Economics & Inequality

September 13, 2011

Graph of the Day: Poverty on the Rise in America

Benjamin Landy

According to new data released today by the Census Bureau, the percentage of Americans living in poverty rose to 15.1 percent last year, the highest level of poverty since 1993. In 2010 A record 46.2 million people were below the poverty line, defined as income less than $22,314 a year for a family of four and $11,139 for individuals. It was the fourth consecutive year that the number of people in poverty has increased in America. Real median household income fell 2.3 percent to $49,445—lower than it was in 1997 and barely a 25 percent improvement since the 1960s.

Unsurprisingly, the Census data shows that the Great Recession only exacerbated longstanding economic disparities between geographic regions and racial categories. In 2010, the poverty rate varied significantly in the United States, with Blacks, Hispanics, and the southern states experiencing far greater economic hardship than Whites, Asians, and the northern states.

 

 

Percentage of americans poverty stateSource: US Census Bureau                    

The highest poverty rates in the nation belonged to Mississippi, Louisiana, and Washington, D.C.—each with approximately one out of every five people living in poverty—while New Hampshire enjoyed the lowest rate, with just 6.6 percent below the poverty line.        

Americans in poverty by raceSource: US Census Bureau                

The 2010 Census data also confirmed that economic inequality between racial groups in the United States remains a major obstacle to social justice, with the poverty rate for Blacks nearly three times that of Whites. While poverty rates increased across the board, the setback was particularly dramatic for Blacks and Hispanics, erasing several years of economic gains.

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September 06, 2011

Taking Note is Now: Blog of the Century

The Century Foundation

We've changed our name and address. However we are leaving our content accessable here at Taking Note.  As of Tuesday, September 6th, 2011 All new content is at our re-named, newly addressed:

Blog of the Century and can be found at  http://botc.tcf.org

September 01, 2011

Graph of the Day: Did Stimulus Money Hire the Unemployed?

Benjamin Landy

According to a new research paper by economists Garett Jones and Daniel Rothschild, “Did Stimulus Dollars Hire the Unemployed?” published by the conservative Mercatus Center, less than half of all employees hired with American Recovery and Reinvestment Act funds actually came from the ranks of the unemployed. “Hiring isn’t the same as net job creation,” the report argues. “In our survey, just 42.1 percent of the workers hired at ARRA-receiving organizations … were unemployed at the time they were hired. More were hired directly from other organizations (47.3 percent of post-ARRA workers), while a handful came from school (6.5%) or from outside the labor force (4.1%) … This suggests just how hard it is for Keynesian job creation to work in a modern, expertise-based economy: even in a weak economy, organizations hired the employed about as often as the unemployed.”

Unsurprisingly, conservative economists like Tyler Cowen see Jones and Rothschild’s research as proof that the stimulus failed. “This paper goes a long way toward explaining why fiscal stimulus usually doesn’t have such a great ‘bang for the buck,’” writes Cowen on his blog Marginal Revolution. “It raises the question of whether as ‘twice as big’ [sic] stimulus really would have been enough.”

Sources of workers ARRA funded organizations

However, if you look more closely at the numbers, an alternative, more optimistic story about the ARRA emerges. First of all, for each of the 47.3 percent of workers who left their jobs for new, ARRA-subsidized positions, it is likely that another worker, potentially one who was previously unemployed, took their place. That means that job-shifters weren’t taking away opportunities from the unemployed; on the contrary, their stimulus-sponsored job mobility created a trickle-down effect, leading to new hiring at the businesses they left. Even if only half of these ‘second-order’ hires came from the ranks of the unemployed, that means that the true percentage of ARRA-subsidized jobs going to the unemployed is closer to 66 percent, not 42 percent.

Moreover, the report does not specifically detail how many people were able to keep their jobs thanks to ARRA funds. Even if no new jobs were created, a large amount of the stimulus money that went to the states enabled local governments to employ workers that would otherwise have been laid off. And in fact, Jones and Rothschild’s research indicates that the average organization receiving stimulus funds equal to 10 percent of its annual revenue reported retaining or hiring workers equal to 6 percent of its workforce. Which helps explain why, according to Recovery.gov, over 550,000 have been created or maintained by ARRA funds just between April and July of this year.

