Job's Data doubles estimates

[jackie hayes]

Actually I would argue the opposite. The fact that we are at 0 jobs is pretty incredible to me.  Heck 9-11 by itself was directly responsible for the loss of 1 million jobs in one day.  That took about 6 months of this year to get made up, all by itself.

 

There is no doubt that the great depression was caused by economic mismanagement.  There was simulatious raising of interest rates, coupled with government cutbacks.  It was economic suicide that was committed on top of arguely the biggest bubble in the history of the country.  If George Bush had acted by keeping the balanced budget the economy would have had two of those three factors happening again.  Remember the job losses were already taking place, which meant that tax revenues were already shrinking.  So instead of government spending increasing, or even staying stable, the reduction in revenues would have meant a reduction in outlays as well to stay balanced.  So at the point not only do you have a private sector contraction going on, but also a government contraction of employment.  The multiplier effect begins to take over at that point.  Less workers=less spending= job cuts=less workers=less spending.... you get the picture. 

 

The question is, would fiscal policy alone (since we have ruled out government aid) have been enough to prevent depression?  It would have helped to slow the bleeding, but there is no way it would have been more effective on its own, than with the government aiding in reviving the economy.  And not only that, under the scenario in which you are suggesting, the government would have had a huge part in the contraction.

 

As to the effectiveness of the tax cuts.  I would argue that they have been hugely successful.  The first thing you do when you get a huge cut, is to stablize the bleeding.  The tax cuts were just that.  Yes the huge majority of the monies from the tax cuts went to the upper brackets.  They also pay the huge majority of the taxes, so to me that is logical.  But what isn't being said, is that these are the people who hire people.  Sure you could give a huge tax break to the poor, but are they going to hire anyone?  No, of course not.    One of the big differences between the depression and now is the emphasis on corporate profits.  If companies aren't making money, what is the first cut a company will make?  Jobs.  Employees are the single biggest expense that most companies have.  In this day and age if companies have declining stock prices they lay off workers in a heartbeat.  After the stock market bubble burst, there was a huge rush to cut costs by these companies.  Which meant there were huge job cuts coming.  By institituting the tax cuts, you eased the pressure on plunging corporate profits, which meant that more companies were able to retain employees, by having their profits and ergo stock prices kept artificially high, until the economy had recovered sufficently to pick up the slack. 

 

The fact that the tax cuts helped to stablize the economy would have been a huge improvement over what the government staying out of it would have had.

 

And don't think the poor were left out of the tax cuts.  Remember the lower quintile of people pay a negative tax rate.  That's right they don't pay any taxes, as a matter of fact, they profit from taxes.  How do you give them a tax cut?  That's where the cheesy $300 check idea came from.  Yeah it wasn't a lot, but how much can you cut taxes for people who don't pay taxes?  That's why there were also things like the expansion of the child tax credits, which served to push that bracket to a larger negative tax rate. As a sheer dollar total, the poor can't spend nearly as much money as the rich, that's why tax cuts with a larger dollar amount aimed to the rich, have a hugely larger effect on the American economy as a whole.

I have to say, my first reaction is surprise that a Republican is taking such a Keynesian view of the world. I never thought I'd see the day.

 

My basic point was, it's not really 0 job loss for the real economy. Government hiring doesn't reflect the real economy (taken to the logical extreme, communism has zero unemployment, but the economy still sucks).

 

As for the rest...

 

Tax cuts can't hurt the real economy (in the short term) -- and I didn't say they were useless -- but the money can be put into more stimulative projects, like investment tax credits or expanded unemployment benefits or a pay increase for the military (though the last one would have limited scope). Plus, it is probably easier politically to change business investment tax breaks over the course of the business cycle than personal tax rates. (Btw, of course you can't give tax cuts per se to those who don't pay taxes, but there are clearly ways of transferring money to those poor who are likely to spend it, including welfare and unemployment benefits. I'm only arguing about the objective, macroeconomic effects of such policies, nothing else.)

