When is a recovery worse than the recession?

When every policy that you enact is the opposite of what you should have done: U.S. Incomes Fell More in Recovery Than Recession

American incomes declined more in the three-year expansion that started in June 2009 than during the longest recession since the Great Depression, according an analysis of U.S. Census Bureau data by Sentier Research LLC.

Median household income fell 4.8 percent on an inflation- adjusted basis since the recession ended in June 2009, more than the 2.6 percent drop during the 18-month contraction, the research firm’s Gordon Green and John Coder wrote in a report today. Household income is 7.2 percent below the December 2007 level, the former Census Bureau economic statisticians wrote.

The innumeracy of Team Obama

One might get the impression that they have no choice but to pull numbers out of their collectes a**es.  According to Stephanie Cutter, Obama's deputy campaign manager:

(Y)ou know, 27 months we’ve created 4.5 million private sector jobs. That’s more jobs than in the Bush recovery, in the Reagan recovery...

The problem with this claim is that it's, how we say, the opposite of the truth. The Reagan and Bush recoveries were both stronger.  As James Pethokoukis points out,

From the end of the recession in June 2009 through July 2012 — the first 37 months of the Obama recovery — the U.S. economy has generated 2.7 million net new jobs. From the jobs low point in February 2010, the U.S. economy has generated 4 million net new jobs.

From the end of the 1981-82 recession through the end of of 1985 —  the first 37 months of the Reagan recovery — the U.S.created 9.8 million net new jobs. And if you adjust for the larger U.S. population today, the comparable figure is more than 12 million jobs....

If you look at job growth during the George W. Bush Recovery the way Cutter examines Obama’s job growth — from the low point forward, then the first three years of the Bush recovery created 6.5 million jobs — also better than Obama.

The budget debate we should be having

Everyone knows that the federal budget is out of control and that, unless something is done soon to reform how we collect taxes and structure entitlement spending, our fiscal future is bleak.  Given that, it seems obvious that responsible governing requires lining up the various fiscally sustainable plans and choosing one.  That is, the debates over the proper size of government, etc. should be within the context of federal budgets that are somewhere in the neighborhood of being balanced.  At the very least, they should not have explosive deficits as part of their design.  It is not a simple matter to project the federal budget for years into the future, and there is a great deal of disagreement over the economics behind the various tax and spending schemes.  But, at the very least, we should only be debating budget plans that make a good-faith effort at sustainability.

Consider five representative budget plans that are out there: President Obama's, Paul Ryan's, the Bowles-Simpson Commission's, Ron Paul's, and that of the Congressional Progressive Caucus (CPC).  Four of these plans are designed to achieve fiscal sustainability, although the means by which they do it span the spectrum.  The Paul and CPC plans represent the two extremes: The Paul plan includes huge cuts to taxes and spending, whereas the CPC plan does the opposite.  In the middle are the Ryan and Bowles-Simpson plans, which differ mostly on how to manage health care, Medicare, and Social Security.  Roughly speaking, the former uses market mechanisms and competition to control costs, while the latter uses government bodies to take over these markets.  What these plans have in common is a complete overhaul of our ridiculously inefficient and complicated tax structure: Both include significant cuts to tax rates along with greatly reduced deductions and tax expenditures.

If we exclude the Paul and CPC plans as having no chance of being adopted, then the debate we should be having is between variants of the Ryan and Bowles-Simpson plans.  Instead, we are debating the Obama and Ryan plans, the former of which is destined to achieve fiscal ruin.  In fact, according to Tim "Turbo Tax" Geithner, it's a stretch to say that the administration has a plan at all.  As he told Paul Ryan, "We're not coming before you to say we have a definitive solution to our long-term problem. What we do know is we don't like yours."

Keith Hennessey has a handy comparison of the Ryan, Bowles-Simpson, and Obama plans.  In short, we should be arguing over the purple and red lines, but, instead we're arguing over the blue and red lines.

