Friday, September 28, 2012

Presidents and Manufacturing

Average manufacturing jobs / month gained or lost for the past half dozen Presidents and since the turn-around on January 2010.

The average manufacturing jobs gained or lost per month under each of the last half dozen Presidents and the figure for since the January 2010 start of the recovery in manufacturing jobs

Notes on methodology: Generally speaking, the January in which the executive transitions from one branch to another will be almost entirely impacted by the outgoing President's policies and not those of the incoming President. As such, the average uses the change in monthly manufacturing payrolls starting with the change from the first full month of the President's term (i.e., from the February that is the first full month to the March thereafter) and going until the first full month after the President's term (i.e., the last change counted is from the January during which the President in question is last in office to the February thereafter). Data from BLS/FRED.

Mitt and Manufacturing

Rather bold of a guy who made a lot of money closing down (among other things) American manufacturing plants to speak on manufacturing jobs ... too bad it was boldly striding into error.
Romney says, "we see manufacturing jobs disappear". There you go again. Mitt, that's not "see", that's "saw". We saw jobs disappearing under Republican policies, the same ones you're trying to bring back. Under Bush II: 4.6 million lost in the manufacturing sector alone. Under Democratic leadership, since the turnaround, from January 2010 as of August 2012 -- under President Obama's administration -- we've gained 512 thousand jobs back in manufacturing

Thursday, September 27, 2012

Trends in Manufacturing Payrolls

A bit of manufacturing job historical info:

  • Peak: 6/1/1979 (shortly before Reaganomics) at 19.553 million manufacturing jobs
  • Decline from 6/1/1979 to 2/1/2001 (first full month of Bush II's first term): 2.523 million jobs, a 12.9% drop
  • Decline from 2/1/2001 to 2/1/2009 (over the course of Bush II's Presidency): 4.644 million jobs, a 27.3% drop
  • Post Bush II floor: 1/1/2010 (less than a year after President Obama sworn in) at 11.458 million jobs
  • Increase from 1/1/2010 to 8/1/2012 (turnaround to present): 512 thousand, a 4.5% rise

chart of manufacturing payrolls from January 1979 to August 2012

But When Did Those Jobs Disappear, Mitt?

The state of industry speaks for itself better than some candidates do. When Mitt Romney in Toledo on the 26th of September, 2012 said, "we see manufacturing jobs disappear", he neglected to mention that most of that disappearing happened during the tenure of a President who implemented the same policies that Romney himself is pushing. He also neglected to mention that under the current President they're not disappearing anymore. Under the current President, we've seen manufacturing jobs grow again.

Chart of goods producing employment (natural resources / mining, construction, and manufacturing) from January 2006 through August 2012, color coded by party of President

In manufacturing in specific, manufacturing jobs moved mostly sideways through the first quarter of 2006, creeping to a peak in April of that year. From the April 2006 peak, 1.844 million manufacturing jobs were lost under the Bush II administration by the first full month of President Obama's term. From the floor in January 2010, we've recovered 512 thousand manufacturing jobs as of August 2012. There's still a long way to go, but adding half a million manufacturing jobs since January 2010 is growth, not "disappearing".

Chart of manufacturing jobs from January 2006 through August 2012, color coded by party of President

Wednesday, September 26, 2012

Social Security and the Elderly Bread: Individualistic Solutions Inferior, Except When The World Ends ... and Then Who Would Be Counting?

John Kay reminds us of an excellent analysis of why we implement "welfare" programs in, "The welfare state’s a worthy Ponzi scheme", from which a highlight follows:

Social security is a means of inter-generational transfer. The only bread fit to eat is bread baked today: but why should today’s bakers feed the retired bakers of yesteryear? Why should we look after old people, who can no longer do anything for us? 
... We feed the generations of our parents and grandparents in the expectation future generations will come along and do the same for us. ... One day, the world will end and the last generation of workers will have been cheated of their expectation of a peaceful retirement. ... 
A brilliant analysis of the issues was provided half a century ago by Paul Samuelson, the great economist – an analysis that might have received wider attention had it not been written in mathematics and published under the uninviting title of “An exact consumption-loan model of interest with or without the social contrivance of money”. 
The only individualistic solutions to the problem of ageing are to store bread to eat, or sell, when it is stale and you are old; or to take the opportunity when young to bribe younger people to look after you in your dotage. Samuelson showed these outcomes were inferior to the outcome of the social security contract for every generation except the one alive on judgment day.

