State of the Union
Oops!!
With all eyes and all headlines fixed so intently upon Boston’s two Caucasian Bombers, hardly anyone has been paying attention to revelations of a far more devastating disaster that unfolded close nearby, but which were generally buried on the inside pages of our major newspapers.
I refer, of course, to the Harvard Spreadsheet Glitch, the discovery of a calculation error in the early 2010 research of celebrity-economists Kenneth Rogoff and Carmen Reinhart. The Rogoff-Reinhart findings had been cited by officials and international agencies throughout the world as proof of the devastating economic impact of accumulated national debt. As a result, most governments focused their Great Recession response on the need to minimize deficit spending and cut budgets rather than try to reduce unemployment via Keynesian pump-priming, which according to the study led to disaster. But Rogoff-Reinhardt had made an error in their calculation, so Oops! Read More…
Why Are Workers Giving Up?
That America created only 88,000 jobs in March, less than half the number anticipated, was jolting news, indicating the recovery that the White House has boasted about may not be at hand.
But in that March jobs report, there was more disturbing news.
While unemployment fell to 7.6 percent, the reason it fell is alarming.
Half a million U.S. workers (495,000) disappeared from the labor force. They dropped out. They are no longer even looking for a job.
Worse, this appears to be an inexorable trend. The participation rate of eligible workers in the United States has fallen to 63.3 percent, a level unseen since Jimmy Carter gave his malaise speech in 1979.
These folks, who have quit working and quit looking, who are they? How do they support themselves? What does this surging dropout rate from the workforce portend for America’s future? Read More…
Tragedy in the Factories, and The New York Times
The furniture industry in North Carolina is doing better than the textile industry, but that’s a little like saying the African elephant is doing better than the mastodon. Between the advent of mass Chinese imports and bookcases of particleboard you “assemble” at home, the market for domestically produced quality furniture has taken a beating, and the communities that market once supported have not been spared the blows. A New York Times report over the weekend pulled back the curtain a bit on the rougher side of life in the Tarheel State.
The Times story is ostensibly about the Occupational Safety and Health Administration’s failures to prioritize health concerns in its regulation and enforcement, but the thorough reporting and balanced storytelling makes the story human, with real, conflicting pressures. It centers around Royale Comfort Seating, foam cushion supplier to many of the top furniture brands. It also centers around Sheri Farley, a single mother, who, “For about five years…stood alongside about a dozen other workers, spray gun in hand, gluing together foam cushions for chairs and couches sold under brand names…” The traditional glue for this purpose in the 1980s was eliminated because of effects related to ozone depletion, and the glue after that earned the sobriquet “methyl ethyl bad stuff” by killing more than 30 workers a year. The glue Sheri Farley and her coworkers were immersed in, nPB, is a powerful neurotoxin that raised health concerns as soon as it was introduced to the market. It appears to have been seen as the least bad option.
Wal-Mart’s Vicious Cycle
A few days ago, The Atlantic reported on the unexpected success of stores like Quik-Trip and Trader Joe’s, which treat their employees better:
Many employers believe that one of the best ways to raise their profit margin is to cut labor costs. But companies like QuikTrip, the grocery-store chain Trader Joe’s, and Costco Wholesale are proving that the decision to offer low wages is a choice, not an economic necessity. All three are low-cost retailers, a sector that is traditionally known for relying on part-time, low-paid employees. Yet these companies have all found that the act of valuing workers can pay off in the form of increased sales and productivity.
“Retailers start with this philosophy of seeing employees as a cost to be minimized,” says Zeynep Ton of MIT’s Sloan School of Management. “That can lead businesses into a vicious cycle. Underinvestment in workers can result in operational problems in stores, which decrease sales. And low sales often lead companies to slash labor costs even further.”
According to a Bloomberg News report, that’s what’s happened to Wal-Mart:
It’s not as though the merchandise isn’t there. It’s piling up in aisles and in the back of stores because Wal-Mart doesn’t have enough bodies to restock the shelves, according to interviews with store workers. In the past five years, the world’s largest retailer added 455 U.S. Wal-Mart stores, a 13 percent increase, according to filings and the company’s website. In the same period, its total U.S. workforce, which includes Sam’s Club employees, dropped by about 20,000, or 1.4 percent. Wal-Mart employs about 1.4 million U.S. workers.
A thinly spread workforce has other consequences: Longer check-out lines, less help with electronics and jewelry and more disorganized stores, according to Hancock, other shoppers and store workers. Last month, Wal-Mart placed last among department and discount stores in the American Customer Satisfaction Index, the sixth year in a row the company had either tied or taken the last spot. The dwindling level of customer service comes as Wal-Mart has touted its in-store experience to lure shoppers and counter rival Amazon.com Inc.