 

Why business tax breaks are more effective -- Yes, the rich tend to be employers, but to increase employment it would be more effective if the government stimulated private business investment through tax breaks, than if the government changed the personal tax rates of the rich. Usually, businesses are already being run so as to maximize profits. Changing personal tax rates does not change the number of people you'd hire to achieve that goal, while cutting investment costs does. Its only effects are indirect.

 

I understand the multiplier logic, but I think you're putting too much faith in consumption, like some early Keynesians did. Private investment is the most volatile component of GDP, that's where your business cycle comes from. When the economy recovers, now, there'll be over a million extra workers on the government payroll. Although they may be more productively employed in the private sector, it will be very difficult to eliminate those jobs.

 

Finally, I'm not arguing that the government should have balanced its budget every year, I don't believe that. But the government is on track to have the deficit stay constant at this new level, at best. If Bush partially privatizes SS, the deficit (and I'm talking about the deficit as a % of GDP) will get much, much worse. That is a very serious concern for interest rates and investment, and thus growth, moving forward.

 

Getting away from the theories, I didn't see any models of the US economy that forecast it would have been as bad as you claim. Can you name one that predicted depression and double-digit unemployment absent the tax cuts? The fact you cited -- federal government expenditures were declining prior to the Depression? I find much different numbers. What is this based on?

[jasonxctf]

How come the unemployment rate hasn't exploded to reflect that number?  There are only about 2.8 million people nationwide who are unemployed.  That 7.2 million number doesn't make any sense with the data.

very good question.. and here's the answer.

 

because these people, either immigrants or college grads, weren't working before... they can't claim unemployment from the government. Thus they aren't being counted in the unemployment rate because they can't actually prove that they are unemployed.

[jasonxctf]

there are 2 sets of unemployment numbers that are produced. Jobless Claims (see my above posting) and the unemployment rate % index. This index is supposed to reflect an actual number (including immigrants and college grads) of people looking for work that can't find it.

 

With 290 million American's and this rate at 5.5%, the actual number of unemployed American's is 15.95 million people. If only 3 million people were unemployed, this rate would be 1%.

[jackie hayes]

there are 2 sets of unemployment numbers that are produced. Jobless Claims (see my above posting) and the unemployment rate % index. This index is supposed to reflect an actual number (including immigrants and college grads) of people looking for work that can't find it.

 

With 290 million American's and this rate at 5.5%, the actual number of unemployed American's is 15.95 million people. If only 3 million people were unemployed, this rate would be 1%.

Not all 290 mil people are working. The labor force (acc to the current population survey, which does count the newly minted unemployed) is about 148 mil, and the unemployed are about 8 mil. A lot of people (about 6 mil) have dropped out of the labor force (stopped looking for a job, or perhaps never started), which drops the unemployment rate.

[southsider2k5]

I have to say, my first reaction is surprise that a Republican is taking such a Keynesian view of the world.  I never thought I'd see the day.

 

My basic point was, it's not really 0 job loss for the real economy.  Government hiring doesn't reflect the real economy (taken to the logical extreme, communism has zero unemployment, but the economy still sucks).

 

As for the rest...

 

Tax cuts can't hurt the real economy (in the short term) -- and I didn't say they were useless -- but the money can be put into more stimulative projects, like investment tax credits or expanded unemployment benefits or a pay increase for the military (though the last one would have limited scope).  Plus, it is probably easier politically to change business investment tax breaks over the course of the business cycle than personal tax rates.  (Btw, of course you can't give tax cuts per se to those who don't pay taxes, but there are clearly ways of transferring money to those poor who are likely to spend it, including welfare and unemployment benefits.  I'm only arguing about the objective, macroeconomic effects of such policies, nothing else.)

 

Why business tax breaks are more effective -- Yes, the rich tend to be employers, but to increase employment it would be more effective if the government stimulated private business investment through tax breaks, than if the government changed the personal tax rates of the rich.  Usually, businesses are already being run so as to maximize profits.  Changing personal tax rates does not change the number of people you'd hire to achieve that goal, while cutting investment costs does.  Its only effects are indirect.

 

I understand the multiplier logic, but I think you're putting too much faith in consumption, like some early Keynesians did.  Private investment is the most volatile component of GDP, that's where your business cycle comes from.  When the economy recovers, now, there'll be over a million extra workers on the government payroll.  Although they may be more productively employed in the private sector, it will be very difficult to eliminate those jobs.