The rest of the article -- over at the Financial Times -- is also well worth the read, despite Kay's acceptance of the idea that "Ponzi scheme" can be reasonably applied to these social contracts. The designation of Ponzi scheme only applies to those plans that will fail even if everyone involved sticks to them and keeps going, failing because the scheme's earnings will necessarily be less than those promised in payout. Social security and the like will continue to function and pay out what's promised so long as our society sticks to them, administers them sensibly, and doesn't end. That's partially because we adjust the earnings / output to what can be done with the current demographic environment, but that makes it not qualify as a Ponzi scheme. The mere fact that someone won't be able to derive theoretical benefits after the society ends isn't enough to qualify as a Ponzi scheme. If it were, every transaction that isn't fulfilled instantly would be a Ponzi scheme.

Monday, September 24, 2012

Real GDP, the Past Eight Years, and the Years To Come

Real GDP for the past 8 years:

graph of quarterly real gross domestic product from 2004 through 2012 with color coding by party of President

Whatever else one may or may not read into this chart, it sure doesn't help the case for those who would say we should change ships back to the party of Bush II.

The Output Gap: real gross domestic product versus potential real gross domestic product 2004 to 2012

Of course, if one adds in potential GDP, essentially where the GDP ought to be right now if we were going to be back to "normal", we're clearly not done. It's roughly like we're going 45 in a 55 MPH zone. There's some serious work to be done to get the economy up to speed. So why has the debate been about how much to raise our foot off the pedal instead of how much further to press down?

Saturday, September 22, 2012

When It Went Wrong

When did things start down? Where was the bump in the road that triggered the Great Recession? In this election season, that question matters in the short term for trying to choose the folks most likely to not send us back down the same path. Partisans from both major parties would love to tell us things when wrong under the other party's watch, but only one side can say it accurately. So when did it start?

To begin answering that question, we can't just look at GDP or unemployment alone. While those may tell us when things really got bad, they don't tell us when the problem started. To get a better idea of when the problem started requires focusing further back than when it became obvious to everyone. The overall economy was hammered by a financial crisis, but that financial crisis didn't just spring up on its own. The financial crisis was triggered by a stumbling housing market. So when did housing tumble off the cliff?

Chart of housing starts, building permits, and residential construction with color coded Presidential terms and Congressional majorities; showing that housing fell off a cliff in 2006. Where the economic foundation cracked: a sharp drop in homebuilding over 2006 during the 109th Congress (R) under President Bush II (R). Those who think the 110th Congress somehow created the problem need to take another look at the data. Things started going wrong before the 110th Congress was even elected.  Housing (starts, building permits, construction) with Presidential party and Congressional majority from January 1998 through July 2012 (data from U.S. Department of Commerce: Census Bureau)
Housing fell off a cliff in 2006; in 2007/8, it was just still falling from 2006.

Building permits peaked on September 2005 and then proceeded to fluctuate through January 2006. Housing starts peaked in January 2006. Then after January 6th, both building permits and housing starts tumbled off that cliff, followed soon after by residential construction. Between the January 2006 peak and the start of the 110th Congress in January 2007, housing starts dropped by 38% and residential construction dropped by 15%. The housing industry was collapsing throughout 2006 and bringing layoffs starting with housing and spreading into related domestic industries such as window and cabinet making. Following on housing's decline, manufacturers new orders hit choppy waters in 2006, . By the end of 2006, the effects weren't yet enough to seriously shake unemployment or turn GDP negative, but the decline did start to show in other measures and a slackening of quarterly GDP growth. The annual growth in consumption per capita for 2006 started back down from what we'd seen in 2005.

Annual consumption/capita growth from 1996 - 2011, showing that demand was falling in 2006 from 2004/5 levels as the decline in the housing sector started to drag on the economy
Demand/person slowed down in 2006 ... before getting to an actual drop.

Put it all together it's really only a technicality that the recession didn't hit until late 2007. In fact, the economy was already in rough shape in 2006, with really lousy growth evident over the 2nd and 4th quarters of 2006, to the point of quarterly GDP growth just barely staying out of negatives.

