The Abysmal Recovery in Employment- Becker

 

Job recovery in America has been disturbingly slow during the two years since the official end of the 2007-09 Great Recession. Unemployment has declined by only a single percentage point to 9.2% from its peak of 10.2% in 2009, while the percent of the adult population that is working is even lower than it was at the end of the recession. To put these figures in perspective, two years after the end of the severe recession of 1981-82, the unemployment rate was down by 3,6 percentage points from its peak of 10.8%, while the fraction working was up by 2,5 percentage points.

To be sure, while the recession of 1981-82 was the sharpest since the end of World War II prior to the Great Recession, it did not have as deep a financial crisis as the one that started in 2007. Although recoveries from financial crises are notoriously slow and erratic, the slowness of the current employment (and output) recovery is still obviously of great concern. The data on the duration of unemployment spells adds to the uneasiness. The great majority of workers can handle an unemployment spell of a few months since they can draw down savings, borrow from family members, live off a spouse’s earnings, and often qualify for unemployment compensation, Medicaid, and other government assistance programs. Unfortunately, however, many of the unemployed have been out of work for more than just a few months: over 40% have not had a regular job for at least 6 months, and almost one-third of the unemployed had not had a regular job for over a year.

Economists, political leaders, and public intellectuals have put forward various and conflicting ideas about how to improve the employment and unemployment picture. Some economists advocate further large fiscal stimulus packages in order to compensate for what is considered insufficient aggregate demand for goods and services by consumers and investors. Yet we already had close to a trillion dollar badly designed stimulus package, tax credits for first time homebuyers, a senseless “cash for clunkers” program, and other federal programs that have not had any clear sustained effect on moving the economy forward.

It is obvious now that forecasts by some economists in President Obama’s administration that these programs would reduce unemployment to under 8% were far too optimistic. Although little consensus exists on what in fact was achieved by the major $800 billion stimulus package, I do not know of convincing evidence that it accomplished a lot in reducing unemployment and raising employment. So it is hard to be optimistic that an additional stimulus package would be designed better or work any better, and of course, it would add to an already large fiscal deficit.

Other proposals to increase employment operate not by trying to stimulate aggregate demand for goods, but by directly encouraging employers to raise employment. One simple proposal is to give employers a subsidy for each worker employed, such as a subsidy equal to 10% of wages paid. This approach is simple but it would be expensive, and it would be inefficient since the vast majority of employees would have jobs without any subsidy. Even if the wage subsidy increased employment by 10 percentage points-which would be huge- 90% of the subsidy would be spent on workers who would have been employed anyway. At a 10% wage subsidy per worker, this means about 9% of the aggregate wage bill, which amounts to trillions of dollars, would simply be a transfer from taxpayers to employers. Such an expensive and inefficient program is hardly politically or economically attractive when the current political debate is over how far to cut, not increase, federal spending.

Recognizing the waste of such an overall wage subsidy, another approach subsidizes new hires only. This approach does avoid subsidizing all employment, but it fails to appreciate the magnitude of new hires even during bad times. The JOLTS data published by the federal government indicate that over 4 million persons are newly hired each month even during the current post recession period. Therefore, subsidizing new hires would pay subsidies for about 50 million new hires annually. If the subsidy per hire were $3000 (about 10% of their annual earnings), this would cost some $150 billion per year.

This is not chicken feed even for the federal government. Moreover, employers would try to game the system by laying off some workers so they can hire other workers and gain the new-hire subsidy. The result would be an increase in the number of persons becoming unemployed along with greater exits from the unemployment state. The net effect on employment would probably be positive and overall unemployment would tend to decrease, but the employment bang for the substantial bucks involved would be quite small.

Aside from the depth of the financial crisis, I believe the main source of slow hiring initially were the many anti-business proposals voiced by some members of Congress and even by the president. Many of these were discarded or tamed down, but Obamacare (the Patient Protection and Affordable Care Act) and the Dodd-Frank Wall Street Reform and Consumer Protection Act have raised the prospects of higher and less certain health care costs for businesses, and greater regulation and more uncertainty about government policy in the financial and consumer areas. Neither Act gives employers an incentive to expand their payrolls.

Adding to this is the huge uncertainty about what Democrats and Republicans can agree to on taming the large fiscal deficits, the looming entitlement crisis, and the exploding debt. No wonder that businesses are playing it close to their chests by keeping their payrolls down, and by their reluctance to commit to long-term investments.