 

Finally, I'm not arguing that the government should have balanced its budget every year, I don't believe that.  But the government is on track to have the deficit stay constant at this new level, at best.  If Bush partially privatizes SS, the deficit (and I'm talking about the deficit as a % of GDP) will get much, much worse.  That is a very serious concern for interest rates and investment, and thus growth, moving forward.

 

Getting away from the theories, I didn't see any models of the US economy that forecast it would have been as bad as you claim.  Can you name one that predicted depression and double-digit unemployment absent the tax cuts?  The fact you cited -- federal government expenditures were declining prior to the Depression?  I find much different numbers.  What is this based on?

Trust me, in my heart I know that tax cuts are always the way to stimulate the economy quicker. It gets the money in the system instantly (because it never comes out) and any gains that might be made by the government steering the money in the right direction is lost by the waste of government, and then some.

 

Government might not be "real" economy, but with the government being the biggest landowner and employer in the US, their affect on at least the mental make up of the economy are undeniable. If the government doesn't step in to make sure that people are still spending money, the private sector doesn't see any end in sight. Go back to the mental make up of the markets then. The economy is 6 months into a recesion, the stocks are in a huge retreat as the biggest stock market run up, and creation of new money, in the history of the country has burst. Now you have the single biggest terroist attack in American history happen to the very center of our financial heartbeat. Remember 1 million jobs were estimated to have been lost in that very instant. Now if just the fed had acted after that, how much worse do you think the recesion would have been? We already know that at least 1.2 million more people would be unemployed right now, just from what we have talked about in this thread. How much more cutting would companies have done if they hadn't have gotten the tax breaks to cover up their losses? How much money wouldn't have been spent if those tax cuts had never been given out. Unemployment got up to 6.3% at its worst spot. down from 3.8% at its best. I don't think it is a big stretch that jobs losses could have been worse by a huge margin without the federal government stepping in to restore some confidence, in a scared and nervous post-bubble economy.

 

And remember tax cuts were the only way the government spent. They did extend unemployment benefits 50% from 26 weeks to 39 weeks. They did add job retraining for people who's livelihoods were destroyed, or lost because of either the economy or terror. They rescued the airlines and picked up insurance claims, plus paid huge benefits to families who lost loved ones, comiserate with the amount of lifetime losses they were looking at.

 

Now today is a really different story. I think the private sector has recovered enough to were the government needs to ease back and let the economy run free again. The one worry I have is energy induced inflation, but in my eyes much of the energy run up is artificial, and shouldn't be sustainable long term, so I am guessing that those prices will come back to earth, before having to adverse of an effect on the big picture. But I was really wasn't reflecting as much on today, as were we would have been today without the actions taken by the government. They are two completely different things.

 

And as for consumerism, I do have a lot of faith in that. If recent history has bourne one thing to be true, it is that Americans will spend every stinking dime they have, and that is evident in our savings rates (or more accurately the lack there of) I am not quite sure why that would change? If a terror attack couldn't scare consumers, what will?

 

BTW great discusion, I am really enjoying this

[southsider2k5]

Not all 290 mil people are working.  The labor force (acc to the current population survey, which does count the newly minted unemployed) is about 148 mil, and the unemployed are about 8 mil.  A lot of people (about 6 mil) have dropped out of the labor force (stopped looking for a job, or perhaps never started), which drops the unemployment rate.

Far from everyone is looking for work. You have to subtract out the young, the elderly, the unemployable etc. But if nearly 2 million people a year are flooding into the bottom of things, they wouldn't be evident in unemployment, but they would show up in welfare, food stamps, and programs like that. And the growth of those programs isn't reflecting that. Either the numbers aren't that big, or they are working somehow, somewhere. Many immigrants work in cash industries, such as farming, as I am sure Tex could support me on. They don't show up as unemployed, but they are making money and functioning as a part of the economy.