Read GDP growth to end of quarter from 2005 to 2007, showing faltering -- if not quite contracting -- GDP in 2006
2006 wasn't technically recession; but it was darn close.

Clearly, the first wave of what became the Great Recession was well under way during the watch of the 109th Congress (2005-2006) under President Bush II, even though we hadn't reached technical recession yet. What happened during the 110th Congress was just that it became clear that the problem -- which was already under way -- was spreading from housing into finance and from there to everything else. The curtain covering over the problems was pulled away in 2007-2008, but the trouble was there before the curtain pulled away. Republicans held majorities in both Houses of the 109th Congress, as they had for almost all of the time since 1995 (except for a slim Senate flip in part of the 107th Congress). By 2006, Republican policies had held sway in both the executive and legislative for years and they were still in control. While there's room for debate as to how much involvement government had in the creating or allowing the mess, the weight of evidence says that if one were going to blame governance, the party to blame for that mess is Republican.

Thursday, September 20, 2012

Brad DeLong, Latte, and Ludwig von Mises

Of all the things Brad DeLong as written so far, this may well be the best quip yet:
"We accept money because if we don't have any money we have to buy commodities with other commodities, and when we do so we are unlikely to receive the cost of production for what we sell. Have you ever tried to buy a latte at Peets with a copy of Ludwig von Mises's Money and Credit? It does not go well."

Monday, September 17, 2012

Real GDP Growth and Top Marginal Tax Rates

Regressive fiscal policy depends on the idea that cutting upper bracket taxes will somehow bring growth. Reality seems to show quite the opposite results, as seen in the charts below.

Average GDP Growth and Top Marginal Rate: avg real GDP growth for same year grouped by top marginal tax rate in that year
GDP data from the BEA; covering the span of 1930 - 2011
One could argue that perhaps the above chart of GDP growth under the same year as the tax rate might not fully capture the impact because it may take time for changes in investment activity to filter into production of goods. So below let's look at a chart compiled by lining up the tax rates with the GDP growth for the year following the tax rate.

Average GDP Growth and Top Marginal Rate: avg real GDP growth for next year grouped by upper bracket tax rate in the year before that growth rate
GDP data from the BEA; covering the span of 1931 - 2011
It's hard to get more clear than that. In both the same year and next year match-up scenarios, top marginal tax rates of 70% and above clearly correspond with higher GDP growth than top marginal tax rates below 70%. Indeed, during the Reagan years -- contrary to regressive notions -- lowered top marginal rates came with a corresponding drop in real GDP that manifested as a clear, year to year linear trending correlation. These correlations don't necessarily prove that the higher tax rates caused the higher GDP growth, but they certainly prove that lower tax rates have failed to fulfill the regressive claim. Judging from history, one can not reasonably expect that lowering upper bracket taxes will spur growth. And as Diamond and Saez have shown, there's no reason to expect lowering upper bracket taxes would increase our tax revenue either, since the optimal upper bracket rate for revenue collection sits far higher on the scale than where we are now, somewhere in the 70+% range.

If anything, the data suggests that raising upper bracket taxes may be more likely to spur growth. How could that be? The obvious answer is reinvestment. Lower upper bracket taxes encourage avoiding reinvestment to reap profit. Higher upper bracket taxes encourage reinvestment to avoid reaping taxable profit. That said, increasing upper bracket taxes alone will not fix everything. No matter how much tax policy encourages investment, there must be domestic market demand in order for domestic investment to make sense. Yet given enough demand to make domestic growth investments rational, higher upper bracket taxes can -- and logically will -- encourage that positive choice.

Friday, September 14, 2012

Moody Broody Debt

From "Moody's threat to downgrade US debt is political, not fiscal":

"In the real world, the US doesn't even have a debt problem – net interest payments on the public debt are less than 1% of America's national income, or as low as they have been for more than 60 years. And the long-term deficit projections are a result of our healthcare system: if you substitute the healthcare costs of any other high-income country (or any country with a life expectancy as high as ours) in the US's budget, the long-term deficit turns into a surplus.
But Moody's wants us to be scared of the federal debt, so as to advance a rightwing agenda. But what they are doing is making a good case for serious reform of the ratings agencies."