Like rats on a sinking ship

According to America's finest news source: Nation's Economists Quietly Evacuating Their Families.

"We've noticed a trend among the leading economic thinkers, be they Keynesians, supply-siders, or students of the Austrian school—they're putting their families on one-way flights out of the country, often leaving half-finished survival bunkers behind them," Paul Klement, an analyst with the Brookings Institute

It's not just TIFs

The Post-Dispatch has an outstanding editorial today about the folly of tax increment finance (TIFs):

In 2010, according to information compiled by the East-West Gateway Council of Governments, $67.7 million in property taxes was diverted from various government entities in the city of St. Louis and St. Louis County for the benefit of TIFs. More than half of that money, $38.7 million, should have gone to school districts. Another $36.3 million in sales tax revenue was diverted.

That's fine if the diverted money fed an economic beast, but it didn't. Various East-West Gateway reports have determined that at best, TIFs move some retail money around between competing municipalities. There has been next to no economic benefit for the St. Louis region in terms of net new jobs since the use of this development tool exploded over the last two decades.

This is absolutely right, and I'm glad that P-D editors find themselves on the right side of an economic issue for a change.  They fail, however, to see the big picture: The corruption and ineffectiveness they point out are not a product of TIFs, but are the very nature of government intervention into the free market.  I might be wrong, but I don't expect that this excellent editorial is a sign that the editors will come to their senses any time soon over the many offenses against economic freedom committed by all levels of government.

Remember, it's all about the children

Teachers' Unions in Action

In Louisiana, where 44 percent of public schools are given D or F grades by the public schools themselves, the main teacher's union is threatening to use "Any means necessary" to prevent private schools from using the state's new voucher system:

Its lawyers faxed threatening notices to 100 of the 119 schools in the voucher program, warning them that their clients (the union thugs) intend to use "whatever means necessary" to make the schools bar voucher students.
"By any means necessary" -- BAMN, as it is known to devotees of radical causes -- is code language for confrontational action, including violence if necessary.
The LEA will start by suing all 100 schools, many of them small private schools catering to poor children. The LEA, flush with fat union dues, is well-positioned to legally harass these schools, whose resources are limited.
You can see why the LEA is panicked: its members support failure in school so long as it lines their pockets, and they know that the public is beginning to realize that school choice is a necessary precondition to K-12 school reform.

Meanwhile, in New York City schools, sexual predators are aided and abetted by their union:

Specifically, nearly a hundred tenured teachers or other public school employees have been charged by the Department of Education with various sex crimes, including one teacher who had sex with a 13-year-old girl and an assistant principal who asked a young girl if she would give him oral sex.
But while in private industry, perps would be summarily fired and face the justice system (or else the business would be on the firing line), in New York they just appear before a school investigation panel, an independent law firm, or a local school superintendent. After that, the perp goes before an arbitrator selected -- get this! -- by the teachers' union and the school district jointly. The arbitrators, by the way, get paid $1,400 a day. You don't have to be a public choice economist to realize that, to please the unions, these arbitrators will likely be inclined to fine or suspend the teachers rather than fire them.
For example, one perp who repeatedly hugged girls, including fondling one poor girl's breasts, was suspended for six months. Another fine fellow was only reprimanded for "inappropriate touching" of a number of young boys. A third randy shaper of young minds, who repeatedly texted sex messages to girls -- including asking one to perform a striptease for him -- was merely suspended.

It's Tenure Man!

Note that my own institution, Lindenwood University, did away with tenure about 20 years ago and, not coincidently, is a financial and academic success story. As for me, while I would really like to have tenure myself, I am glad that no one in the rest of the university has it.

 

Thieves, leeches, and liars

Take me down to the parasite city

Emails: Geithner, Treasury drove cutoff of non-union Delphi workers’ pensions

Hmmm. So, political takeovers of private companies will punish those who do not bankroll the correct political party?  And the fight for a spot at the trough is a booming sector?  Who'da thunk it?

