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Actually, he has a broad economic plan, which he outlines in the Wall Street Journal today. Christie would cut taxes:
Let’s lower the rates for every American by simplifying the income-tax system to just three individual income-tax rates, instead of the current six. The top rate should be no higher than the 28% set in the country’s last major successful tax-reform effort—the Bradley-Gephardt reform during the Reagan era. And the bottom rate should be a single digit. We should eliminate or modify enough deductions, credits and targeted provisions in the code—both on the personal and the corporate side—to ensure that the plan, combined with other measures I am proposing, is revenue-neutral and doesn’t materially increase the deficit. One approach in this regard would be to cap the total amount of deductions and credits that an individual or married couple could take. The deductions for charitable contributions and for interest on home mortgages—at least for a first home—should remain intact.
Beyond that Christie would try to make regulation “rational, cost-based and used only to implement actions that are explicitly authorized by statute.” He would “build the Keystone XL pipeline, lift the ban on crude-oil exports, create fairness in the way the energy industry is regulated … .”
So pretty much what one might expect from a GOP presidential candidate these days. But there were a few interesting things in the piece. First, Christie says he does not want his tax plan to be a big revenue loser. (Good, though I would be more impressed by specificity on the base broadening and a hint at the distributional analysis. The static analysis of the thing, sans pay fors, will be absolutely brutal.) Second, he would eliminate payroll taxes for young workers. (I like the thinking here, the generational equity, but payroll tax cuts raise tough political issues given their link to entitlements.) Third, he would increase basic research spending. (Yes, please.) Also, unfortunately no tax relief if you only pay payroll taxes. I would also prefer — shock! — an expansion of the child tax and earned income tax credits. Also interested if there is more there somewhere on expensing and investment taxes. Then there is this graf:
Finally, these past six years have seen a weak economy combined with a set of monetary policies that were geared for the wealthy, exacerbating the very problem the left loves to harp on: income inequality. The best way to address income inequality is to nurture overall growth. Incomes for most Americans grew during the economically healthy 1980s and ’90s, and inequality increased during the anemic 1970s.
I think that is a misreading of both monetary policy — would the middle class be better off with EU-level jobless rates — and of the forces driving income inequality. No mention of globalization or automation. And if a rising tide is not lifting all boats because some are anchored or full of holes, then faster alone growth won’t help much. Me:
And, more important, what is the right set of policies to avoid such a lopsided world and create one where growth and opportunity is more widely generated and available? How do we patch the holes in all those boats (rather than anchor the ones that are rising)? I would argue the economy demands radically reformed education, increased economic dynamism, and a modernized safety net, among other ideas. (Bonus: All these ideas are intrinsically good ones anyway.) These are the questions the GOP 2016ers should be asking themselves and their policy advisers.
‘The Life of Julia: The Sequel’: Obama just posed a major challenge to conservative orthodoxy on the safety net
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“The nine most terrifying words in the English language are: I’m from the government and I’m here to help.” – President Ronald Reagan
Obama economic adviser Jason Furman disagrees. Poor families should welcome government help, he argues in the New York Times today: “Investments in education, income, housing, health care and nutrition for working families have substantial long-term benefits for children.” The Earned Income Tax Credit, food stamps, Medicaid, Head Start, housing vouchers all make the lives of kids better, the studies Furman cites suggest. And universal preschool would, too. And from those studies, Furman concludes the following:
First, the benefits often are not captured by short-term outcomes like improvements in children’s test scores, which typically last only a few years before fading. Second, while program design certainly matters — and can matter a lot — much of the benefit appears to derive from helping low-income families pay for basic needs like food, housing or health care, or simply reducing the intense economic pressure they face. This relates to findings that poverty may increase intense stress, inhibiting young children’s cognitive development.Third, in many cases, the additional tax revenue from the higher long-run earnings generated by the program is sufficient to repay much or even more than all of the initial cost. … We cannot solve poverty or lack of mobility overnight, but contrary to what the skeptics say, investing in families works — not just for them, but for all of us.