The analysis in this post to me implies that the most effective solution to the weak recovery is not further stimulus packages, nor subsidies to employment or hiring, but an agreement between Congress and the president to cut trillions of dollars from federal spending during the next decade, and to reform the tax system toward a much broader and much flatter personal and corporate tax structure. The report of Obama’s National Commission on Fiscal Responsibility and Reform is a starting point, and Representative Ryan’s Roadmap also has excellent proposals on how to do this.

Comments

[El-Greco]

Obviously the stimulus accomplished something, but at the expense of an additional $1 trillion in debt, which overall worsens the long term outlook of the economy, by placing inevitable eventual tax burdens on those amongst the young aspiring to better their lives, and keep America the most wealthy nation on the planet. People may be foolish but they are not that stupid. They know that all this must eventually be paid by higher taxes, on rich, on poor, on businesses -- visible or hidden.

So, of course, every stimulus increases economic activity, even building and buying gold toilets does, but at the expense of a higher price to be paid sometime in the future. But the future is finally here, or will be here shortly. So, in sum, the effect of the stimulus is negative since it amounts to the zero sum game of taking money from one pocket and putting it into the other, while paying some bureaucrats in between, and allocating the money less efficiently to entities who are not productive enough to survive without government (read taxpayer) largesse.

While macro-economic manipulations may have a place in short term economic governance, what matters in the end is the long term per capita production of the nation, which, in turn, is tied to incentives to produce, or, conversely, dis-incentives to produce, like the eventual higher taxation as well as invitation to indolence inevitably promoted by welfare programs. So the big picture is deteriorating fast as at least some of the most productive members of society brace and make permanent changes to their life plans in anticipation of the great opportunity they will be given to serve the nation by having a greater portion of their labor be taken away from their families to serve some anonymous others, while, at the same time, the desire of the middle and lower class to engage in productive and higher value work is diminished by the fact that welfare programs partially shield them from the consequences of mediocrity.

There are many things affecting short term economic perturbations. But what matters in the end are the long term incentives individuals have to produce. In that respect, the underlying theme for America is decline. And the most worrisome part is that what we are starting to see in America through our current economic tribulations is likely the underlying long term theme of a European style slow growth economy. An economy that is irreversibly slipping towards permanent low growth as Americans are placed in the same low incentive to produce environments that European citizens have been in for a while.

To make a Junior High science analogy, consider a pot set on the stove to boil.

Economists, or myself, trying to predict what will happen in the next quarter or year, are trying to predict where the first boil bubble will form, how will it rise, how will it perturb the local environment triggering yet the formation of more boil bubbles etc. a famously difficult but largely irrelevant problem to sweat over when it comes to predicting the final outcome. Economists, like Mr. Becker, who focus on economic fundamentals, are simply stating the obvious fact that transcends the temporary minutiae and distractions.

What Mr. Becker is essentially saying is that if you do apply heat to a pot it will boil at some point, when exactly is secondary, but it has no choice but to boil. Or, perhaps more appropriately, that if you remove the heat, it will stop boiling. How exactly will the declining bubbles in the pot behave, is largely irrelevant and a distraction in determining the final outcome.

So, in final summary, if you remove incentives to produce and innovate, the total value of production entrepreneurship and innovation will decline, and since any country, almost by definition, enjoys prosperity equal to the value of its production, standard of living compared to the world average will also inevitably decline. Expecting that other countries will somehow step in, or be tricked, or coerced, into helping Americans maintain a standard of living that is five-fold the world average, is simply delusional.

Goodbye aberrant American morals of self-reliance and self-determination, as espoused by “hope and change” means goodbye American prosperity. In the end, it’s just as simple as that. Simply said, of course, but terrifyingly difficult to accomplish, because it is almost impossible to get voters to refrain from treating the ballot box as a magical redistribution engine and a Deus ex Machina of prosperity out of thin air (i.e. higher prosperity based on lower incentives to produce). American voters had traditionally resisted such temptation but finally caved in and are inevitably poised to do more of the same, driving the country into further and further decline compared to the rest of the world. The counties whose electorates manage to supplant America in defying this natural and irresistible voter temptation, will be the ones that prosper. I just hope that are not dictatorships those who manage to escape this fate. That would be a terrible outcome.