Of course, no one is claiming that the ARRA funds have been apportioned or managed perfectly —$787 billion is a lot of money. But considering the time constraints that the Obama administration was working under, it would be unreasonable to expect that such a massive economic stimulus could be implemented without some waste. That being said, the CBO estimates that, relative to what would have happened without the law, the ARRA raised real GDP by between 1.5 percent and 4.2 percent in 2010, and boosted employment by as much as 3.3 million. That may be the kind of recovery that Cowen dismisses as not much "bang for the buck," but I'd wager that the majority of the 14 million Americans who are currently unemployed would like to see more such stimulus, not less.

 

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Persistent Underemployment Expected for Nearly a Decade

Andrew Fieldhouse

Next week, President Obama will give a national address on job creation in the context of a sweeping jobs crisis. Without major initiatives by the federal government to put Americans back to work, we are looking at nearly a decade of persistent underemployment. The national unemployment rate has averaged 9.3% over the last year and has been stuck above 8% for the last two and a half years. (The broader underemployment rate, accounting for discouraged workers who have dropped out of the labor force and those working part time for economic reasons, has held over 15% for two and a half years.) Returning the unemployment rate to its pre-recession rate of 5.0% would require adding 11.1 million jobs, but monthly employment gains have averaged only 72,000 over the last three months (an annualized rate of 864,000 jobs). Meaningfully addressing the jobs crisis and lowering the unemployment rate requires significantly faster economic growth and employment gains than currently experienced or expected.

New projections from the Congressional Budget Office show that unemployment is projected to average 7.9% in 2014—seven years into this economic slump—and a return to full employment is not expected until 2017. Full employment is the level of employment consistent with stable price inflation and potential economic output (the economy is currently running $1 trillion (-6.3%) below potential economic output, largely because labor resources aren’t being employed), believed to be roughly 5.0% to 5.2% in the United States. Since the Great Depression, macroeconomic policy has generally targted full employment (the Federal Reserve's dual mandate is balancing maximum employment and price stability). A return to full employment in 2017 would come almost a decade after the recession began in December 2007 (as dated by the National Bureau of Economic Research). The recession is also dated as having ended in June 2009, although the past two years surely have not felt like a recovery for millions of households because of the ongoing jobs and foreclosure crises.

The expected return to full employment has been pushed back and CBO’s unemployment projections have been numerously revised upwards as the economic recovery has disappointed (see chart). In their January 2010 projections, CBO projected the unemployment rate would average 5.3% in 2014, meaning the economy would be approaching full employment. This forecast for 2014 was revised upwards to 6.8% in their January 2011 projections, more than a percentage point below their most recent August 2011 projections. With these revisions, the expected return to full employment has been pushed back roughly two years.

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These longer-term CBO projections assume that the economy gradually reverts to potential economic output beyond two years of real economic forecasts. We have seen near-term forecasts revised downward, and the subsequent reversion to potential output delayed. (It is also possible for potential GDP to revert toward actual GDP, and CBO’s revised budget and economic outlook notes that potential output over 2017-2021 has already been revised downward 2% as a result of the recession). Unless Congress passes a large jobs package putting millions of Americans back to work, it is all too possible that unemployment projections will continue to be revised upwards and the return to full employment will prove elusive for years to come.

This trend of disappointing growth and unfavorable revisions to economic forecasts could be greatly exacerbated if federal budget cuts are added to the litany of economic headwinds blowing against recovery (the foreclosure crisis, overleveraged and underemployed consumers, state and local budget crises, a financial sector burdened by bad mortgage securities, and a spreading Eurozone financial crisis, to name just a few). Failure to renew emergency unemployment benefits and the payroll tax cut, coupled with the discretionary spending cuts imposed by the debt ceiling deal, risk 1.8 million job losses in 2012 alone. But just as budget policy has the ability to delay economic recovery, expansionary budget policy can bring about a more rapid decline in the unemployment rate.