Let me speculate: What Furman seems to be also saying is that — as Paul Krugman once put it — reality has a liberal bias. Conservatives simply have the story wrong on poverty. And their focus is misplaced. Whatever impact the impact of these programs on work or dependency, they’re secondary issues. Quit worrying quite so much about “personal responsibility.” Quit worrying quite so much about trying to promote two-parent families. These spending programs are what really help children over the long term. A lot. So valuable is this help, so high its return on investment, that it can even sometimes pay for itself. One could look this note as basically an update or extension of the “Life of Julia” cartoon from the 2012 campaign which suggests that what kids really need to flourish is a portfolio of social services.
Now one might counter that the US has run a very expensive anti-poverty program for 50 years. And although the War on Poverty has increased the material well being of low-income Americans, they still have living standards that many of their fellow American consider unacceptable along with low mobility rates. As AEI’s Robert Doar has put it:
Moreover, dramatically, living standards for the lowest income Americans have improved significantly, and millions of poor Americans have access to basic health care. Yet we know that the government policies developed in service of this vision have fallen well short of expectations. Despite $16 trillion in spending, millions of Americans are not earning enough on their own to escape being classified as poor. Many of these Americans remain detached from core tenets of American society —the conviction that they hold agency in their lives, can improve their circumstances by working hard, and can provide a better life for their children than they themselves had.
Doar’s observation is certainly worth considering when thinking about the future evolution of the safety net and Furman’s War on Poverty 2.0. Then you have the evidence Furman puts forward. For instance, he points out “the body of research on the long-term effects of high-quality preschool programs and other early-childhood interventions … .” Well, yeah. But how would that research translate into actual policy and programs? Can small, targeted, pricey interventions be scaled up to service hundreds of thousands or millions of kids? Or take the $500 billion-a-year Medicaid program about which Furman cites many positives except actually improving health outcomes.
Now I am certainly not saying we should slash or eliminate the safety net. Some programs such as the EITC are worthy of expansion. And I am hardly dismissing Furman’s evidence. I just want to begin the debate about the challenge that Furman’s thesis on behalf of his boss presents and where — if correct — it would lead public policy.
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This was a biggie. Last Friday, the Illinois state Supreme Court ruled a 2013 pension revamp violated the state constitution’s ban on reducing worker retirement benefits. Bloomberg:
After years of skipped contributions, Illinois in 2013 had just 39.3 percent of assets needed to meet promises to retirees, the worst ratio among states, according to data compiled by Bloomberg. The law overturned last week sought cuts in cost-of-living increases and a higher retirement age. Friday’s ruling adds $1 billion to its pension bill for the fiscal year starting July 1, according to the Civic Federation, a Chicago-based nonprofit research group that follows the city’s finances.
With Illinois unable to gain relief from its staggering pension costs, expect to see massive cutbacks in the state government. This may be easier said than done. The state already pays many of its vendors in the form of IOUs that sometimes do not get settled until up to a year later. Outsourcing work that state employees are currently doing to private firms may be MORE expensive, and it is doubtful if these firms will accept IOUs.
Expect the legislature to raise the state income tax. In 2011 the state’s top tax rate was raised from 3% to 5%. The raise had a -year life and reverted to 3% at the beginning of this year. Since even at 5% the top rate is still less than that in some surrounding states, a hike back to 5% (or higher) can be expected. The court’s ruling may also have a chilling effect in the state between those workers whose benefits are now court protected and those whose benefits are not.
Going forward, it appears that Governor Rauner will have to attack the pension problem on two fronts. First, he must attempt to get an amendment passed to the state constitution that would ALLOW changes in pensions, but that might take a very long time, and its passage is questionable. Then, he must try to get other reforms approved by the Illinois legislature, which has been derelict in cutting spending or investing the needed amounts in the pension system in the past. Their past inertia gives little comfort that they will move swiftly.
In the end, economics trumps nearly all other concerns. Through changes in the law or through bargaining, pension costs will need to be reduced in order for the state to function. The types of changes that the 2013 law sought are all approaches that other states are also trying in order to craft a solution to pension woes. And though politicians consider such measures “radioactive,” a freezing of current benefits and their replacement by a new system for CURRENT workers does not seem out of the question.