[Cameron]

Hi Professor Becker,

You write that:

"Yet we already had close to a trillion dollar badly designed stimulus package, tax credits for first time homebuyers, a senseless “cash for clunkers” program, and other federal programs that have not had any clear sustained effect on moving the economy forward."

But Professor Gordon at Laval University points out that:

"There has been much talk of the size of the US federal stimulus, and much debate about whether or not it has been an effective counter-cyclical policy instrument.

But it's important to remember that the proper measure for fiscal stimulus is not spending by the federal government; it is spending by all levels of government. And when you look at the contributions to US GDP growth (Table 1.1.2 at the BEA site), total government spending has been a drag on growth over the past two quarters. The increases at the federal level have not been enough to compensate for the spending cuts at the local and state levels."

http://worthwhile.typepad.com/worthwhile_canadian_initi/2010/06/stimulus-what-stimulus.html

So at best, the "stimulus package" of the feds just offset the "anti-stimulus package" of the states. So I don't think it's fair to say that stimulus was tried and failed.

Cheers,

Cameron

[Dongnl]

Prof. Becker,

I respectfully disagree with you on your belief that "I believe the main source of slow hiring initially were the many anti-business proposals voiced by some members of Congress and even by the president". You have absolutely no data to back up your opinion.

The most related survey I found recently said that companies weren't hiring because of weak demand. If there were less customers, what's the point for expanding production or services? To whom they would sell even if there were pro-business proposals? Thus, your belief is put in the wrong cause, which makes your analysis totally bias. It's depressing to see a famous economist put faith in ideology instead of fact.

If an engine is in an idle state the best way to make it run again is by kick-starting it with an initial force, not by pouring in lubrication oil too much of which made it crashed in the first place.

[Jack]

"The most related survey I found recently said that companies weren't hiring because of weak demand. If there were less customers, what's the point for expanding production or services? To whom they would sell even if there were pro-business proposals?"

Bingo! And why should we have to tell a noted economist that demand is weak, weak, weak?

I agree with Becker that it's VERY tough to provide "hiring incentives" as, in addition to the normal turnover they can and typically are scammed. I'd think exploring investment tax credits a better shot in this area.

But..... with a need to conserve energy and move this nation off such dependency on imported oil there are at least two options there.

The first is that of dealing with what is obviously a phony "market". There are no scarcities that justify bidding oil up to these levels --- and I live in Alaska were it's all "very nice" for us. No...... that market should be seeking the price that spurs drilling, substitutes and conservation. One trouble is that all of these take a lot longer than sowing another crop of corn when prices are high. These prices ARE retanking our weak recovery and something is VERY wrong with "the market" pushing prices to multiples of production costs.

Next......... to GET something for our stimulus dollars is to work at conserving, building retrofits, incentives to replace gashogs which should not be "cash for clunkers" as those gashogging "clunkers" make good and inexpensive transport for retirees or others who drive very few miles each month. Put our guys to work on wind and solar. Find out WHY solar is apparently being mfg'd in Asia? But if that must be............. at least we can benefit from installing it in our most energy dependent nation.

Then tackle the estimated $2 trillion in long delayed infrastructure maintenance and upgrades. Sure........ a decade long commitment may be $200 billion/year, but with a choice of paying unemployment, and receiving income tax revenues the true "cost" is likely half that amount, or with multiplier effect, even less. So at the end of this mess....... we've $2 trillion in the asset column for $1 trillion or so......... with the very real benefit of working folk going to work and living their lives.

If need be despite the "no tax" mantra of those pledged to some silly "Grover" ........ and the utter crap about the top earners being "job creators" take a look at these income graphs:

http://lanekenworthy.net/2008/03/09/the-best-inequality-graph/

If you rolled back the ever UNaffordable Bush tax cuts for the wealthy to Clinton era levels they would still have far more spendable income (in constant dollars) than they had during the Clinton era of full employment.

The secret NO pundits, pols or most economists want to mention? WE are suffering from FAR too much wealth and income being in the hands of too few uber-rich, leaving most with stagnant wages which result in a stagnant economy.

How much? I saw a conservative estimate of using the GINI (wage disparity curves) of 40 years ago that each middle income household would have an extra $12,0000. In fact that amount was nearly constant down in lower income levels too.

But! "trickle down" is not going to happen on its own. Lacking other means, taxing those top tiers, at least the $200 billion it's going to take to spur this dead dog would be the best thing we could do and we should get a double hitter out of it. The second being that higher taxes gives those of windfall profits incentives to find investments that lessen their tax obligations.

