Relieving the Strains on the Economy

Robert Reich and Brad DeLong say more stimulus is needed:

Reich: The fastest and strongest stimulus would be a one-year exemption of the first $15,000 of income from payroll taxes... Congress still has time to pass this before the session ends.

DeLong: This makes me think that is time to start sending out more stimulus checks--advances on next April's refund checks. This makes me think that is time to start sending out more stimulus checks--advances on next April's refund checks.

The economy still seem to be sputtering. So are they right, is it time for more?

Update: The employment report released today was fairly weak:

The employment situation. On the establishment side, down 62K jobs. On the household side, the unemployment rate held steady because 144K of the 155K fall in household-survey unemployment left the labor force.

Dean Baker is first out of the gate with his take on these June job numbers:

Employment Rate Drops as Economy Sheds 62,000:

The employment to population ratio (EPOP) ratio fell to 62.4 percent in June, its lowest level in more than three years, as the economy lost another 62,000 jobs in June. This was the sixth consecutive month in which the economy lost jobs. The private sector lost 91,000 jobs in June. With the April and May numbers revised down by 76,000, the job loss in the private sector over the last three months has been 273,000, an average of 91,000 a month. The private sector has now shed 578,000 jobs since employment peaked in November. ...

Also see But Unemployment Did Not Increase by pgl.

Comments

[Tejvan Pettinger]

Extra stimulus may be needed; but, tax cuts are not the best way. - Consumers may use to just save. It is better to invest in certain projects e.g. public transport would give a dual benefit at the moment.

[Bruce Webb]

Robert Reich is an idiot. Look either Social Security is facing some sort of crisis or it isn't. But if it isn't I can't think of a better way to put it into one than blowing a multi-billion dollar hole by exempting the first $15,000 of wages. That works out to $936 per worker and and with say 150 million american workers (the 2007 Social Security Report put the population 20-64 at 186 million so this assumes 20% not earning wages) Reich just subtracted $140 billion dollars from worker retirement. And in so doing made the first move to converting Social Security from its current self-funding insurance model to subsidized welfare model.

Heckuva job Bobbie! Now shut up before FDR comes out of his grave and opens a can of whoop ass. Or maybe he will just have his Secretary of Labor Frances Perkins do the honors. For any knowing Democrat to promote this kind of screwing around with the financing of the crown jewel of the New Deal would be bad, for a former Secretary of Labor like Reich it is unforgiveable. The payroll tax is not some magical elixer you can use to offset any policy effort that effects the working poor, from gas taxes to economic stimulus efforts, it is a linchpin in the most successful social and economic justice program ever deployed in this country. Leave it the hell alone, it is doing exactly the job it was supposed to do.

[kett82]

Time for more?....No...now is the time for less.

[a]

What was Krugman's remark? Something about "experts" being listened to because they say what everyone wants to hear?

Prosperity does not come from consumption. Consumption comes from prosperity.

[Mae West]

When it comes to stimulus, Too much of a good thing is WONDERFUL!

[save_the_rustbelt]

"-advances on next April's refund checks."

Which would be great except who knows who is going to get a refund next year? Administrative problems here.

How about this?

A rebate check from the general fund in the amount of the payroll tax on the first $15000 for anyone who made less than $xxxx in 2007. Easy to calculate and we already have most of the 2007 returns filed. And no damage to Social Security.

Add to that a xx% bump in food stamps. Also easy to do.

???

[Mark]

Is there any available estimate on the fate of the current stimulus? What proportion ends up being exported to foreign producers of tangible stuff that consumers purchase? Has the stimulus package option lost some of its potential to stimulate the domestic economy?

[anne]

"What proportion ends up being exported to foreign producers of tangible stuff that consumers purchase?"

What of $162 billion for Iraq?

[anne]

http://www.nytimes.com/2008/07/04/business/worldbusiness/04euro.html?hp

July 4, 2008

Eyes on Inflation, European Bank Raises Rate
By MARK LANDLER

The European Central Bank, spooked by soaring prices for food and fuel, raised interest rates by a quarter point.

[gng]

Is it time for more one-off band-aids that don't address any of the underlying problems with the US economy?

No. I think it's dawning on people that gas isn't getting cheaper and their house is. It's going to take something more creative and substantial then cash hand-outs to restore confidence in the country.

[save_the_rustbelt]

gng:

True, but there is the short-run and there is a long-run.

[hari]

Neither Reich nor Brad are prepared to take the only medicine that is going to cure the over-consumption patient called the Great Satan. If IMF won't come forward with a structural adjustment policy (a la 1980s formula dished out to African and Latin Americans) to reform US Financial Sector and realign the currency...somebody will.

