Job crisis


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Job crisis

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  • 11th hour nears&st=cs
  • 11th hour nears&st=cs
  • By Bruce Barlett, source is OECD
  • Add: Frictional (people voluntarily between jobs and looking for work); discouraged (a good category to add)
  • Save this for the end.
  • Save this for the end.
  • Notes: cut backs in education, technology, infrastructure, health care, attacks on SSI, weak support for unions
  • Specific names in The Nation article, p.1
  • Link to
  • Job crisis

    1. 1. Deficit Crisis or Job Crisis?
    2. 2. Obama’s Latest Plan <ul><li>“American Jobs Act” $447B </li></ul><ul><li>Tax breaks </li></ul><ul><ul><li>Half payroll tax cuts for workers & employers </li></ul></ul><ul><ul><li>Additional tax breaks for employers who hire new workers </li></ul></ul><ul><li>Infrastructure investments (school buildings; transportation projects) </li></ul><ul><li>Aid to state and local governments (rehire teachers) </li></ul><ul><li>Extend unemployment benefits </li></ul><ul><li>Raise taxes for those above $250,000 </li></ul>
    3. 4. Hoped for economic result <ul><li>Create 50,000 jobs/month </li></ul><ul><ul><li>By comparison: 35,000/month for last 3 </li></ul></ul><ul><ul><li>80,000 net jobs for October </li></ul></ul><ul><li>“ Fully paid for as part of the President’s long term deficit reduction plan” </li></ul><ul><li>But …. Should the deficit be reduced in the short term? </li></ul><ul><li>Indeed, can enough of it get passed by Congress? </li></ul>
    4. 5. Focus on the Deficit
    5. 6. Deficit basics <ul><li>Federal Budget Deficit </li></ul><ul><ul><li>Annually , it is the amount of money the federal government spends minus the amount of money it takes in [Deficit = G - Tx] </li></ul></ul><ul><ul><li>Treasury must borrow the shortfall -- issues bonds </li></ul></ul><ul><li>National [or Public] Debt </li></ul><ul><ul><li>Cumulatively , amount of money the government has had to borrow throughout our nation’s history </li></ul></ul><ul><li>Interest </li></ul><ul><ul><li>Interest costs reflect both the amount of money borrowed and the interest rate.  </li></ul></ul>
    6. 7. Debt milestones – born into debt USA born (Jan 1, 1791) $75,463,476 Lowest ever (Jan 1, 1835) $33,733 Pre-Reagan (Oct 30, 1980) $907,701,000,000 FY 2011 (currently) $15,476,000,000,000
    7. 8. Pre-Reagan $1.0T Reagan $1.9T Bush II $6.1T Obama $2.4T Who holds the debt When the debt was accumulated
    8. 12. Are these debt numbers worrisome? <ul><li>Two common measures of the national debt: </li></ul><ul><ul><li>Net debt </li></ul></ul><ul><ul><ul><li>Debt held by the public </li></ul></ul></ul><ul><ul><ul><li>Borrowing from the private sector (including banks and investors) and foreign governments .  </li></ul></ul></ul><ul><ul><li>Gross debt </li></ul></ul><ul><ul><ul><li>Net debt plus the debts the Treasury owes to U.S. government trust funds [like Social Security] </li></ul></ul></ul>
    9. 13. Pre-Reagan $1.0T Reagan $1.9T Bush II $6.1T Net debt = $8.1T Obama $2.4T
    10. 14. 2Q 2011= 95% 2Q 2011 = 57% % of GDP
    11. 16. Interest payments <ul><li>As noted earlier, interest due depends not only on the size of the debt …. </li></ul><ul><li>But also the rate of interest </li></ul><ul><ul><li>It has been low recently </li></ul></ul><ul><ul><li>The amount of interest paid on the rising debt is actually falling! [absolutely and % of GDP] </li></ul></ul><ul><li>Comparisons (as % of GDP) </li></ul><ul><ul><li>USA – 1.5% </li></ul></ul><ul><ul><li>Germany – 2.0% </li></ul></ul><ul><ul><li>UK – 2.6% </li></ul></ul>
    12. 18. On taxes ….briefly
    13. 22. Actual corporate taxes paid as % of GDP by OECD countries
    14. 23. Actual, total tax revenues paid as % of GDP in 33 OECD countries [2008] <ul><li>Highest: </li></ul><ul><ul><li>#1 Denmark = 48.2% </li></ul></ul><ul><ul><li>#2 Sweden = 46.3% </li></ul></ul><ul><ul><li>#3 Belgium = 44.2% </li></ul></ul><ul><li>Lowest: </li></ul><ul><ul><li>#33: Mexico = 21.0% </li></ul></ul><ul><ul><li>#32: Chile = 22.5% </li></ul></ul><ul><ul><li>#31: Turkey = 24.2% </li></ul></ul><ul><ul><li>#30: USA = 26.1% </li></ul></ul><ul><li>Unweighted average = 34.8% </li></ul>
    15. 24. Is there a deficit crisis?
    16. 25. The jobs crisis
    17. 27. WSJ: Untangling the Long-Term-Unemployment Crisis
    18. 29. What are the costs of unemployment?
    19. 30. Okun’s Law: 1% ↑ in UR  2% ↓ in GDP