Wednesday, September 12, 2012

The Economic Engine: Is It Fixed?

If our car had a busted transmission, we base whether to call it fixed by how it responds when it's in drive and we press on the gas. Does it go forward when we apply gas? Does it go faster when we apply more gas? If so, then it's fixed ... even when it happens to be going slower on the on-ramp than it was when the transmission first broke on the highway.
chart of private payrolls (all employees: total private industries) from February 2009 through August 2012

We don't base whether to call it fixed on its speed at the moment or how full its gas tank is. That'd be ridiculous.

Right now the Republican House is pulling back on our foot ... keeping us from putting the pedal to the metal. The Fed Chairman filled the tank with monetary measures. The President didn't even try to floor it, but he's tried to apply a bit more gas than the current House is letting him apply with fiscal measures. The 111th Congress was applying more gas than the 112th Congress is applying.

We could be going faster if we applied more gas. That we're not putting the pedal to the metal doesn't mean the car isn't fixed.

CBO Real Gross Domestic Product slide showing output gap; from

Given the output gap between actual and potential GDP, we're driving below the speed limit. The potential GDP is the speed limit. Any faster than that and we're liable to be pulled over and get a ticket. But we could be going faster. There's a good bit of room to step on the gas and get ourselves up to speed. That would require the House to stop holding us back from applying the gas it'd take to get up to speed.

Tuesday, September 11, 2012

Returns on Education

A chart from The Economist, showing "A college education is good for your well-being and your wallet":

Monday, September 10, 2012

Why do Right-wingers Hate President Obama?

Despite being sufficiently conservative to annoy no small number of staunch liberals and despite his stances broadly matching many of the most common views of middle America, President Obama has become the right-wing's bogeyman to explain away everything that conflicts with their world view. Actually facing facts would require them to change their world view, and they don't want that. This is how satirist Jon Stewart touched upon so much truth when he reviewed Eastwood's convention speech and noted, 
"But I could never wrap my head around why the world and the President that Republicans describe, bear so little resemblance to the world and the President that I experience.  And now I know why.  There is a President Obama that only Republicans can see." - Jon Stewart

"But I could never wrap my head around why the world and the President that Republicans describe bear so little resemblance to the world and the President that I experience.  And now I know why. There is a President Obama that only Republicans can see."

The notions of trickle-down have been thoroughly shown to not only fail but fail badly. Upper-bracket tax cuts have been a massive flop. We've had them for over a decade. If they worked to create jobs, we'd be rolling in jobs by now. Deregulation returns the system to a level of instability that's bad for business, lowering the ability to expect what will happen with investments. But facing all of that might -- or even any of that -- might require them to admit that maybe their right-wing approach just isn't right. It might require them to re-think a world view in which they're emotionally invested. So instead, they need someone -- anyone -- to rail against for allegedly embodying all that they fear and want to believe must really be at fault.

Here's how it works in the fantasy land of right-wing escapism to explain why their policies must not actually be the root cause of most of our troubles:

  • We've got lingering unemployment? Let's not face that Republican's favorite idea of deregulation was a major factor in creating that; instead, it must be Obama's fault.
  • We've got debt? Let's not face that it was mostly accumulated under Republicans and by a wide margin at that; instead, it must be Obama's fault.
  • We've got a deficit? Let's not face that spending has grown slower under the current President than under any recent Republican; instead, it must be Obama's fault. Facts and figures be damned; he must be a big spender despite what all those charts show.
  • We haven't fully brought our troops home from a war started under a Republican and that has mostly been managed by that Republican administration; it must be Obama's fault.
  • Analysts expect the Affordable Care Act that Republicans have opposed to really save money by cutting waste without reducing quality of care while still keeping healthcare a largely private system? Nah, that can't be, they say. Surely, since Republicans have opposed it and it involves those regulations [eek!], Obamacare must be big spending govt socialized medicine. Facts be damned! And fact-checkers along with 'em!

And if one should dare to show solid proof that it was really Republicans at fault for any of these things? Why then according to today's Republicans, they must be a left-winger -- maybe even a leftist -- and their sources must be partisan, no matter how much those sources may have been previously recognized as non-partisan, no matter how much those sources are well documented.