In his recent address in Jackson Hole, Wyoming, Federal Reserve Chairman Ben Bernanke warned that fiscal policy must take into consideration the fragility of the economic recovery, and noted that “policies that promote a stronger recovery in the near term may serve longer-term objectives as well. In the short term, putting people back to work reduces the hardships inflicted by difficult economic times and helps ensure that our economy is producing at its full potential rather than leaving productive resources fallow. In the longer term, minimizing the duration of unemployment supports a healthy economy by avoiding some of the erosion of skills and loss of attachment to the labor force that is often associated with long-term unemployment.”

The president should heed this advice and propose a jobs package that would noticeably turn the dial on the unemployment rate. Failure to meaningfully address the jobs crisis, on the other hand, risks a decade of economic hardship, unnecessarily high levels of underemployment, and forgone economic potential. Projections of 7.9% unemployment—above the peak unemployment rates of the previous two recessions—a staggering seven years into this economic slump is no cause for complacency. Alarm bells should be ringing in Washington.

August 27, 2011

The need to rethink housing policy

Harold Pollack

A great philosopher writes in the New Republic:

Gretchen Morgenson and Joshua Rosner just published a major book, Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon. The book is excellent in explaining the misconduct of executives who ran Fannie Mae and Freddie Mack. Yet it goes off the rails by overstating the role of these firms (and understating the role of others) in creating the housing meltdown and the closely-linked foreclosure crisis. Indeed, our current economic crisis should prompt us to ask more far-reaching questions about the origins of the crisis.

Looking back, many of us—and by “us,” I certainly include liberal Democrats—were slow to recognize the general dangers posed by the housing bubble, and the specific dangers posed by the political economy of government sponsored enterprises (GSEs). Many of us were also unduly credulous about the presumed benefits of home ownership. While perhaps not as easy to address, these uncomfortable questions must be raised if we hope to guard against the possibility of something of this magnitude from happening again.

More here. And no, we don’t get to pick the titles…

August 25, 2011

Graph of the Day: Is the "Great Recession" Really a Household Debt Crisis?

Benjamin Landy

“Why is everyone still referring to the recent financial crisis as the ‘Great Recession’?” asks Harvard economist and former IMF chief Kenneth Rogoff, in a recent article for Project Syndicate. “The phrase 'Great Recession' creates the impression that the economy is following the contours of a typical recession, only more severe – something like a really bad cold,” he adds. “But the real problem is that the global economy is badly overleveraged.”

Unfortunately, the American household is no exception. While political discourse has been dominated in recent months by arguments over our enormous national debt, climaxing with the tense mid-summer negotiations over the debt ceiling in Washington, the problem of household debt has gone largely unmentioned in the media. Now that is beginning to change, as a consensus develops among economists, pundits, and policymakers that Americans’ paralyzing mortgage and credit card debt is the main factor holding the economy back from recovery.

Household debt

The facts are these: although household debt peaked at $116,457 per household in 2008—nearly 100 percent of GDP at the time the financial markets collapsed—mortgage and credit debt has decreased merely seven percent as of 2010. The average American household would have to deleverage an additional 97 percent to return to 1976 levels. And while no one is arguing that household debt needs to be at those levels to restart the economy, it is generally understood that consumption will not increase adequately until Americans’ debts are significantly lower.

When we last experienced a deep recession in 1982, the household debt-to-GDP ratio was about 45 percent, or $17,286. So when the government adjusted its monetary policy, the economy was able to recover quickly. Today, with the average household still holding over $100,000 of debt, a more ambitious program will be required to return demand—and thus unemployment—to pre-recession levels.

Thankfully, a recent New York Times report indicates that the Obama administration may be planning just that. According to the article's sources, who would not be named, White House officials are currently weighing a variety of proposals to allow millions of homeowners to refinance their homes with government-backed mortgages at current low interest rates of about 4 percent, saving those homeowners $85 billion a year and creating a strong stimulus to the economy.