Dongnl has it right! It's a "kickstart" but also priming it with gas down the carb. The top earnings can and should want to pay for the priming, as when our economy is again humming they'll get it back many times over. If on the other hand it remains a dead dog....... soon, if not already, they'll be riding it down as well.

Cameron is right too. That stim which "went to the states" just offset their own, mandatory, belt tightening.

BEST thing we could do is send "conservatives" and their "special" economists off to where ever our financial overseers and regulators vacation during the Bush affair; this is a time for courage and "kickstarting" not curling up like a sowbug and "hoping".

[Jack]

"El Greco?" do you also post your stuff as Pradeep? or just happen to sip the same Kool-aid?

[kvinnor]

I agree that in an economic downturn the most effective solution is to reform the tax system. While it seems many disagree with me... Only time will tell who is right on this issue.

[an observer]

This analysis is so shallow it is pathetic, especially its attempt to blame modest changes in gov't policy as being a source of uncertainty on the part of business.

Three forces are ripping about this Country: (1) the Internet; (2) Globalization; and (3) the reaction of the right to being proved so wrong by the occurrence of the 2007 Financial Depression.

Even the most casual of observers would admit that (1) and (2) are a source of ten times as much uncertainty as Obama's very modest policies, especially as those changes were widely announced. Other countries have changed their systems of providing health care with no disruption. IOW this "uncertainty" argument is just self-serving crap.

The real cause for uncertainty in this Country is that the right has become a cult.

Cialdini's Influence has a lengthy discussion of what happens to the right when its learns that is is wrong about its basic facts and assumptions. He reports on the 1954 study of a small religious sect that had the end of days down to the exact day, hour, and minute. The believers all sold their possessions gathered at someone's home and waited. When H-hour passed, they sat around in stunned silence for a few hours, and then they became even more wacko, their denial having no boundaries. None would publicly admit they were wrong.

This has happened before in the United States. Before the Civil War the evidence on the case against Slavery (and the the entire Southern way of life and economic system) grew and grew to become overwhelming. The gap in prosperity between North and South was stunning, as trains, canals, and industrialization propelled the North forward.

The result was that the South became a cult, with a population which was overwhelmingly wacko. Smart people like Clay saw what was coming and attempted for years to solve the problem of slavery but it was a problem that could not be solved because ending slavery would de-legitimize the South and these people were not about to admit they were wrong. In the end, rather than admit they were wrong, they left the Union, causing a civil war, destroying millions of lives and themselves, economically for 5 generations.

Today, we are in exactly the same place. We have wacko who will destroy the country rather than admit they are wrong. Their behavior was exactly as Cialdini predicts in Influence.

What is causing fear, uncertainty, and doubts, now for everyone is whether the wacko right is going to destroy the country. You never hear an enabler like Becker talk about the FUD's caused by the wacko Right, because Becker is about to admit how wrong he is about everything.

If he was so smart, what didn't he see the 2007 Financial Depression coming. If he is so smart, where was he in Bush cut taxes and refused to pay for two wars. Why pay any attention to someone so wrong?

My friends, economics is not a science. Economic life is not propelled by taxes. There is no magic line of GDP to debt or percent of gov't to GDP. Gov't borrowing that is invested in becoming productive can be easily carried (USA--WWII). Gov't borrowing which is low but where there is no vision, the worst of times. (Carter, debt to GDP reached lowest post WWII level of only 39%, but we had runaway interest rates due to oil embargo, etc.)

Democrats need to learn that taxes or trust funds, but we will not have prosperity again until the right is defeated as was the prostrate South after the Civil War. We are engaged in an internal clash of civilization and, unless and until Modernity wins, we are going to have a sick, sick economy

[Andrew Karpie]

All current government policies to increase employment levels have clearly not had desired impact. Just as disturbing is the content of the political discourse on this subject within the "political party duopoly," which seems to consist in repetition and recycling of the same economic policy frameworks and ideas. No one speaks to scenarios of the US economy, given its workforce demographics and its desired place in an integrated global economy, over the next 5-10 years (and what kind of hard choices, sacrifices and investments, may be involved to achieve). The political perspective is not much more myopic than that of all Wall Street, with its focus on short-term earnings. In the political discourse, the current state of "low employment" is looked at in terms of there being a short-term policy fix, but that may be illusory for our economy within the global economy we now live in). At this time, the recovery is going gang-busters as company profits soar based on global expansion and cost reduction (aka productivity gains), but Americans are not getting employed. Doesn't this raise the question of what kinds of industries will develop in the US, whether they will be the ones that both address economic needs globally AND create jobs -- as well as the critical question of what will be the state of the US workforce (in terms of #s, age,knowledge and skills), et al? Do any of our politicians propose and discuss a vision of what America can be in 5, 10, or more years and what it will take from the private sector, the public sector, and We the People? Is such political leadership desirable in America, or even possible?