And until such time, the likes of Brad/Reich will continue to sing their foolish songs for partial remedy or whatnot.

[nocountry]

This makes me think that is time to start sending out more stimulus checks--advances on next April's refund checks. This makes me think that is time to start sending out more stimulus checks--advances on next April's refund checks.

You know what that makes me think? It is time to start sending out more stimulus checks!

[kharris]

Agree with Rusty. If the smart worried folks are right (50/50?), then early 2009 is shaping up to be a weak period. If we move more consumption into this year at the cost of consumption in a period already seen as at risk by reducing tax refunds, aren't we just moving the problem around?

If you read the Economist and the NYT and Obama's stump speech, they all feature problems with infrastructure. Now that jobless benefits have been extended, Pelosi has one less item for the second stimulus package, which means a higher profile for funds to state and local governments. They buy infrastructure. Put the two together, and instead of giving people money they (ro somebody else) will have to pay back at some point, we will actually address a problem in the underlying economy. Radical notion, I know.

[bakho]

The rap on funding projects is that the money is too slow because it takes good planning to make use of the funds. However, a lot of states are in budget trouble and looking at canceling projects, laying off workers, etc. The Feds could infuse states with some additional cash with the proviso that it had to be spent within a year.

Note that money to the states does not require tax cuts, rebates or tampering with SS.

[Dr. Steven J. Balassi]

The economy needs more long-term stimulus. It needs permanent tax cuts for the poor and lower middle class. These groups will spend their money and this will increase the demand for products. These one-time rebates are too unpredictable and have usually been spend on repaying debt.

[anne]

Think simply to the 96 months of the Clinton Administration when an average 225,000 jobs were created each month. The finest 52 months of the Bush Administration showed an average of 160,000 jobs created, while we have now gone 6 months with loss of jobs each month. However the Clinton years were marked by strong trade expansion, a strong dollar, increased taxes especially on the wealthiest. The budget deficit was continually cut until there was actually a surplus, inflation was markedly controlled and interest rates were low. Productivity growth was high.

[anne]

Through the Bush years, taxes have been lowered especially for the wealthiest, the dollar has significantly weakened, interest rates are low but inflation in critical areas such as energy and food has been a problem for relatively lower income people. Social spending has decreased as a portion of national income, while defense spending has increased. Social spending has actually fallen slightly in real per capita terms through the Bush years. Wages and benefits for ordinary workers have lagged relative to corporate revenues and productivity gains.

Corporate investment through the Bush years has been low relative to fine corporate revenues and relative to the Clinton years. Continual emphasis on defense spending through the Bush years has had remarkably little growth effect.

[anne]

http://www.epi.org/printer.cfm?id=3017&content_type=1&nice_name=webfeatures_econindicators_jobspict_20080703

July 3, 2008

Weekly paychecks take hit as job market deteriorates
By Jared Bernstein with research assistance from James Lin

The U.S. job market continues to weaken, as payroll contracted for the sixth straight month and unemployment remained at 5.5%, according to today’s jobs report from the Bureau of Labor Statistics. Weekly paychecks for most workers over the past year are up only 2.8%, well below the growth of inflation.

The number of jobs in America has now fallen every month this year, and is down 438,000 since it peaked last December. Also, in another sign of expanding weakness, the BLS revised employment counts down for April and May by 52,000 jobs. It also helps to look only at what is happening in the private sector. Since government jobs are less sensitive to the business cycle, private sector employment is a more telling indicator of the impact of market conditions. Having peaked in November of last year, non-government payrolls are down 578,000, including 91,000 in June.

The wage front

On a yearly basis, hourly wages of the bottom 80% of the workforce in blue-collar production or non-managerial service jobs grew 3.4%, the lowest yearly growth rate since January 2006. A year ago, this growth rate was 4.1%, solid evidence that the weak job market is placing downward pressure on workers’ wages.

Although workers’ weekly hours were unchanged last month, they are down over the past year. The combination of diminished weekly hours and slowing hourly wages resulted in a 2.8% growth in weekly paychecks over the past year, the lowest growth rate since September 2005. With annual inflation tracking upwards of 4%, this means falling real earnings and diminished buying power for workers’ paychecks.

These decelerating wage trends tilt sharply against any evidence that faster price growth is driving faster wage growth. Instead, the weak bargaining power of most workers means they are subject to pressures from three sides: declining jobs and hours, slower hourly wage growth, and faster price growth. This punishing combination is lowering their living standards and is surely behind the historically very low readings on consumer confidence....

[save_the_rustbelt]

from a British wire service

"US Treasury Secretary Henry Paulson said here on Thursday that the US economy would most likely be stronger at the end of 2008, even as oil prices surged to new records above 146 dollars.