The Washington Post's Ezra Klein, for one, is not optimistic that this kind of government-backed refinancing program could work in the current political climate, but at least it proves that the administration is paying attention to the household debt problem and trying to come up with creative solutions to stimulate demand. Until we find a way to do that, millions of Americans will remain jobless, and the economic recovery will continue at its anemic pace. At the very least, the administration's recognition that the "Great Recession" is really a household-debt crisis sends the positive message that Obama's "pivot" to job creation is more than just hot air.

 

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Bolstering An Economy That Has Fallen $1 Trillion Below Potential

Andrew Fieldhouse

When Congress returns to session, policies for job creation are expected to be at the forefront of the legislative calendar. The federal government can and should put Americans back to work, as was done in the Great Depression and earlier in this recession. Numerous policies to boost economic activity and employment—including infrastructure spending, unemployment benefits, and tax cuts—were beneficially employed in the 2009 American Reinvestment and Recovery Act, but on an inadequate scale, as measured by the gap between actual and potential economic activity. Millions of Americans could be put back to work by expanding fiscal policy on an appropriate scale, meaning hundreds of billions of dollars in additional government spending.

The Recovery Act did what it was designed to do: it turned the economy around and increased employment by millions of jobs. The economy was plunging at an annualized rate of 8.9% in the fourth quarter of 2008, the last quarter before the Recovery Act began to support the economy. The Recovery Act was signed into law in February 2009 and the additional government expenditures and tax cuts quickly surged to an annualized rate of $319 billion (2.3% of gross domestic product) in the third quarter of that year. As the Recovery Act ramped up, the economic contraction slowed sharply to 0.7% in the second quarter of 2009 and growth resumed in the third quarter; this was no coincidence. Increased economic activity boosted employment, everything else being equal, and the economy was creating jobs by the first quarter of 2010, albeit from a deeply depressed level of employment. Estimates by private sector forecasters and the Congressional Budget Office suggest that the Recovery Act increased employment by roughly 3-4 million jobs—in line with administration projections—but this fell far short of recouping the number of jobs lost. Monthly job losses began slowing in February 2009 when the Recovery Act first kicked in, but the economy still lost a staggering 8.8 million jobs between February 2008 and February 2010.

Continue reading "Bolstering An Economy That Has Fallen $1 Trillion Below Potential" »

August 22, 2011

Graph of the Day: In Defense of Warren Buffett

Benjamin Landy

Billionaire investor Warren Buffett became a controversial figure last week when his provocative op-ed, “Stop Coddling the Super-Rich,” landed prominently on the New York Times editorial page. “My friends and I have been coddled long enough by a billionaire-friendly Congress,” Buffett wrote. “It’s time for our government to get serious about shared sacrifice.” His suggestion, that the government immediately raise taxes on Americans making more than $1 million—and even more so on those making in excess of $10 million—set off a firestorm of criticism from conservatives.  

Among the more misguided attacks was a CNN.com opinion piece by Jeffrey Miron, a senior fellow at the Cato Institute and director of undergraduate studies at Harvard University, who outright dismissed the significance of increased government revenues. “The first problem with Buffett’s view,” Miron writes, “is that the number of super-rich is too small for higher rates to make much difference to our budget problems. . . . Imposing a 10% surcharge on this income would generate at most $73 billion in new revenue—only about 2% of federal spending.”

Miron is right that $73 billion won’t solve our “budget problems,” which I take to mean our $14.4 trillion national debt. Nobody is arguing that. But that hardly means $73 billion is inconsequential. In order to illustrate just how much money $73 billion is, I did some research to discover some of the things you could buy with that kind of money. The graphic below shows just a few examples.

73 billion final

If you were more militarily inclined, $73 billion could also buy you sixteen Nimitz-class nuclear-powered aircraft carriers—the largest and most powerful capital ship in the world—or 1,327 brand new F/A-18 Super Hornets from Boeing. And $73 billion could quintuple NASA’s operating budget, providing enough funds to develop and maintain an international lunar base for the next five years, according to CSIS cost analysis. Less than half that amount would provide safe drinking water for the entire planet, helping save the nearly 6,000 children who die every day from diseases associated with contaminated water supplies.