Unions are celebrating the judicial decision but it seems just a matter of time before a massive revamp of the pension system will happen. Taking more investment risk with pension assets doesn’t seem a sound idea. Nor do endless take hikes.
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More Republicans keep announcing their candidacy for president, which means we’re seeing more and more tax reform plans. OK, here is Mike Huckabee, via his campaign site:
Americans spend upwards of $1 trillion each year complying with our 75,000-page tax code that is so confusing and complex, our government cannot explain it. Instead of tinkering with the tax code, we need a tax revolution that helps every hard-working American and eliminates the IRS once and for all. We need the FairTax. The FairTax brings trillions of dollars in offshore investment and manufacturing back to the United States – creating millions of good jobs for American workers. The FairTax is the only plan that lowers everyone’s tax rates, untaxes the poor, broadens the tax base, and helps protect Social Security and Medicare. The FairTax is the only plan that guarantees criminals, illegal immigrants, and all who operate in the underground economy pay their fair share – not just hard working Americans who play by the rules. The FairTax is the only plan that guarantees Washington bureaucrats don’t have access to your personal financial information.
And here is Ben Carson on his flat tax, via Politico:
Low-income taxpayers can — and want — to pay taxes, Ben Carson said on Sunday. The retired neurosurgeon who is seeking the Republican presidential nomination, said on “Fox News Sunday” he had adopted a flat-tax proposal from tithing in the Bible, citing a 10 percent rate as an example. It’s “very condescending,” he said, to say that poor people can’t pay at the same tax rate as the wealthy. “I can tell you that poor people have pride too,” said Carson, who grew up in a low-income family in inner-city Detroit. Carson rejected host Chris Wallace’s information from the Tax Policy Center that in order for the government to raise as much money as it does now the flat tax rate would have to higher than 20 percent. “If you eliminate the loopholes and the deductions, then you’re really talking about a rate between 10 and 15 percent,” Carson said his experts’ research has shown. “Let’s have a battle of the experts.”
And here is AEI’s Alan Viard, from a podcast with me awhile back:
[On the FairTax] I think the supporters of the fair tax have their heart in the right place because they’re trying to find a consumption based tax system that avoids the penalty on saving and in investment that’s built into the income tax. The specific proposal they’ve put forward, though, really does have a number of problems. And many, many economists have pointed them out. First of all, a retail sales tax at that high of a rate is really likely to have a lot of enforcement and compliance problems. And countries that impose consumption taxes at that high of a rate, they tend to use a value added tax structure, which is really economically the same as a sales tax, but administratively is different because you collect it at multiple stages. And that just helps with the enforcement and the compliance.
So it would be a pretty modest change, actually, to say let’s do it in a value added tax administrative mode instead of a sales tax mode. But that’s I think the first change you need to make to their plan. The rate is also not revenue neutral. They’re proposing a 30% sales tax rate and that’s not enough to replace revenue. And I think, given our deficit environment, obviously a tax reform is not going to be viable if it lowers revenue. So – and of course, there you could just raise the rate.
A bigger problem is that, there’s no progressivity in this and they – well, they have pre-bate that introduces some progressivity, but compared to the taxes they’re replacing, this would be a big shift in the tax burden, away from high-income groups towards middle-income and lower middle-income groups. And whatever you think about that politically, I think that’s just not viable.
[On the flat tax] Well, I think the flat tax, you know, does deserve some consideration. It’s a – contrary to what a lot of people understand, it’s actually a consumption tax. It’s more progressive than the fair tax is because it builds in a relatively large exemption amount for workers. It would be easier to enforce and comply with than the fair tax would. A lot of the proposals for a flat tax also have a rate that’s too low to match current revenue. And, of course, you could just adjust the rate to take care of that.
So I think it deserves some consideration. Nonetheless, it does still shift the tax burden away from the top and towards middle and lower middle-income groups, although not as much as the fair tax plan would. I think from a political standpoint, that’s still going to make it tough sledding for it to be adopted.
And I have written a few pieces lately on why the flat tax would make for poor tax reform:
Update: Twitter offers a suggestion:
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The jobless rate is falling faster in Decatur, Ill. — an aging industrial city south of Chicago — than almost anywhere else in America. More than three percentage points in the past year. But look closer, as Wall Street Journal reporters Mark Peters and Ben Leubsdorf do, “and this city of 75,000 resembles many communities across the industrial Midwest, where the unemployment rate is falling fast in part because workers are disappearing: moving away, retiring or no longer looking for a job.”