Kind of casts a different light on their experiment in crowdsourced delivery, doesn’t it? Maybe more desperate than innovative? Meanwhile, the company is under investigation for violating the Foreign Corrupt Practices Act in allegedly bribing Mexican officials. But hey, at least it’s getting into the higher education racket with a new concept store at ASU. What the heck is going on in Bentonville?
How Free is Your State?
The Mercatus Center has just released its monster “Freedom in the 50 States” report, ranking all the states according to how “pro-freedom” they are.
There are separate charts for economic and personal freedom, an overall ranking that combines the two, as well as rankings on individual issues like campaign finance and travel. Some surprising findings from the study:
Freest state — North Dakota (followed closely by South Dakota)
Least free state — New York, by a mile
Most personal freedom — Alaska (decadent California is number 47)
Most economic freedom — South Dakota (meaning, I guess, North Dakota is substantially more permissive on non-economic issues)
Best fiscal policy — South Dakota, followed by Tennessee
Worst civil liberties record — California (Nevada has the best)
Freest education policy — Florida
Third-best place to gamble — Indiana
Freest marijuana policy — Alaska, which is 24th in economic freedom, surprisingly (The study is based on 2011 numbers, which is why Washington or Colorado aren’t on top. Alabama is ranked 50)
All states with state-run liquor stores do poorly in the alcohol policy section
Second-most stringent tobacco policy — Hawaii (behind, you guessed it, New York)
Best “fiscal decentralization” — Nebraska
Worst government employment policies — New Mexico
Check out the interactive website too.
Obama-as-Tory Revisited
Joel Kotkin has a rejoinder to the Barack Obama-as-Tory argument Alex Massie, Andrew Sullivan, and others on this site have advanced. They all meant it as a good thing, but Kotkin assuredly does not:
Under the progressive Tory regime, the best that can be offered the middle class is an outbound ticket to less-Tory-dominated, albeit often less culturally “enlightened” places, such as Texas, the Southeast or Utah. There, manufacturing, energy and agricultural industries still anchor much of the economy. Despite their expressions of concern for the lower orders, gentry progressives don’t see much hope for the recovery of blue-collar manufacturing or construction jobs, at least not in their bailiwicks. Instead they suggest that the hoi polloi seek their future in what the British used to call “service,” that is, as caregivers, haircutters, dog walkers, waiters and toenail painters for their more-highly educated betters. …
“We have created a regulatory framework that is reducing employment prospects in the very sectors that huge shares of our population need if they are to reach the middle class,” notes economist John Husing. A onetime Democratic activist, Husing laments how, in progressive California, green energy policies have driven up electricity costs to twice as high as those in competitor states, such as Utah, Texas and Washington, and considerably above those of neighboring Arizona and Nevada. These and other regulatory policies, he suggests, are largely responsible for the Golden State missing out on the country’s manufacturing rebound, losing jobs, while others, not only Texas but also in the Great Lakes, have expanded jobs in this sector.
Similarly, Draconian land-use regulations have not only kept housing prices, particularly on the coasts, unnecessarily high, but slowed a potential rebound in the construction sector, traditionally a source of higher-wage employment for less-than-highly educated workers. So, while Google workers are pampered and celebrated by the progressive regime, California suffers high unemployment and a continued exodus of working-class and middle-class families.
The argument is a bit complicated and I recommend reading the whole thing. As far as I know he’s the first to address issues of real property in relation to Obama’s Tory vision. And there’s something appealing about the way he portrays the Democratic Party’s divide between Oakland’s serfs and the landed gentry of Palo Alto.
(h/t The Transom)
Are We Headed for Another Debt-Ceiling Showdown?
When House Republicans repaired to Williamsburg, Va., in January, they hatched a pretty smart plan to carry them through the winter. The talk coming out of the retreat was all about “sequencing”: after the bruising fiscal cliff battle, the GOP needed to avoid, if only temporarily, a confrontation over the debt ceiling and skip straight to the comparatively lower stakes of the sequester. “Sometimes you’ve got to lay down a sacrifice bunt,” Rep. Dennis Ross of Florida told National Journal.
This assumption, for the time being, at least, has proved correct. The sequester kicked in, and its adverse effects around the country have been too scattershot to compel movement in Washington. The unveiling of the Ryan budget followed, with its claim to the moral high ground of a balanced budget in 10 years. Most recently, both chambers approved a continuing budget resolution to fund the government through September at the sequester’s lower spending levels—another win for the GOP.
In sum, since January, congressional Republicans have navigated the fiscal shoals about as well as could be expected. They punted (or bunted?) on what would have been a disastrous fight over the debt ceiling. And they avoided a government shutdown—a political disaster if not, as with the debt ceiling, a global-economic one.