    20. 31. What causes unemployment? <ul><li>Structural [long term] unemployment: </li></ul><ul><ul><li>Free trade of goods [China] </li></ul></ul><ul><ul><li>Free movement of capital [“runaway”] </li></ul></ul><ul><ul><li>Technological change </li></ul></ul><ul><ul><ul><li>Mismatch of skills with jobs available </li></ul></ul></ul><ul><li>Cyclical [ups and downs over business cycle] </li></ul><ul><ul><li>“ Job creators” -- only private enterprise? </li></ul></ul><ul><ul><li>Taxes too high – The O’Rielly Factor? </li></ul></ul><ul><ul><li>Weakened overall demand for goods & services </li></ul></ul>
    21. 32. The unemployment rate understates the larger problem <ul><li>Discouraged workers </li></ul><ul><ul><li>Those who have given up looking for work </li></ul></ul><ul><ul><li>They are no longer counted as unemployed </li></ul></ul><ul><li>Involuntarily unemployed </li></ul><ul><ul><li>Those working but preferring a full time job </li></ul></ul><ul><ul><li>Walmart employees, UPS, etc. </li></ul></ul><ul><li>These can add half again as much or more to the unemployment rate: 9% + 4.5% = 13.5% </li></ul><ul><li>Also the “underemployed” </li></ul>
    22. 33. Why are there jobs? Key concept is “aggregate demand” [AD] Think of “AD” as “GDP ” This means jobs
    23. 34. Why recessions? Because “leakages” occur in the spending stream If not, workers are laid off
    24. 35. The market solution
    25. 36. What if markets don’t adjust? Savings
    26. 37. Why recessions? Because “leakages” occur in the spending stream Tx Government spending (G)
    27. 38. Short term solution if the market fails: Government “Pump priming” <ul><li>If investment spending is weak (I<S) so there is a net leakage from the spending stream </li></ul><ul><li>Then government “stimulus” is called for to inject spending back into the spending stream </li></ul><ul><ul><li>Key to recovery: create a deficit! (G>T) </li></ul></ul><ul><li>If overall demand is up, sales improve, output increases, hiring improves, unemployment decreases, income increases – and demand goes up again </li></ul><ul><ul><li>“ In the long run we are all dead” [Keynes] </li></ul></ul>
    28. 39. Conclusion <ul><li>The immediate problem is not the deficit or the public debt </li></ul><ul><ul><li>In fact the solution is to increase it, at least for a time </li></ul></ul><ul><li>The job crisis is far worse </li></ul><ul><ul><li>It can be mitigated with fiscal stimulus lasting, say, 5-7 years. </li></ul></ul><ul><ul><li>But this will not solve what’s fundamentally wrong with the US economy </li></ul></ul><ul><li>And there’s a paradox …. </li></ul>
    29. 40. Central paradox Why has the deficit debate taken precedence in the midst of massive, destructive unemployment?
    30. 41. The Austerity War <ul><li>James Crotty, “The Great Austerity War” (on web site) </li></ul><ul><ul><li>Richest and most powerfully segments of society, in concert with conservative political forces …. </li></ul></ul><ul><ul><ul><li>Have and are demanding that (Federal and State) deficits be eliminated by public-sector austerity. </li></ul></ul></ul><ul><ul><ul><li>“ Starve the beast;” redirect funds to the private sector </li></ul></ul></ul><ul><ul><li>Attack on spending programs that support the poor, and the working and middle classes </li></ul></ul><ul><li>Began in the 1970s and 1980s </li></ul>
    31. 42. Austerity class war rules Washington today <ul><li>Read Ari Berman’s The Nation article on web site (November 7, 2011) </li></ul><ul><li>Members of the class include: </li></ul><ul><ul><li>Wall Street titans [Pete Peterson; Rbt Rubin] </li></ul></ul><ul><ul><li>Deficit hawk groups [Ctr for a Responsible Federal Budget] </li></ul></ul><ul><ul><li>Budget wonks [Alice Rivlin] </li></ul></ul><ul><ul><li>Red state Democrats [Mark Warner] </li></ul></ul><ul><ul><li>Pundits [Tom Friedman, David Brooks of NYT] </li></ul></ul><ul><ul><li>Blue-ribbon commissions [Bowles-Simpson] </li></ul></ul><ul><li>Consistent focus: cut, cut, cut public spending </li></ul>
    32. 43. They exercise power thru <ul><li>Congressional testimony </li></ul><ul><li>Constantly quoted in media </li></ul><ul><li>Issue policy reports </li></ul><ul><li>Advocate “balanced” solutions , often wildly out of step with public opinion & reputable economic policy </li></ul><ul><ul><li>Imposing cutbacks on social security & medicare benefits </li></ul></ul><ul><ul><li>Eliminating mortgage interest dedications </li></ul></ul><ul><ul><li>No tax pledges by politicians </li></ul></ul>
    33. 44. What’s to be done? The desperate need for deeper changes