[jackie hayes]

I don't understand this sentence: "How much more cutting would companies have done if they hadn't have gotten the tax breaks to cover up their losses?" B/c the tax cuts don't go to companies, but to individuals, and that distinction is very important in terms of the incentive to hire.

 

I think some of those numbers are probably exaggerated. The US economy was shedding jobs before Sep 11. Certainly the attacks made it worse, but not by 1 mil jobs. One study estimated that 78,000 jobs were lost in the NY-NJ region (many more were dislocated, but not lost). It is difficult to guess how many were lost in the entire economy.

 

There are two problems in relying on consumption. First, the multiplier effect depends on the marginal propensity to consume. For the rich, however, this number is very low, ie the rich save a lot of that extra dollar of income. (The aggregate savings rate is largely due to the fact that poorer households are heavily indebted, not b/c the rich spend everything they get.) So the multiplier effect is small. Second, the decline in GDP growth was largely in private investment (which fell in 2001 and 2002, and only began to recover last year), not as much in consumption (even in a recession, consumption was increasing) -- I haven't seen any evidence that consumption was going to fall. Increasing consumption w/o increasing business ability to supply (which requires investment) is dangerous for inflation.

 

Also, increasing consumption without any promise that it will continue to be high gives businesses no reason to increase investment, which is needed for long-run increases in employment. If anyone had taken the sunset clause in the tax bill seriously, these tax cuts would have had zero long-run effects.

 

To be clear, I'm not saying the tax cuts had no effects on the economy, only that if the government's main goal was to stimulate the economy, there are better ways of accomplishing that (business tax breaks, military salary increases). Not to mention, the long run effect of the tax cuts is large deficits leading to higher interest rates and lower investment.

[jackie hayes]

Far from everyone is looking for work.  You have to subtract out the young, the elderly, the unemployable etc.  But if nearly 2 million people a year are flooding into the bottom of things, they wouldn't be evident in unemployment, but they would show up in welfare, food stamps, and programs like that.  And the growth of those programs isn't reflecting that.  Either the numbers aren't that big, or they are working somehow, somewhere.  Many immigrants work in cash industries, such as farming, as I am sure Tex could support me on.  They don't show up as unemployed, but they are making money and functioning as a part of the economy.

I was just trying to explain how the numbers add up, I wasn't trying to explain why they look like they do. It's a fact that about 6 mil more working age people are not actively looking for jobs. That's why the they are not counted in the unemployment rate. That's where a lot of the 7 mil new workers went.

 

Persons working in cash industries would count as employed in this survey (if they were surveyed at all), so that can't be part of it. It's not clear how this would affect welfare payments, it depends on who's leaving the labor force and why. Just looking at the numbers quickly, it seems as though the ranks of young workers have been thinned more than others, and that part-time jobs have replaced full-time jobs (though the full-time jobs numbers are recovering now). So lots of good-for-nothing kids living at home, refusing to work at McDs? Doubt it, but I dunno, you'd have to look at these numbers more closely to be sure.

[Rex Kickass]

I'd love to see those who claim 1 million jobs lost on 9/11 back that up with data. Last time I checked 1 million people didn't work in World Trade Center.

 

As of last month, I remember hearing there was a net job loss of 800,000 over four years. This report added 400,000 jobs to the economy.

 

800K-400K does not equal zero. At least, I didn't think it did.

 

If you're going to talk about economic health - please make sure your simple math at least adds up correctly.

[NUKE_CLEVELAND]

yeah because the Dow is exactly where it was back in 1999 when I was sitting in my dorm room.

 

5 years, no sustained growth.. always a good thing.

Funny but I do seem to remember the stock market bubble bursting on Clintons watch. But that's Bush's fault too huh?

[3E8]

Funny but I do seem to remember the stock market bubble bursting on Clintons watch.  But that's Bush's fault too huh?

The President's actions in office don't have an immediate effect on the economy either. Like I've said before, Bush inhereted a falling economy. The 9/11 attacks made it that much worse.

[kapkomet]

I'd love to see those who claim 1 million jobs lost on 9/11 back that up with data. Last time I checked 1 million people didn't work in World Trade Center.

 

As of last month, I remember hearing there was a net job loss of 800,000 over four years. This report added 400,000 jobs to the economy.