Friday, September 7, 2012

The Course of the Recovery

The course of the recovery:

Private payrols from February 2008 through August 2012 with significant events noted

Legislation and events marked on the above chart:

Thursday, September 6, 2012

Clinton's Convention Speech in Images

On the argument for President Obama's reelection:

President Clinton: "I like the argument for President Obama's reelection a lot better. Here it is. He inherited a deeply damaged economy. He put a floor under the crash. He began the long, hard road to recovery and laid the foundation for a modern, more well balanced economy that will produce millions of good new jobs, vibrant new businesses, and lots of new wealth for innovators."

Are we doing better than that today?

President Clinton: "When President Barack Obama took office, the economy was in free fall. It had just shrunk 9.4% of GDP. We were losing 750,000 jobs a month. Are we doing better than that today? The answer is yes."

Job scoring:

President Clinton: "Here's another job score: President Obama plus 4.5 million; Congressional Republicans zero"

Republican economic policies:

Clinton: "Republican economic policies quadrupled the debt in the 12 years before I took office and doubled the debt in the 8 years after I left."


President Clinton: "We simply can't afford to give the reigns to someone who will double-down on trickle down."

Clinton Summarizing the Republican Argument

President Clinton Summarizing the Republican Argument:

President Clinton: "In Tampa, the Republican argument against the President's reelection was actually pretty simple, pretty snappy. It went something like this, 'We left him a total mess. He hasn't cleaned it up fast enough, so fire him and put us back in.'"

President Clinton's Convention Speech: highlights from the prepared text

Highlights from the prepared text for President Clinton's Convention Speech:
"It turns out that advancing equal opportunity and economic empowerment is both morally right and good economics, because discrimination, poverty and ignorance restrict growth, while investments in education, infrastructure and scientific and technological research increase it, creating more good jobs and new wealth for all of us."
"In Tampa, the Republican argument against the President's re-election was pretty simple: we left him a total mess, he hasn't cleaned it up fast enough, so fire him and put us back in."
"I like the argument for President Obama's re-election a lot better. He inherited a deeply damaged economy, put a floor under the crash, began the long hard road to recovery, and laid the foundation for a modern, more well-balanced economy that will produce millions of good new jobs, vibrant new businesses, and lots of new wealth for the innovators."
"The Recovery Act saved and created millions of jobs and cut taxes for 95% of the American people. In the last 29 months the economy has produced about 4.5 million private sector jobs.  But last year, the Republicans blocked the President's jobs plan costing the economy more than a million new jobs. So here's another jobs score: President Obama plus 4.5 million, Congressional Republicans zero."
"Now there are 250,000 more people working in the auto industry than the day the companies were restructured.  Governor Romney opposed the plan to save GM and Chrysler. So here's another jobs score: Obama two hundred and fifty thousand, Romney, zero."
"The Republicans call it Obamacare and say it's a government takeover of health care that they'll repeal.  Are they right? Let's look at what's happened so far. Individuals and businesses have secured more than a billion dollars in refunds from their insurance premiums because the new law requires 80% to 85% of your premiums to be spent on health care, not profits or promotion.  Other insurance companies have lowered their rates to meet the requirement.  More than 3 million young people between 19 and 25 are insured for the first time because their parents can now carry them on family policies.  Millions of seniors are receiving preventive care including breast cancer screenings and tests for heart problems.  Soon the insurance companies, not the government, will have millions of new customers many of them middle class people with pre-existing conditions.  And for the last two years, health care spending has grown under 4%, for the first time in 50 years."
"Both Governor Romney and Congressman Ryan attacked the President for allegedly robbing Medicare of 716 billion dollars. Here's what really happened. There were no cuts to benefits. None. What the President did was save money by cutting unwarranted subsidies to providers and insurance companies that weren't making people any healthier. He used the saving to close the donut hole in the Medicare drug program, and to add eight years to the life of the Medicare Trust Fund. It's now solvent until 2024. So President Obama and the Democrats didn't weaken Medicare, they strengthened it."
"Remember, Republican economic policies quadrupled the debt before I took office and doubled it after I left. We simply can't afford to double-down on trickle-down."