Category Archives: Economics

Miscellaneous economy stuff

Mentalities: Engineering or Liberal Arts?

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Purdue University President Mitch Daniels (and ex-Governor of Indiana) had a thought on STEM graduates and gluts.  He spoke about this at his keynote address to the National Academy of Engineering a week or so ago.

Engineers, unlike, for instance, lawyers or financial experts, frequently generate through their innovation new work for themselves and others.  Somewhere in any potential “glut” will be new Watts and Edisons and Noyces who give birth to entire new industries that require the services of engineers and non-engineers alike.

But even if we were to somehow outrun the market’s need for engineering talent, we will be a far stronger country if the engineering mentality takes a more prominent place in our national conversations.

The Liberal Arts mentality (those lawyers and financial experts, and history and philosophy majors), on the other hand, worries too much about “what might go wrong” and not enough about “what is the problem, and how do we fix it” that is the STEM’s approach to life.  The Liberal Arts mentality worries too much about “we have to do all of this for the less fortunate” and not enough about “how do we help the less fortunate help themselves, and how do we pay for that” that is the STEM’s approach to life.

There’s nothing wrong with Liberal Arts approach; it provides an important alternative way of looking at the world.  But for a burgeoning, prosperous economy in which everyone, regardless of their individual situations, can participate, we need the engineer’s problem scoping and solving mentality.

Jobs and a Policy

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There are conflicting reports concerning the impact of Obamacare on job creation.  The President’s Council of Economic Advisors says, for instance, that since Obamacare’s enactment in 2010, 9 out of every 10 jobs created have been full time jobs—that is, by the Obamacare definition, jobs that required 30 or more hours of work each week.  Other economists disagree and talk about stunted job creation due to Obamacare.

Who’s right?  The answer depends on more than whom you ask; it hinges on the time period covered by the answer.  CEA is right when the time frame runs from the end of March, 2010, when Obamacare formally became law.

Andrew Puzder, Chief Executive Officer of CKE Restaurants, essayed a different answer, based on a different time frame, in a recent Wall Street Journal op-ed.  He suggested that (paraphrasing here), instead of spring 2010 to now, the relevant time frame is January to July 2013.  Why those six months?  For most of the preceding three years, the content of Obamacare was ill-understood, with clarity only trickling out over the time.  Businesses aren’t going to make major changes, including in employment, when they know they have only a poor understanding of the future.  They’re going to stick with their status quo, including the types of jobs for which they hire.

Two bits of clarity that did emerge over those three years were the definition of “full-time employment” (that 30 hours per week bit) and the full-time employment baseline to be used in determining a business’ insurance requirements under Obamacare—what the look back period would be.  The look back period turned out to extend as far back as 12 months prior to the date the employer mandate was to take effect.

With an effective date of 1 Jan 14, that starts our period of interest at 1 Jan 13.  On 2 July, President Barack Obama decided he wouldn’t do his Constitutional duty of law enforcement as it applied to the employer mandate: he announced he would not enforce that mandate for a year.  1 July 13 thus marks the end of the two quarters of employment data that exist prior to Obama’s decision diluting the mandate’s effects on hiring.

What was the effect of the employer mandate on hiring during the time employers thought the look back period was operational?

Between Jan 1 and June 30, according to the Bureau of Labor Statistics, the economy added 833,000 part-time jobs and lost 97,000 full-time jobs, for net creation of 736,000 jobs.  In reality, the economy overall added no full-time jobs.  Rather, it lost them.

And

In July and August [the two months following the announced delay in enforcement and so after the look back period], the economy lost 20,000 part-time jobs and added 132,000 full-time jobs.

That’s pretty unequivocal.

A Thought on Government Spending

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I’m prompted by Treasury Secretary Jack Lew’s testimony before the Senate Finance Committee Thursday.

The Wall Street Journal paraphrased him, in part, with this:

Given current spending and tax levels, the government would probably have to cut spending by at least 30%—or $100 billion—a month if the borrowing limit wasn’t increased.

This is an excellent argument for Congress getting spending under control.  Think about that: the Federal government, by Lew’s own claims, is saying it spends $100 billion per month more than it collects in tax (and other) revenues.  The Federal government, this year alone, is spending $1.2 trillion dollars more than it’s collecting.  That $1.2 trillion deficit goes right to our national debt; we borrow to cover that shortfall.  Getting this profligacy under control—eliminating that profligacy—is the only way to get rid of budget deficits, and the elimination of those deficits—not their reduction, but their elimination—is the only way to avoid having to repeatedly increase the amount of our borrowing, the only way to eliminate the “need” to repeatedly raise the debt ceiling—which is no ceiling, no limit at all, if it’s always raised for the asking.

Along these lines, Lew also said this (direct quote, no paraphrase):

I don’t believe there is a way to pick and choose on a broad basis.  The system was not designed to be turned off selectively.  Anyone who thinks it can be done just doesn’t know the architecture of our multiple [payment systems].

This is proof of our need to rationalize and streamline our payment systems, and the ideal time to do this is while we’re reducing and reforming our spending as a whole.

Musings on Debt Ceiling “Negotiations”

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Supposedly, they’re under way.  Or not, depending on the credibility of major players: Senate Majority Leader Harry Reid (D, UT), Treasury Secretary Jack Lew, and President Barack Obama.

