used to buy tires from a domestic tire manufacturer. Then it outsources the purchase of its tires to, say, Mexico, and the Mexicans sell the tires for half the price. That price drop—when the auto manufacturer switches to the low-cost Mexican supplier—isn’t caught in our statistics. And if you don’t capture that price drop, it’s going to look like, in some statistical sense, the manufacturer can make the same car but only needs two tires."

Figures don't lie....

Lobbyists And Why They Make The Big Bucks

Very interesting new report from economists at the University of Warwick in the UK.

The study, by economist Mirko Draca, confirms that pay is based not on "what" the lobbyist knows, but on "who" the lobbyist knows. This is not earth shattering news, but the study learned that lobbyists who were former congressional staffers receive on average a 24% cut in pay when the member of Congress for whom they served leave Congress.

The researchers were actually impressed that US law makes it possible to find out such information. It would not be possible in the UK.

I might add that in the UK, unlike in the US, lobbyists concentrate on the political parties more than individual members. Party discipline tends to make the lobbying of individual members relatively unproductive.

Even so, I believe this report lends support to my concept of improving responsiveness of the House of Representatives by tripling the number of members. To do so without increasing total number of staffers might reduce the market value of individual staffers' contacts.

Can Government Ever Do Things Better And Cheaper? Yes

Los Angeles Times business reporter Michael Hiltzik addresses the question of whether government can ever do things better than private enterprise. His answer: Yes.

"Here's a rule of thumb to consider," Hiltzik writes,  "for when government should take a role in providing a service: When it's cheaper." He means, cheaper for the country as a whole.

He examines in particular the consequences of raising the age of eligibility for Medicare. It would save 5.7 billion in the federal budget this year alone. "Of course," he points out, "it does horrors for the budgets of everyone else."

Hiltzik summarizes: "Put it all together, as health economist Austin Frakt did, and you find that saving that $5.7 billion on the federal books would cost society as a whole $11.4 billion. To paraphrase Jerry Seinfeld, this is how you save money in the Bizarro world. It does nothing to improve Medicare. It does nothing to hold down healthcare costs. It does nothing to improve the health of the target population."

And "by the way, the higher costs would hit middle-class seniors especially hard."

As we used to say in the Pentagon: "that's dumb - let's do it!"

Speaking of the Pentagon, if the trend in recent decades of outsourcing military functions to private industry is cheaper and better than having the military do it, those results aren't apparent.

Hiltzik provides many examples of good, efficient government programs.

Worth reading.

Seventy Years Ago: Japanese Carrier Ryuho

At 0915, December 12, 1942, Japanese Light Aircraft Carrier steaming near Hachijo Jima off the coast of Japan, was torpedoed by USS Drum. Ryuho had left the previous day on her first mission, loaded with 20 light bombers on a ferry mission, her very first operation. She was a converted submarine tender, whose conversion was completed November 30.

It was the second time Ryuho was damaged by US forces. April 18, 1942, during the Doolittle raid on Japan, one of the B-25's hit Ryuho with a 500 pound bomb and some small incendiary weapons. The ship was in drydock at Yokosuka naval base. The damage delayed her completion.

Technology, Jobs and Salaries

Something is going on in the world of economists.

Some are beginning to question their deeply entrenched assumptions about prosperity.

Some even doubt whether improved technology might sometimes make things worse rather than better for people who work for a living. Such questions are stimulated by graphs like this one:

December 12, 2012
Copyright 2012 The New York Times Company

Yesterday economists Erik Brynjolfsson and Andrew McAfee addressed the problem in a New York Times article. While both productivity of the economy and employment surged in the 1990's, they report, "as shown by the accompanying graph, which was first drawn by the economist Jared Bernstein, productivity growth and employment growth started to become decoupled from each other at the end of that decade." Bernstein himself calls the gap between the trend lines “the jaws of the snake.” They show no signs of closing.

Brynjolfsson and McAfee attribute the decoupling to technology, particularly robots and computers. Their article presents a pretty glum picture for the future of jobs except for those who "tell computers what to do."

Economist Paul Krugman, on the other hand, suspects the problem is not only robots and other technological advances, but that "robber barons" have succeeded in changing the rules to the benefit of capital over labor.  Noah Smith looks for answers in the more remote past (early 1970's), using graphs posted by Paul Krugman to ask the question "what happened in the early 70's?" Smith's conjecture is that the big thing that happened might have been the oil shock or maybe the end of fixed exchange rates under the Bretton Woods system.

Others round up the usual suspects of "offshoring" of jobs to developing countries, globalization, disappearance of strong unions, and alleged educational failures.

Arin Dube and Ethan Kaplan take a different look at it in a paper published last March:

"During the 1990s and 2000s, most economists viewed the growth in the upper-tail inequality as largely representing the same phenomenon as the growth in wage inequality elsewhere—primarily a change in the demand for skills through technological change, with some role for policy ...  Missing from all this was a discussion about how upper-tail earnings inequality could be better understood as an increase in the power of those with control over financial and physical capital. The exceptions were mostly outside of mainstream economics (e.g., Duménil and Lévy 2004)." They point to three pieces of evidence:  "a broad decline in the labor share of income from around 66 percent in 1970 to 60 percent in 2007." But that figure includes compensation going to top executives. Exclude their compensation, and it would show an even greater drop in labor's share. Most of the growth of executive income has been capital-based, e.g. stock options, but appears in the statistics as labor income.

But by far the biggest factor in upper-level income- whether capital or wage-based was the financial sector. The exorbitant level of compensation was based on financial sector profits. Even if that sector drove the overall economy into the ground.

The financial sector, by the way, creates few jobs. 

It's also good to remember Jim Hightower's observation that it isn't about jobs - "even slaves had jobs"- it's about wages and salaries.

What we need is a fair share of the nation's productivity going to the people who actually do the work rather than the handful who do the deals. But increasingly the dealmakers have the power and influence to change the rules in their own favor. And to intimidate or purchase the press and media outlets.

Unfreedom Of The Press

Dan Froomkin of Huffington Post interviews two of the most trusted neutral political observers, Norm Ornstein of the American Enterprise Institute and Thomas Mann of Brookings.

Ornstein and Mann severely criticized press coverage of the recent election, particularly the effort to blame both parties equally for political lies and extreme language.

"I can't recall a campaign where I've seen more lying going on -- and it wasn't symmetric," said Ornstein, a scholar at the conservative American Enterprise Institute who's been tracking Congress with Mann since 1978. Democrats were hardly innocent, he said, "but it seemed pretty clear to me that the Republican campaign was just far more over the top."

Ornstein and Mann don't just criticize. They also point out the mechanism whereby journalists are intimidated and prevented from writing their real assessment.

Their comments lead one to wonder whatever happened to the free press?

Come to think of it, the timidity of reporters who don't want to speak truth to power, who are reluctant to do their jobs "without fear or favor," is an affliction in other lines of work as well. It isn't necessary to go to the mat on every issue, but if you let yourself be intimidated at every turn by those with wealth and power, you are not truly free.