The relocation issue is particularly interesting. The piece tells the story of a laid-off Caterpillar worker, Denny Ryder, who left Decatur last year for Winston-Salem, N.C. He found work at a Caterpillar contractor:
While Mr. Ryder was confident he could find a job in Decatur, he didn’t feel it would match the wages and benefits at Caterpillar, where he worked for 19 years. “I probably could have lost a lot of money and found a job in Decatur,” said Mr. Ryder, who has taken to life in North Carolina, from enjoying the hills to swimming in the ocean for the first time.
Bad for Decator, perhaps, but good for this individual worker. The ability to relocate and find work is a positive aspect for any economy, and there should be more of it in this one. AEI’s Michael Strain recommends that US unemployment programs should include a relocation subsidy:
A program like this already exists under the Trade Adjustment Assistance program. Certain workers who have secured employment in a new city can receive a relocation allowance of up to 90 percent of the “reasonable and necessary expenses” of moving, plus an additional lump-sum payment of up to $1,250. The unemployment-insurance system could create a similar program for the long-term unemployed, possibly financed by letting them take an advance on their UI benefits.
Actually, it would also be pretty awesome if it was easier for the employed to move to cities where their skills could be put to better use. In a new study, “Why Do Cities Matter? Local Growth and Aggregate Growth,” Chang-Tai Hsieh and Enrico Moretti finds that while New York, San Francisco, and San Jose were three of America’s most productive cities from 1964 through 2009, “growth in these three cities had limited benefits for the U.S. as a whole. The reason is that the main effect of the fast productivity growth in New York, San Francisco, and San Jose was an increase in local housing prices and local wages, not in employment.” From the study’s summary:
Despite some of the strongest rate of local growth, New York, San Francisco and San Jose were only responsible for a small fraction of U.S. growth in this period. By contrast, almost half of aggregate US growth was driven by growth of cities in the South. We then provide a normative analysis of potential growth. We show that the dispersion of the conditional average nominal wage across US cities doubled, indicating that worker productivity is increasingly different across cities. We calculate that this increased wage dispersion lowered aggregate U.S. GDP by 13.5%. Most of the loss was likely caused by increased constraints to housing supply in high productivity cities like New York, San Francisco and San Jose. Lowering regulatory constraints in these cities to the level of the median city would expand their work force and increase U.S. GDP by 9.5%. We conclude that the aggregate gains in output and welfare from spatial reallocation of labor are likely to be substantial in the U.S., and that a major impediment to a more efficient spatial allocation of labor are housing supply constraints. These constraints limit the number of US workers who have access to the most productive of American cities. In general equilibrium, this lowers income and welfare of all US workers.
More Americans should be living and working in and near high productivity cities. More from the study:
Our results thus suggest that local land use regulations that restrict housing supply in dynamic labor markets have important externalities on the rest of the country. Incumbent homeowners in high wage cities have a private incentive to 35 restrict housing supply. By doing so, these voters de facto limit the number of US workers who have access to the most productive of American cities. For example, Silicon Valley—the area between San Francisco and San Jose—has some of the most productive labor in the globe.
But, as Glaeser (2014) puts it, “by global urban standards, the area is remarkably low density” due to land use restrictions. In a region with some of the most expensive real estate in the world, surface parking lots, 1-story buildings and underutilized pieces of land are still remarkably common due to land use restrictions. While the region’s natural amenities—its hills, beaches and parks—are part of the attractiveness of the area, there is enough underutilized land within its urban core that housing units could be greatly expanded without any reduction in natural amenities. Our findings indicate that in general equilibrium, this would raise income and welfare of all US workers.
In principle, one possible way to minimize the negative externality created by housing supply constraints in high TFP cities would be for the federal government to constraint U.S. municipalities’ ability to set land use regulations. Currently, municipalities set land use regulations in almost complete autonomy since the effect of such regulations have long been thought as only local. But if such policies have meaningful nationwide effects, then the adoption of federal standard intended to limit negative externalities may be in the aggregate interest.