A sound, but incomplete, warning

For the Thirty-First Time, Obama White House Says ‘Don’t Read Too Much’ Into a Bad Jobs Report

So true.  But do feel free to read a lot into the past 42 jobs reports as a whole.

It should exceed 450 thousand per month by now

Today's job numbers are a mixed bag.  Payroll employment rose by 163 thousand, which is somewhat higher than the number of working-age adults that were added last month.  As a rule of thumb, job growth of about 125 thousand is needed just to keep pace with population growth.  We should be adding 450 thousand or more jobs every month by now.  And don't believe the hokum that the weak recovery is due to the deepness of the recession.  The opposite is true. 

Here's a good characterization of the payroll numbers:

"I'd call this a soft 163," said Steve Blitz, chief economist at investment research firm ITG in New York. "If you want to take from this the notion that the economy is not heading to a recession or something more ominous, that's fine. But if you want to take from this the idea that the economy is about to accelerate, I think that would be a big mistake."

The unemployment rate, on the other hand, rose from 8.2 to 8.3 percent.  As I've said many times, the unemployment rate is very close to worthless as a measure of labor market conditions. Higher unemployment can indicate improving or worsening conditions. The employment to population ratio is much more useful, and it fell from 58.6 to 58.4:

 

Lower unemployment in St. Louis is bad news

The unemployment rate for the St. Louis MSA fell last month, to 7.7 percent on a seasonally adjusted basis.  As has become well known during this recession and "recovery", the unemployment rate can be a very misleading indicator of economic conditions.  Steve Giegerich did a good job wrestling with this difficulty in the Post-Dispatch today.

My take on the St. Lous economy:

• Although the BLS is underestimating it, St. Louis payroll employment is growing too slowly to recover the jobs lost during the recession anytime soon. In fact, as with national employment, it might not even be keeping up with population growth. 
• The St. Louis unemployment rate has fallen by about 1.6 percentage points since June 2011.  Almost 24 thousand fewer people are unemployed, but most of this did not result in more employment.  The labor force shrank by 17.1 thousand while employment rose by only 6.6 thousand.  That is bad news.
• Since January of this year, the seasonally adjusted unemployment rate fell by 0.4 percentage points.  Although the number of unemployed fell by 6.2 thousand, the labor force shrank by even more (9.2 thousand).  Thus, the number of employed people fell.  That is bad news.

That's only half the story

President Obama was campaigning in Ohio today and made a very clear statement of how he believes the economy works:

President Obama explained to a group of supporters in Ohio this afternoon that more government investments in infrastructure would help the economy grow again. Pointing out that if government continued to invest in roads and bridges, it would put more money in people’s pockets to spend.

“That’s how we grow our economy.” Obama said, “If we’re investing in roads and bridges, putting some hard hats back to work, getting our steel workers back to work, they got some more money to spend, maybe they buy a new computer, maybe they decide to take a little vacation.”

“And all that money circulates in the economy and it makes us all grow,” Obama added.

That's not a bad description of the mechanics of how government spending is alleged to lead to growth.  However, it misses the other half of the story.  To pay for that government spending, people have to be taxed now, or the government has to borrow now and raise taxes in the future.  If taxes are collected now, then people will have less money to spend, maybe they put off buying a new computer, maybe the decide that they can't afford a little vacation.  If the government borrows money, it sucks funds out of financial markets that would have gone to the private sector.  Plus, because this money has to be paid back, people know that their taxes will be raised in the future, so they reduce their spending now.

Is that really how we grow our economy, by taking money from consumers and private businesses to build roads and bridges?  If that's so, then let's take all of the wealth in the economy and pay people to dig holes in the ground and then fill them in.  What fantastic growth that would cause!

Just because it's a failure

doesn't mean it's not his biggest economic success:  Obama Touts GM as Success While Market Share, Stock Price Decline