[TANSTAAFL]

As usual Becker is right. New readers of this blog, take care to ignore the Leninists above who disagree.

[condominium makati]

It's so nice that people can be informed online.

Ace

[leather jackets]

Life is a progress from want to want, not from enjoyment to enjoyment.

[ismail]

The real cause for uncertainty in this Country is that the right has become a cult.

www.ankaraotokiralamasirketleri.com

[Jim]

Why don't we just give up and let Obama and his ilk socialize the country in toto. Several benefits will ensue: we won't have to work very hard if at all but will still get a salary and benefits, no class wrafare as everyone will be equally poor, and the realization that human nature will win out will occur and after a few generations the model will swing back to some sort of competive economic model. No one is learning from the previous historical cycles so the only path is to let it happen and relax. Look, the Israeli symphony is performing Wagner at a concert in Germany. You will remember that Wagner was played over loudspeakers while Jews were being gassed and burned at Auschwitz. Memories are short and princples are flexible I guess.

[NEH]

The problem of the "Abyssmal Recovery in employment" is the massive loss in jobs especially in the area of paying full time employment with benefits. The losses have been in the tens of millions across the entire spectrum of skills and the losses just seem to keep accelerating. As an example, how many Rocket Scientists and Engineers are being put out on the street in the next few months due to the shut down of the Shuttle program and the lack of a new program to pickup the slack; either public or private? Maybe they can find jobs in China or Russia that still have space programs (a reverse brain drain). It's just not the uneducated and unskilled who cannot find work.

As John Lee Hooker so aptly put it in "House Rent Boogie" when asked, "How come you don't have a job"? "I can't find a job".
The answer to the question about the abyssmal recovery? There aren't any jobs... And the reason for this? All the available capital has been sucked up by the private banks and speculative interests leaving little or none for development and redevelopment of productive enterprises that would provide active employment.

Hamilton and the Federalists were right, in order to develop a viable Economy, what's needed is a National Bank that can curb speculation and allow capital to flow freely to truly productive enterprises. Not the mish-mash of private banking concerns that plagues the Nation today.

[TANSTAAFL]

NEH calls for "a National Bank that can curb speculation and allow capital to flow freely to truly productive enterprises."

This is no new idea.

"Lenin advocated the creation of a single government bank not merely as a means of assuring control over industry; he believed that the banking system could be easily reshaped into the core of the administrative apparatus of the socialist state."

Garvy, "The Origins of Lenin's Views on the Role of Banks in the Socialist Transformation of Society," History of Political Economy 252 (1972).

Bah.

[Predeep Despandee]

What Americans are asking from their politicians is simple.

All the unemployed want is to return to their old jobs where they will be offering the same products and services that now three billion people (3,000,000,000) in the Developing world are capable of producing and offering, but somehow be awarded six, yes (6) six, times the respective reward of their Emerging Economy cohorts. In the post-American emerging mentality of the average American voter, this is, after all, social justice.

So, of course, morality aside, the numbers don’t work out -- apparently exceptional prosperity cannot be generated out of thin air, no matter how much the people have always been bamboozled into voting for politicians who say that they will -- so what are the people going to do? In a natural, predictable, and impulsive bout of folly that has brought down many one civilizations, they are going to… economically dismember their Steve Jobs’.

After all, they figured, “…the greedy b%$%*#* can probably afford to live a great life without ever earning another cent . So we, the people, will put the Steve Jobs to work, and we’re also going to tell him how much of his earnings he can keep. We cannot afford the interests of one man to stand in the way of communal benefit. What’s he going to do anyway? Our numbers -- and votes -- are uncountable!”

Nothing to worry Americans. Everything will be all right…

….