An alternative is the development of public transportation that link local labor markets characterized by high productivity and high nominal wages to local labor markets characterized by low nominal wages. For example, a possible benefit of high speed train currently under construction in California is to connect low-wage cities in California’s Central Valley — Sacramento, Stockton, Modesto, Fresno — to high productivity jobs in the San Francisco Bay Area. This could allow the labor supply to the San Francisco economy to increase overnight without changing San Francisco housing supply constraints.
An extreme example is the London metropolitan area. A vast network of trains and buses allows residents of many cities in Southern England – including far away cities like Reading, Brighton and Bristol– to commute to high TFP employers located in downtown London. Another example is the Tokyo metropolitan area. While London and Tokyo wages are significantly above the UK and Japan averages, they would arguably be even higher in the absence of these rich transportation networks. Our argument suggests that UK and Japan GDP are significantly larger due to the transportation network.
Even a better bus system would be a good start. Also, new research suggests where kids live can have a pretty big impact on their income mobility. From “The Impacts of Neighborhoods on Intergenerational Mobility: Childhood Exposure Effects and County-Level Estimates” by Raj Chetty and Nathaniel Hendren:
The high housing prices that families often must pay to achieve better outcomes for their children may partially explain the persistence of poverty in large American cities. One approach to addressing this problem is to provide subsidized housing vouchers that enable families to move to better (e.g., lower-poverty) neighborhoods. In a companion paper (Chetty, Hendren, and Katz 2015), we show that the Moving to Opportunity experiment – which randomly assigned families subsidized Executive Summary, April 2015 housing vouchers to move to low poverty areas – significantly improved long-term outcomes for children who moved at young ages, providing direct support for such policies.
Of course, given limits to the scalability of policies that seek to move families, one must also find methods of improving neighborhood environments in areas that currently generate low levels of mobility. Our study does not directly identify which policies are most successful in achieving this goal, but our findings provide support for policies that reduce segregation and concentrated poverty in cities (e.g., affordable housing subsidies or changes in zoning laws) as well as efforts to improve public schools. The broader lesson of our analysis is that social mobility should be tackled at a local level by improving childhood environments. Much remains to be learned about the best ways to make such improvements. We hope the county-level data constructed here will ultimately offer new solutions to increase opportunities for disadvantaged youth throughout the United States
Anyway, here are a few other blog posts on housing policy, including the work of Moretti:
About this: 5 US companies — Apple, Microsoft, Google, Pfizer, and Cisco — are sitting on $439 billion in overseas cash
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The FT reports that just “five US companies are hoarding nearly half a trillion dollars as the country’s tax code and a tepid global economy deter businesses from spending their overseas cash piles. Apple, Microsoft, Google, Pfizer and Cisco are sitting on $439bn of cash — accounting for more than a quarter of the total $1.73tn being held by US groups, according to Moody’s Investor Services. The top 50 together hold almost $1.1tn, with the iPhone maker alone accounting for more than a 10th of the cash reserves.”
Ding, ding, ding. Yet another reason for tax reform to bring some of that dough home — for investment, for dividends, buybacks, to pay for needed public investment. Along the same lines, a WSJ commentary by Thomas Duesterberg and Donald Norman note the “chronic weakness” in US capital investment. In 2014, real GDP was 9% above prerecession levels vs. 4% for gross private invesment. And private investment net of depreciation $524 billion in 2013 versus $860 billion in 2006. Duesterberg and Norman think link weak capital investment to the continuing productivity slowdown — growing just 1.5% annually between 2005 and 2014. Why is behind this trend? They point to the high US corporate tax rate but also the growing regulatory burden:
For example, a 2012 study by NERA Economic Consulting notes that the number of major regulations in the manufacturing sector has grown at the compound annual rate of 7.6% since 1998, compared with only 2.2% average annual growth in GDP. The negative impact of this regulation on investment is suggested by a number of comparative international indexes. For example, the U.S. is typically in the top five in the World Economic Forum’s annual “Global Competitiveness Report.” But in the category for “burden of government regulation” the latest report ranks the U.S. 82nd of 144.