But now spring has arrived, and the party again needs to feed the Sequencing Meter. Because it seems we’re right back to where we were in January. As Politico’s Jake Sherman reports:
They might have appeared to stand down from the last clash over the debt ceiling in January. But don’t be fooled: House Republicans are still planning to push for steep spending cuts or budgetary reforms alongside legislation to allow more borrowing. House Speaker John Boehner’s majority has cut so deep into discretionary spending, they know they cannot go any deeper. So this time, to raise the nation’s debt cap — something GOP leadership estimates is likely to happen in July — they are moving on to tweaking entitlements.
Avoiding the debt ceiling and moving onto the sequester undeniably made short-term tactical sense. But the perilous politics of the debt ceiling haven’t changed simply because all the low-hanging fruit of discretionary spending has been plucked. Just as readily as Republicans insist the argument about revenue concluded with the fiscal cliff, President Obama will no doubt re-up his posture of refusing to negotiate over the debt ceiling and demand new revenue in exchange for entitlement reform.
The sequencing of “Sequester first” will have made long-term sense only when Republicans manage to extract reforms they actually want—not just across-the-board cuts they’re willing to live with. If the Williamsburg Accord, as the strategy formulated at January’s retreat for House Republicans has come to be called, does not ultimately yield a grand bargain, it will be seen as just a temporary mollification of the fiscal hardliners.
Bottom line: if House Republican leaders can’t wrangle those hardliners, now seemingly emboldened, to the finish line of a grand bargain, they will have been victimized by the provisional success of the sequester standoff.
A Minimum Wage Hike as Amnesty-Killer?
My Friday Aspen Institute panel in DC on raising the minimum wage went well, though the discussion underscored the somewhat insular thinking of many of the policy elites who dominate life in our capital city.
As an example, although the audience and participants skewed heavily toward the “economic left,” several individuals mentioned how surprised they were to encounter the suggestion that our federal minimum wage be raised to $12.00 per hour—my proposal—or even higher, a notion that seemed almost unimaginable within their own policy circles. Meanwhile, former Democratic Congressman and Cabinet Secretary Dan Glickman described the politics of raising the minimum wage as being extremely difficult, given the intensity of opposition he had always encountered among many small businessmen.
These two issues are not unconnected. As I pointed out in response to Glickman’s question, a small rise in the minimum wage—such as the $9.00 figure proposed by President Obama—has limited political viability since it generates little of the enthusiasm necessarily to overcome the determined opposition of its ideological or practical opponents. Only a narrow sliver of American workers would directly benefit, their net dollar gains would be relatively small, and they represent an economic stratum that overwhelmingly votes Democratic, whenever it bothers to vote at all. How would such a measure ever stand a chance of passing the Republican-controlled House?
But consider the very different politics of a $12.00 figure. Over 40% of all American wage-workers would benefit, including 40% of the white Southerners who constitute the Republican base, and the mean gains for both those groups would be over $5,000 per year. Such an enormous sum of money would capture the imagination of its potential recipients, and also that of their immediate family members. Conservative ideologues such as Rush Limbaugh would surely denounce the proposal, but many of his ditto-heads are struggling with credit-card and mortgage loans, and for an extra $5,000 per year they’d surely turn a deaf ear to his arguments or even decide to turn their radio dial. The intensity of support for such a minimum wage hike would become every bit as great as the intensity of the regular opposition cited by Glickman. Offering people serious money may get their serious attention. Read More…
The Ryan Budget’s Sigh of Resignation
Writing in the New Republic, in 2005, less than a year after the reelection of George W. Bush had left many liberals feeling that they’d lost the “war of ideas,” Jonathan Chait, as ever contrary, insisted that there was no need for “new” ideas. The old ones, so to speak, were just fine. What the center-left lacked was the power to enact them:
It’s one thing for Democrats to sketch out the sort of alternatives they would prefer if they ran Washington. But, as long as Republicans do run Washington—and certainly as long as Bush sits in the Oval Office—doing nothing is often going to be the best available scenario for liberals. Emphasizing the downside of bad change rather than the upside of positive change reflects political necessity, not intellectual failure.
I thought of Chait’s piece as I read through House Budget Committee Chairman Paul Ryan’s latest annual budget resolution, otherwise known as “The Path to Prosperity.” If you pulled Ryan aside and threw the Lasso of Truth around him, I imagine he’d say something very like what Chait expressed in 2005: “I like my ideas. I could have done a lot more to realize them if I were vice president. But for now, I have to wait.”
The Ryan budget has two overarching policy objectives: 1) Entitlement reform: specifically, putting a limit on Medicare’s annual budget and giving states a lot more flexibility over their Medicaid rolls; and 2) radically simplifying the tax code.