"I think there is a very strong possibility that we will be growing at the end of the year. We will have stronger growth at the end of the year than we have right now," he said during a press conference after talks with his British counterpart Alistair Darling.

Paulson and Darling had earlier discussed ongoing financial turmoil, which has largely been caused by the credit crunch and soaring oil prices.

"There's no doubt that high headline inflation numbers as it relates to oil and food prices are a real concern to Americans...."

DELUSIONAL?

[anne]

So 160,000 jobs created for 52 months equals 8.32 million minus 438,000 over 6 months brings the 58 month total to 7.88 million or the monthly average to 135.9.

While 225,000 jobs created for 58 months would have been 13.05 million.

[bakho]

Current employment (Civilian labor force-employed): 146.1 M
2000 employment: 136.9 M
Net change: 9.2 M
Months since 2000: 90
New jobs per month since 2000: 102 K

[anne]

http://krugman.blogs.nytimes.com/2008/07/03/a-million-jobs-short/

July 3, 2008

A Million Jobs Short
By Paul Krugman

A note to the Pervasive Pollyannas of Prosperity: *

"The U.S. economy needs to add more than 100,000 jobs each month just to keep up with growth in the working-age population. Over the past 6 months, nonfarm payroll employment has fallen more than 400,000. So job creation this year has fallen well over a million jobs short."

* http://bigpicture.typepad.com/comments/2008/07/more-on-the-pub.html

[anne]

Bakho:

Current employment (Civilian labor force-employed): 146.1 M
2000 employment: 136.9 M
Net change: 9.2 M
Months since 2000: 90
New jobs per month since 2000: 102 K

Thank you.

[anne]

"The U.S. economy needs to add more than 100,000 jobs each month just to keep up with growth in the working-age population."

Sadly, the 100,000 jobs needed to keep up with population growth was considered to be above 150,000 jobs a month needed during the 1990s. So, as expectations have fallen dramatically we have changed our assumptions accordingly.

[paine]

bruce webb

you are a wonderful guard dog

but reich is talking a one year exclusion here

not a long term wacking

maybe u ought to reconsider barking at him

besides as you very well know
reality transcends the private account book

socially transfered immediate purchasing power
no matter the complexity of its circuit
is still ultimately
inter firm or inter household
not intertemporal

if you want a strong transfer system
in the future
that extracts from payroll
see to it
total payroll expands
at its
maximal sustainable rate
ie
basically
invest in productivity growth
ie per hour constant dollar value added

and immigration of job age folks

[paine]

peak jobs

[anne]

Correcting:

So 160,000 jobs created for 52 months equals 8.32 million minus 438,000 over 6 months brings the last 58 month total to 7.88 million or the monthly average to 135,900.

While 225,000 jobs created for 58 months would have been 13.05 million.

[paine]

"a xx% bump in food stamps"

and some home heating stamps too

[roger]

Since we are all pitchin' in with our ideas - how about offering the general population the same deal the banks got? he guv will loan you money for 2 percent interest annually. As for how much money - how much do you need?

Surely the people who have been praising this programs for our banks, where it helped prop up people like the CEO of Lehman (who, poor man, has taken home a pittance over the past decade, a mere half a billion dollars) couldn't have any objection to extending it to the rest of us. After all, it was done in the name of the rest of us. It was to alleviate our suffering that the richest had to be given the choicest terms ever. It definitely had nothing whatsoever to do with the wealthy in the government propping up the wealthy in the private sector. That was far from anybody's mind. So, let's just alleviate our suffering directly.

[anne]

Paine, I know and I know that we are months away from meaningful sustained job growth. I am not worried about whether we are in a recession, but about lasting slow growth

[Bruce Webb]

Paine once you break down the barrier between FICA and other taxes there is no 'one year only' about it. You have opened the path back to the big well for whatever the next crisis might be.

I said 'idiot' and meant it.

[Ryan]

I agree Robert, let me refinance my student loans at the rate banks borrow in order to lend out to me; that would help significantly more than mailing me a couple hundred bucks.

[cm]

Bruce Webb: I would favor larger income tax personal exemptions, compensated for by higher upper-bracket tax rates, and perhaps some sort of wealth taxation (without wanting to delve into the detail).

The "problem" with that which I think Reich has is that lower incomes are already mostly exempt from income taxes, and in lieu of a "real" safety net that has just been gutted in the past decade(s) that would put a bottom under wages (or more reasonable minimum wages), the only thing he can shoot for the the remaining "income" tax these people pay.

Which leads us to the real problem, that there is not realistic safety net -- arguably by design.