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A Slow Motion Disaster Caused by Centrists June 7, 2010

Posted by Dwight Furrow in Dwight Furrow's Posts, politics.
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Economists estimate that consumer spending is 70 percent of the American economy. So when consumers slow down their spending, the economy inevitably lags and unemployment persists.

And a variety of recent economic reports suggest consumer spending remains sluggish and unemployment stubbornly high.

Yet Congress and the administration are doing nothing to reverse this situation. Jobs bills in the House and Senate are too small to do much good, extensions on unemployment insurance are running out, and many centrist Democrats seem to agree with Republicans that government spending is the problem rather than the solution. To see what is wrong with that read this post by Brad Delong. The idea of another stimulus package is not being seriously considered.

Meanwhile, state and local governments are laying off teachers, social workers, and police and canceling programs for the poor, all of which will have the effect of reducing consumer spending even more.

When consumers won’t spend, government has to make up the difference. The alternative is another recession. Of course, more government spending means a minor increase in the budget deficit. But budget deficits are a problem only if they increase interest rates (too much debt to finance means you have to raise the cost of that financing) or they stoke inflation (all that money sloshing around means producers can raise prices).

What is puzzling about all the hand-wringing about deficits is that there is no sign of inflation or increasing interest rates. So why is everyone (including Democrats) clamoring for deficit reduction?

It is interesting that people who trusted the market too much when housing prices were skyrocketing, now don’t trust the market when it is telling us that our budget deficit is not too high.

book-section-book-cover2 Dwight Furrow is author of

Reviving the Left: The Need to Restore Liberal Values in America

For political commentary by Dwight Furrow visit: www.revivingliberalism.com

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The Terminator’s Budget May 27, 2010

Posted by Dwight Furrow in Dwight Furrow's Posts, politics.
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Arnold Schwartzenegger has long argued that California’s budget deficit requires that we decimate public education and immiserate the millions of people who depend on government services. Making up the revenue shortfall by modestly increasing taxes has always been off the table because higher taxes would make it difficult for businesses to hire more workers, thus prolonging our historically high unemployment rate.

This argument never made much sense. How does laying off thousands of teachers and state employees improve our unemployment rate? We now have some empirical evidence that the argument is nonsense.

This study by the UC Berkeley Labor Center shows what is wrong with the argument:

We estimate that the Governor’s proposed budget would result in a loss of 331,000 full-time equivalent jobs, increasing the unemployment rate by 1.8 percentage points. More than half of the jobs lost would be in the private sector. Because many of the jobs lost are part time, the actual number of Californians affected would be much greater. The number of jobs estimated to be lost is much greater than the entire employment growth for the state projected by the Legislative Analyst’s Office for 2011.

An alternative approach that mixed spending cuts with $5.4 billion in targeted revenue increases would save an estimated 244,000 jobs compared with the Governor’s proposal.

The greatest part of the job loss due to the Governor’s budget would result from cuts to major health and human service programs that bring in significant federal matching funds.

The argument that budget cuts and the lowest tax rates possible are the only way out of a recession has a degree of apriori plausibility.

But when the budget cuts entail significant job loss and restrain economic growth, the argument collapses. The proposed budget solutions from Democrats in the Assembly and Senate, including an end to corporate tax breaks, are a much better solution.

As Robert Cruickshank at Calitics argues:

The governor’s budget may have been designed to wedge the middle-class and the poor, but as this study indicates, the middle-class has every incentive to oppose these cuts as well. Any increase in unemployment will reverberate around the rest of the economy, leading to middle-class job losses and further cuts to schools and other things the middle class cares about.

book-section-book-cover2 Dwight Furrow is author of

Reviving the Left: The Need to Restore Liberal Values in America

For political commentary by Dwight Furrow visit: www.revivingliberalism.com

Losing A Generation February 24, 2010

Posted by Dwight Furrow in Current Events, Dwight Furrow's Posts, politics.
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According to Pew Research, as of November 2009, “Only 46 percent of 16-to-24-year-olds are employed, which is the smallest share since the government began keeping track in 1948…”

Via Brian Leiter, The Atlantic lays out the disturbing long-term consequences of our current recession and the failure to provide adequate stimulus to the economy—both, by the way, the consequences of a conservative ideology that may be back in power in 2010. Who better to put out a fire than an arsonist?

[I]n fact a whole generation of young adults is likely to see its life chances permanently diminished by this recession. Lisa Kahn, an economist at Yale, has studied the impact of recessions on the lifetime earnings of young workers […] She found that, all else equal, for every one-percentage-point increase in the national unemployment rate, the starting income of new graduates fell by as much as 7 percent; the unluckiest graduates of the decade, who emerged into the teeth of the 1981–82 recession, made roughly 25 percent less in their first year than graduates who stepped into boom times.

But what’s truly remarkable is the persistence of the earnings gap. Five, 10, 15 years after graduation, after untold promotions and career changes spanning booms and busts, the unlucky graduates never closed the gap. Seventeen years after graduation, those who had entered the workforce during inhospitable times were still earning 10 percent less on average than those who had emerged into a more bountiful climate. […]

When Kahn looked more closely at the unlucky graduates at mid-career, she found some surprising characteristics. They were significantly less likely to work in professional occupations or other prestigious spheres. And they clung more tightly to their jobs: average job tenure was unusually long. People who entered the workforce during the recession “didn’t switch jobs as much, and particularly for young workers, that’s how you increase wages,” Kahn told me. This behavior may have resulted from a lingering risk aversion, born of a tough start. But a lack of opportunities may have played a larger role, she said: when you’re forced to start work in a particularly low-level job or unsexy career, it’s easy for other employers to dismiss you as having low potential. Moving up, or moving on to something different and better, becomes more difficult….

The article goes on to provide evidence that people who don’t establish themselves in the job market within two years tend to suffer long-term psychological and physical damage that continues to inhibit their careers even if they eventually find steady work, suffering from increased rates of alcoholism, depression, mortality, and apathy.

I hope things turn around before our students hit the job market.

book-section-book-cover2 Dwight Furrow is author of

Reviving the Left: The Need to Restore Liberal Values in America

For political commentary by Dwight Furrow visit: www.revivingliberalism.com