Ryan is no fool; he knows there is no chance the Obama administration will accept Medicare premium support or Medicaid block-granting. But it’s what he believes should be done, and so he’s proposing it as a matter of course. There is, however, a sliver of hope that Republicans will reach an agreement with Obama on tax reform. As Ezra Klein has noticed, Ryan’s budget is vaguer in this area than it had been. A top tax rate of 25 percent is not a hard plank, but rather a “goal” he’d like Congress to “achieve.”
Add that wiggle room to Ryan’s remark yesterday that he has no desire to relitigate the fiscal cliff battle over revenue, and you have a white smoke signal that says, “On taxes, we might be able to do some business.”
Some of my favorite Ryan-watchers, like Ross Douthat and James Pethokoukis, had clearly been hoping that Ryan would produce something fresher and less straitened than he did. I appreciate where they’re coming from, and yet, perhaps too charitably, I’m reading in the Ryan Budget 3.0 a Chait-like sigh of resignation—of resignation to, as he has put it more than once since losing in November, the “reality of divided government.”
Aside from its base-stroking unrealism about a balanced budget in 10 years, there is a subtle sort of realism about this new Ryan budget. In its very lack of creative “new ideas,” there is an admission that “The Path to Prosperity” no longer has the magic-rabbit power it had after the 2010 midterm election. It’s a budget document scarcely worth more than the PDF pixels in which it’s displayed.
I think Ryan knows this, and expended very little effort to hide the fact.
Is the Fiscal Crisis the 9/11 of the Tea Party Class?
In this New Yorker chronicle of House Majority Leader Eric Cantor’s role in the various budget crises in Washington over the last two years, Rep. Tom Cole, a Republican from Oklahoma, makes an interesting observation:
This is a very different Republican Party than the one I got elected into. It’s much more domestically focused, much more fiscally responsible, much less concerned about America’s position in the world or about defending the country. It almost takes for granted the security that we have now. It’s not a group shaped by 9/11. Their 9/11 is the fiscal crisis, the long-term deficit [emphasis mine].
There are two senses in which Cole’s observation is apt (neither of them in the way he intended, exactly).
The first is that of hysterical overreaction.
After the September 11 attacks, carried out by 19 men with box-cutters, and supported by an occult international financial network, Americans were warned of an existential threat to our way of life and our very physical persons. To meet this threat, America commenced two land invasions, followed by a war of record-breaking length in Afghanistan and a calamitous occupation of Iraq; established a ghastly new domestic cabinet agency; and defenestrated longstanding prohibitions on torture. These wars cost the lives of 7,000 American servicemen and -women, plus many tens of thousands more Iraqi, Afghan, and Pakistani civilians.
The overreaction to the “fiscal crisis,” as Rep. Cole calls it, stems from this notion of singularity—one big Fiscal Crisis, rather than a cluster of fiscal problems. The $1 trillion-plus annual deficits that the federal government ran during Obama’s first term were the direct consequence of the financial crisis of 2008 and of the recession that began in December 2007. If Sen. John McCain had been elected in ’08, he would have dealt with the same $1.3 trillion budget deficit that Obama did. These slowly shrinking deficits are linked, in the crisismonger’s mind, to the entitlement-driven debt projected in “extended fiscal alternative scenarios” gamed out by budget wonks. Taken together, short-term deficits and long-term debt, and the multifarious causes of each, add up to one simple fable of moral incontinence.
Cole’s analogy works for the cynic as well as the moralist.
The September 11 attacks furnished neoconservatives with what they saw as justification for a final reckoning with Saddam Hussein, which they’d been itching for throughout the Clinton years. The Fiscal Crisis, in the same way, does the heavy lifting for policies that dramatically alter the nature of federally financed social insurance—in the case of Medicare premium support, by partially privatizing it; in the case of Medicaid, by elevating the role of state governments. These are reform ideas that, like those long-gestating plans for dealing with Iraq, antedate the Fiscal Crisis.
Don’t get me wrong. I think these are arguments worth having. I’m more committed to the preservation of the welfare state more than the average conservative might be, but I’m not wed to any particular composition of that welfare state.
What I’d like to see is any proponent of the Ryan budget—let’s not pick on the Tea Party alone—pretend that it’s, say, the late 1990s, when the idea of a Medicare voucher, or “premium support, was first proposed—when there were annual surpluses “as far as the eye could see.” If the idea had merit then, conservatives needn’t resort to an all-encompassing Fiscal Crisis to sell it today.
What we’re getting, instead, is the folly of the Balanced Budget Amendment and predictions of Greek-like fiscal collapse.
We’re getting the fiscal policy equivalent of the “existential threat” of terrorism and the invasion of Iraq.