 

800K-400K does not equal zero. At least, I didn't think it did.

 

If you're going to talk about economic health - please make sure your simple math at least adds up correctly.

Have you heard of airline corporations, and the businesses associated with those? I know, I was working for a bankrupt airline at the time and a hell of a lot of people I worked with lost their jobs.

 

What about financial institutions?

 

What about etc etc etc...

 

It did indeed shockwave the economy. Binnie couldn't have planned it better if he tried.

[Rex Kickass]

OK: so you claim a shockwave.

 

So show me data. Prove your claims.

[NUKE_CLEVELAND]

OK: so you claim a shockwave.

 

So show me data. Prove your claims.

Hows this for proof.

 

http://www.bus.ucf.edu/dpi/Special%20Chart...201%20Month.htm

 

This chart shows gains and losses in U.S. non-farm payrolls in the period before during and shortly after the 9-11 attacks. In the Sep-Dec 2001 period alone the U.S. economy lost nearly 1.1 million jobs. After the dust settled though you can see a recovery beginning in the spring of 2002.

 

The wider chart clearly shows that job growth had been stymied toward the end of the Clinton Administration and the recession that was already in progress was deepened severly by the terrorist attacks.

[Rex Kickass]

So what you're really showing me is that job loss reached its peak at the same time September 11th happened. What youre showing anecdotal evidence. Show me some data to prove that the majority of these 1 million jobs were caused by 9/11.

[Rex Kickass]

Here's the Navy's estimate for jobs lost.

 

The Economic Costs of 9/11

 

Their estimate, 430,000 jobs. Still significant but not a million. In fact, I think in your chart NUKE, the attack wiped out less than one fifth of the jobs created in 2000.

[NUKE_CLEVELAND]

So what you're really showing me is that job loss reached its peak at the same time September 11th happened. What youre showing anecdotal evidence. Show me some data to prove that the majority of these 1 million jobs were caused by 9/11.

If you cant see the correlation then you're not paying attention to facts. Do you not find it somewhat odd that the period of most aggressive job loss occured right after the terrorist attacks.........or that the Dow shed 20% in the space of a week..........or that GDP growth in Q1 of FY 2002 showed a big drop? It all fits together.

[NUKE_CLEVELAND]

Here's the Navy's estimate for jobs lost.

 

The Economic Costs of 9/11

 

Their estimate, 430,000 jobs. Still significant but not a million. In fact, I think in your chart NUKE, the attack wiped out less than one fifth of the jobs created in 2000.

What does what happened in 2000 have to do with the Bush Administration's jobs record, aside from the fact that the recession started toward the end of Clinton's administration and carried over. BTW, thank you for proving my point. Seems that the only thing really holding things up during that period was a massive ramp up in defense spending.

[Rex Kickass]

I'm not going to argue with you. All I'm saying is that the report that the Navy made said that the related job loss was less than half a million jobs. If we were already in a recession when this happened, you can't blame all the job loss between the last three months of 2001 on the terrorist incident.

 

In fact, the Navy also said in the report that the economic effect of 9/11 was smaller than originally anticipated in the short and medium term.

[kapkomet]

No, in this particular case I did not have a nice neat graph or chart that said 998,997.25634863 :rolly jobs were lost because of 9/11. I can just tell you that the industry that I was in, ahd the correlated industries to it (motels, ground handlers at airports, fuelers, pilots, flight attendants, travel agents, etc etc etc) lost their jobs. That was just one industry and correlated industries to it.

 

I know that there were several industries (a guy I am business partners with) lost his job because of it in another state - his industry was telecom and they had offices in Tower I - he said that his entire company shed about 25,000 jobs and it was tied to reorganizing their business to meet their needs after 9/11.

 

The point is I can see where at least 500,000 jobs were directly tied to it, and it's not a stretch to see 1,000,000 jobs being lost to what was a major shockwave in the economy.

 

And I guaran-fricken-tee you that Binnie saw that effect, and there will be another attack to disrupt the economy somehow again. His goal is to bankrupt the US. Good luck with that and all, but as large as the deficits are now, he's on his way.