Also recall that a big part of the secular stagnation argument, at least as put forward by economist Larry Summers, is that there’s both a paucity of high-return investments for business and too little demand to prompt action. As I wrote earlier this year: “Weaker-than-expected investment this year would give weight to the sec-stag thesis, while a business spending spree would ague the opposite.”
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April Jobs Report: Closer to the Trend | Michael Darda of MKM Partners: “The unemployment rate (U3) dropped to a new cycle low of 5.4%, in April, near a full employment level. The U6 underemployment rate also fell to a new cycle low of 10.8%; however, this measure of labor slack remains above the roughly 9% level that would be consistent with full employment. The reason for this is the still elevated (albeit falling) share of those working part-time for economic reasons. Long-term unemployment (the share of the unemployed out of work for 27 weeks or longer) also fell to a new cycle low in April of 29%; however, this level still remains above every recession peak in the post war period. The prime age employment ratio also remains depressed at 77.2%, 250 bps below the 1990-2007 average. This is one key reason we continue to see only modest hourly wage growth, which has been running just over 2% annually with no apparent acceleration despite recent firming of the Employment Cost Index.”
How New Technologies Push Us Toward the Past | William Davidow and Michael Malone
Americans’ ideal family size is smaller than it used to be | Pew:
Why Bitcoin Could Be Much More Than a Currency | Mike Orcutt
School Reform for Rural America | Dan Fishman
Uber’s not in Kansas anymore; will New Jersey be next?| R.J. Lehman:
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In my new The Week column, I push back hard against the anti-entitlement reform position of new presidential candidate Mike Huckabeee — and what I see as backsliding on the issue by the GOP. But one thoughtful reader thinks I may have been a bit too tough on Republicans not-named Huckabee:
I enjoyed the spirit of your column in the week on entitlement reform and the GOP, but I was a little confused by the substance, I have to say. First, I’d say “peak reform” for Republicans when it comes to entitlements wouldn’t have been Ryan’s Roadmap (which never had more than four or five cosponsors) but the 2011 House budget, which for the first time got essentially all House Republicans to back premium support for Medicare. They then built on this, improving the proposal significantly in 2012 and getting the party’s nominee to adopt a premium-support proposal for the first time. And they’ve continued to include premium support in the budget (including this year, the House budget included it and the Senate deferred on the details to Ways and Means and Finance). The joint budget agreement includes both the House and Senate language. That puts the party way ahead of where it ever was before 2011 on entitlement reform. It’s true there’s so far one candidate (Huckabee) who has come out against it in the presidential race, as there was one (Gingrich) who did last time. But it seems to me the top tier candidates are all likely to be in favor of it—Rubio already is, and also talks about Social Security reform, as has Christie. I’d expect the same from Bush and Walker.
Well, I dunno, I still think my piece makes the case that the GOP has certainly downplayed its Medicare stance while stepping away from Social Security reform. Do Republicans deserve credit for advancing Medicare reform since 2011 given the political temptation not to? Sure, some points for stickin’ are merited.
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Wow, the folks over at the Manhattan Institute have their teeth sunk deep into the issue of occupational licensing. This time, Diana Furchtgott-Roth and Jared Meyer look at how these work rules affect younger workers:
Some limits on work seem specifically directed at the young. In Virginia, those who trained yoga instructors had to be certified by a state board of older bureaucrats who probably knew nothing about the recent yoga craze. A similar Nevada law restricts the teaching of how to apply makeup, a skill at which many teenage girls excel. These cases not only hurt those who want to teach—they affect the young people who want to learn a skill and put it to work.
Those who want to be computer-repair technicians in Texas must obtain a private-detective license because of overstated concerns about security. Young people grew up with computers; their parents and grandparents often already ask them to help organize and repair their home computers—without a private-detective license.
Misguided laws such as these make it illegal for young people to share their knowledge and earn some money while doing so.
Tour guides in cities such as Charleston, Savannah, and New Orleans must gain certification before the government allows them to earn money by walking and talking—two rights clearly protected by the American Constitution. These cities are known for their number of colleges and universities, but now, unless they spend their limited time and money getting a license, students cannot earn money to pay for their education by showing tourists around on the weekend.