No matter how you choose to look at it, $73 billion is a lot of money. With all of the problems our country is facing today, can we afford to turn it down?

 

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August 19, 2011

A Speech for Our Hard Times

Harold Pollack

President Obama was giving a speech the other day. I heard something like the following:

Let me warn you and let me warn the Nation against the smooth evasion which says, “Of course we believe all these things; we believe in Social Security; we believe in work for the unemployed; we believe in saving homes. Cross our hearts and hope to die, we believe in all these things; but we do not like the way the present Administration is doing them. Just turn them over to us. We will do all of them- we will do more of them we will do them better; and, most important of all, the doing of them will not cost anybody anything.”

Continue reading "A Speech for Our Hard Times" »

August 18, 2011

Israel's Settlement Enterprise

Sarah Aoun

With a United Nations vote on Palestinian statehood looming in September, international pressure has been building on Israeli Prime Minister Benjamin Netanyahu. In recent weeks however, a new and internal threat has emerged to challenge the Israeli PM. Since July, thousands of Israelis have been protesting against the rising cost of housing in Tel Aviv and its outskirts, putting an unaccustomed domestic spotlight on the settlement enterprise in occupied territories that has so drained Israeli resources.

While protestors -- in what has been considered Israel’s largest demonstrations on any issue in over a decade -- criticize what they consider to be the government’s indifference to the incredibly high cost of living, this does not seem to be the case in the West Bank and East Jerusalem. There, government subsidies of Israeli settlements offer economic incentives difficult to refuse.

Indeed, over the past several decades, the Israeli government has adopted an encouraging policy towards population shift and settlement building – globally considered to be a violation of international law. This investment across the Green Line has been intended to, and undoubtedly succeeded in, leading to an exponential settlement growth.

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Settlements have been one of the most urgent and worrying elements of the Israeli-Palestinian conflict since 1967.  Over the past 35 years, more than 500,000 Israelis have made their homes in the West Bank and East Jerusalem, with leaders of the settler movement aiming to dash hopes of making these territories the core of a future Palestinian state.

The continuing building of these homes has also spurred a number of violent clashes over the years between Israeli settlers and the Palestinians living in these areas for centuries. According to statistics collected by the United Nations Office for the Coordination of Humanitarian Affairs occupied Palestinian territory (OCHAoPt), the majority of these attacks have been undertaken by the settlers.  They have left mostly Palestinian children, women, and elderly severely injured, and some even dead.

Untitled

According to the Fourth Geneva Convention, the Israeli government is supposed to provide protection to the people whose land it is occupying. However, it is evident that no serious measures have been taken by the government to address this issue, as is shown by the stagnant and even at times increasing number of attacks against Palestinian civilians.

The never-ending settlement growth has repeatedly exacerbated the Palestinians, and has reaffirmed their determination to take their plea to the UN and request a compliance with the pre-1967 borders. On the other side, it keeps fueling protestors’ dissatisfaction with the policies East of the Green Line, where the government spends twice as much on a settler as on another Israeli according to a recent study by the Adva Center.

It does not come as surprise then that over 15 percent of the public construction budget is used to expanding West Bank settlement, which are home to only 4 percent of Israeli citizens, according to a report published by the activist group Peace Now.

It is difficult to avoid the conclusion that the settlement enterprise undertaken by the Israeli government has become a fundamental driver of both the Palestinian’s UN call for statehood and the recent protests in Israel. This has not, however, deterred Netanyahu from recently approving the construction of an additional 4,300 homes in East Jerusalem.

However, as seen by the internal and external pressure he faces, it is not only the Israeli PM, but Israel itself, that will continue to deal the repercussions of decades-long policies that have favored maintaining the occupation and developing settlements over the interests of the broader population – until the demands of the protestors are met and priorities are re-evaluated.