In testimony before the Senate Finance Committee, Lew had a number of things to say.  Some might call them threats:

[H]e will be unable to guarantee payments to any group—whether Social Security recipients or US bondholders—unless Congress approves an increase in the federal debt limit.

But of course, he can.  It’s his job, for one thing, to make exactly this kind of prioritizing decision.  Further, Social Security payments have nothing to do with this.  The Social Security Trust Fund is phat with Treasury Notes in IOU for the various Federal government borrowings that have raided the Trust Fund over the years.  These can be sold on the open market to raise the necessary payment monies….

Moreover, the government’s revenue collections cover the scheduled debt payments by a factor of 10:1 or 11:1.

And

…in an unprecedented situation in which he would be relying entirely on the erratic flow of incoming revenue, the economy would suffer and there would not even be certainty that the government could make all interest payments.

Also not correct.  As just noted, there’s plenty of money coming in to cover the payments, regardless of the cash flow from time to time.  The uncertainty in the markets is almost entirely generated by misleading statements from government officials who surely know better.  The rest of the uncertainty flows from the Democrats’ flat refusal to negotiate.

Lew also trotted out the usual excuses, including, for instance:

[T]he administration will face a series of difficult decisions even if Treasury can avoid what the credit-rating firms consider a default.  In a scenario where federal spending will far exceed revenue, he…say[s] that the administration would have only imperfect options in deciding whom to pay.  [He pushed] Republicans to decide whom they wouldn’t pay—Social Security recipients or veterans.

Far from the apocalypse that such cynically false choices imply, this rather puts a premium on bringing spending down to within existing revenues.   We’ve seen, though, how anxious the Democrats are to bring spending under control.  They’re addicted to it, and they demonstrate this with their omnipresent mantra of a “need” for continued high spending with its continued borrowing.  Never mind that, were spending reduced below revenues, continued borrowing wouldn’t be necessary.

Finally, coming out of Thursday afternoon’s meeting between Obama, et al., and 18 senior members of the House Republican caucus concerning the possibility of an increase in the debt ceiling that would be good for six weeks more of borrowing, Obama indicated through his Press Secretary, Jay Carney, that he would sign such a bill and enter into negotiations over borrowing, spending, taxation, entitlement programs, and so on, even though the debt ceiling bill would not contain funding to reopen the government from the Democrats’ shutdown.  Sounds like progress, yes?

Reid, coming out of the same meeting answered a reporter’s question on that: would the Senate pass the House bill and send it to the President, with its lack of funding for reopening the government, and the negotiation stipulation?

Not going to happen.

And there we are.  The Democrats in the Senate won’t negotiate, and they’re willing to force a default on our debt if they can’t get their way.  And they’ve overruled the President to get there.

Update: Now it appears that Obama has obeyed Reid’s instruction.  Fox News is reporting this morning that Obama now is echoing Reid’s “Not going to happen” and is rejecting the kind of deal he’d said yesterday, through Carney, that he would accept.

The Democrats really are bent on keeping our government closed and on threatening the blowup of our credit rating and with it our economy if they can’t get everything they demand.

Upward Mobility and the Obama Recovery

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Churn is a measure of job turnover of a particular type: workers leaving one job in favor of another (usually a better one and usually in another company), while other workers are hired to fill the just-created vacancy.  The net result is the same level of employment as before, hence “churn” rather than “new hires.”

In the time before the Panic of 2008—2007, for example—churn was working to the tune of 3 million workers per month: 3 million workers would quit their present job and go to another job to work.  Last July, that number was 2.3 million.  The churn isn’t churning.

The reasons this drop in churn rate matters include these two items: the job just left is an existing one, and the employer knows its value, especially compared to a new job the employer created as a result, for instance, of an expansion in that company’s production capacity or sales demand.  That existing job, as a known quantity, is more accessible to an unemployed worker or a worker in an existing, “lesser,” job in another company.  The newly created positions, as somewhat of an unknown, get more pickiness from the employer if for no other reason than that the employer does not have to fill the new position as much as he needs to fill the now-empty existing one.

The other reason churn matters has to do with why the workers are leaving their existing jobs.  These folks generally are looking for, or have found, better ones.  The import of this is in Jason Faberman’s (a Federal Reserve Bank of Chicago economist) comment about the sharp drop in churn rate:

Nobody’s leaving for a better job.  These guys aren’t moving on to better jobs, which means their positions aren’t opening up for the unemployed.

The better jobs aren’t there, it’s hard to move with a mortgage that makes it hard to sell a home, there’s little confidence in getting a new job somewhere else—the job actually has to be in hand—the reasons for the lack of departures are varied, but they all aggregate to the same outcome: the upward mobility that has been one of the engines of American prosperity generation is being destroyed.

Ben Casselman, writing in The Wall Street Journal at the above link, expanded on that:

Changing jobs is one of the most important sources of wage growth, particularly for younger workers.  With unemployment for those under age 25 still elevated at 15.6%, many of those lucky enough to have jobs are playing it safe by staying put—and as a result may put themselves at a permanent earnings disadvantage.

“If you miss that window when you’re young, that could have really long-term consequences,” said Toshihiko Mukoyama, a University of Virginia economist.  “They cannot go up the job ladder.”

And that’s an outcome of the Obama Recovery from the Panic.