The case of Christian Alf shows that many state licensing boards are looking out for their own interests, not those of the public. The Arizona teen started a business repairing holes in his neighbors’ roofs to protect them from roof rats. All Christian needed to do this was a ladder, chicken wire, and a staple gun. He charged $30 for his service and quickly drew attention from interested homeowners—and envious pest-control companies. Christian was doing what pest-control companies charged hundreds of dollars to do, so they sent a government agent to his front door to demand that he stop providing unlicensed pest control to his neighbors. One problem: Christian was performing handyman work. He was not using any chemicals or traps that could possibly provide rationale for mandatory training and government certification.
Nearly 40% of jobs now require some sort of government permission versus 5% in the 1950s, by the way.
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So a decent snapback in the US labor market. Net new jobs increased by 223,000 in April — matching the consensus forecast –while the unemployment rate fell by 0.1 percentage point to 5.4%, according to the Bureau of Labor Statistics. Labor force participation ticked up, making that jobless rate improvement look a bit stronger. The U-6 underemployment rate edged lower. Also some more progress in the long-term jobless numbers.
Not so decent: The employment rate went nowhere. The March jobs number was revised lower from 126,000 to 85,000. Over the past three months, job gains have averaged 191,000 per month vs. 260,000 monthly in 2014. And once again weak wages: The broadest measure of average hourly earnings was up 0.1%, leaving average hourly earnings up 2.2% over the past year. Average hourly earnings for production and nonsupervisory workers were up 0.1% and 1.9% year over year. (Double that rate would be nice.) What’s more, the US may still have a 3-6 million “jobs gap.”
Yet as JPMorgan economist Michael Feroli says in a new note, “While it’s obviously hard to draw firm conclusions from one month’s report, it does feel like the period of extreme labor market outperformance may be waning, and the trend in job growth is going from great to good. As for the economic outlook, the news on labor income is pretty soft and may serve as a headwind to the consumer spending outlook.”
Like I said, decent but not dynamic. And hardly the year of economic acceleration many were predicting/hoping heading into 2015. But the numbers do greatly reduce fears that weak first-quarter GDP — which may have been down nearly 1% — is an omen of darker things to come.
It’s also worth noting the growing skepticism about the predictive powers of the GDP report, as it relates to jobs. In a recent note, JPMorgan economist Jesse Edgerton point out that since the early 2000s, “GDP’s ability to forecast payrolls growth has dropped dramatically, In the last 10 years of data (excluding the recession), first print GDP growth is actually slightly negatively correlated with payroll growth in the next quarter. … [And where] GDP was once better than payrolls at forecasting next quarter’s change in the unemployment rate, GDP’s forecasting power has dropped essentially to zero in recent years. … Payrolls, private domestic final purchases, and overyear-ago GDP growth all perform better in real time. With these indicators less weak, we remain comfortable with our forecast for a tightening labor market.”
Maybe so, but the “new normal”/“average is over” economy of so-so GDP growth (shaping up to be another 2%ish year), OK job growth, and stagnant wages continues. IHS Global Insight, which is now forecasting 2.3% GDP growth for the year:
First-quarter real GDP growth came in exceptionally weak, at a 0.2% annual rate. At this writing, it looks like the first revision will see real GDP growth dip into the red. As recently as January, we had been expecting that the first quarter would be part of a string of solid quarters in 2015. While we believe special factors assisted this growth rate downward (e.g., the February weather and the West Coast dockworkers disputes), we learned two lessons about the current economic environment: the importance of energy production to the US economy, and that consumers still retain their conservative spending stance nearly six years after the end of the Great Recession. … If the tone of this report seems negative, it’s only from the disappointment that GDP growth in 2015 will now only about match the growth in the prior three years. Consumers will still contribute at least their proportionally correct share of growth, and capital spending and housing will benefit from the still-low interest-rate environment.
Of course, maybe we are getting the GDP numbers all wrong and growth/productivity are stronger than they appear. Then things are even weirder. Even so, policymakers should be focused on pro-growth policies from taxes to regulation to immigration to education to infrastructure to income support. Faster, please …
This post has been updated with new, valuable information.