…you sure can acquire the same mentality as the rest of the world but remain 6 times as prosperous as the average. America has been blessed by the divine to be the most prosperous country on earth. Have faith… it’ll all work out…

You are on your way to be supplanted in all fronts. What you are experiencing is the general ill wind of your own decline. But you brought it upon yourselves. You failed to realize in what way you were different than the rest of the world. You failed to realize it and so now you’re now loosing it all.

This is no longer something your children and grandchildren will have to go through. Things move ever faster in the 21st century, so you are already experiencing it, in unemployment, in the delusional attempts of theater macro-economic manipulation that your politicians are trying to convince you will create prosperity out of thin air, just to buy one more term, one more election…

Dear Americans, You are missing the forest for the trees…

Refraining from central planning and refraining from viewing the voting booth as a redistribution machine was the reason for your success, an anomaly for which the rest of the world both admired, envied and hated you for. Now that it’s gone, your prosperity will follow. You are already experiencing it step by step. You would see it if you looked at the forest instead of the trees. But, alas, you won’t so like many civilizations before you… down you will go.

[libertarian_adi]

Rigid labor markets are also a problem. Long term structural unemployment is caused by rigid labor markets. The policies supported by the labor unions -- minimum wages, wage floors, labor regulations -- make it ever more hard and uncertain for private firms to expand payrolls.

[an observer]

Rigid labor markets are also a problem . . .

I read this and thought: what BS

A few days ago the Financial Times had an interesting set of letters to the editor both of which used the common wisdom of literature and poetry to make telling points. One writer used Yeats to make the point that what we lack is intensity and passion. They were correct.

Since this Financial Depression started we have suffered from a lack of intensity and passion, of two different origins. Unlike FDR, who kept trying to find solutions, Obama has never connected with the public on the "vision thing," when it comes to jobs. Further, the Democratic Party has woefully understated the problem, the magnitude of the damage that has been done (by the Internet, Globalization, and Financial Fraud), and thus been woefully short on intensity and passion, to the point that it thought healthcare (and not jobs) was the issue.

The Republicans, Tea Partiers, and folks like Libertarian have been worse than the Democrats (which is why the public hates both parties). Not only do they lack intensity or passion for the job, but they use the situation to put forth their agenda of transferring even more income and assets to the rich.

You get stupid comments like this one, advocating cutting incomes when what we have is a lack of aggregate demand.

American's know what applied intensity and effort accomplished in WWII in less than four years. They expect (and have the right to expect) immediate action.

Instead, they get opportunistic delay. Washington has every trick, of which the debt ceiling debate is but another example. It has been used by both sides solely to score political points against whomever is in the White House and to do nothing but delay and obfuscate.

By the way, where are our FUD boys (Fear, Doubt, and Uncertainty is the cause of the lack of a recovery) on the GOP failure to cooperate on the debt ceiling, which is killing the economy. I know several people whose job interviews have been cancelled. By FUD boys I mean Posner and Becker, who repeat the conservative chant that Obama has caused uncertainty. What BS

[an observer]

Posner/Becker---these are basic psychological facts to which a real economist would now be paying attention (as an aside, did you see the study on the impact on Italy just because of the criminal charges against Berlusconi?) Vision matters many many times more than marginal tax rates

WASHINGTON/LONDON (Reuters) - The United States will lose its top-notch AAA credit rating from at least one major rating agency, according to a Reuters poll that also found wrangling over the debt ceiling has already damaged the economy.

A small majority of economists -- 30 out of 53 -- surveyed over the past two days said the United States will lose its AAA credit rating from one of the three big ratings agencies -- Standard & Poor's, Moody's or Fitch.

Respondents saw a 20 percent chance of a new recession over the next year, a prospect that some economists say has been compounded by the acrimonious political fight over what is normally a procedural legislative vote on the debt.

Even if this worst-case scenario is not borne out, a firm majority of respondents -- 38 out of 54 -- said the uncertainty brought about by the political acrimony over the debt has already hurt economic growth.

The U.S. economy had already been under stress in recent months. Gross domestic product expanded just 1.9 percent in the first three months of the year, and the second quarter is not expected to have fared much better. Industrial production has slowed and employment nearly ground to a halt in the last two months. The jobless rate climbed to 9.2 percent in June.
"This whole debt ceiling debate doesn't seem to be making anyone any more confident," said Sean Incremona, economist at 4Cast Ltd. in New York.

Goldman Sachs argued in a research note recently that the decline in consumer sentiment over the last few months has been disproportionate to the economy's slowdown, pegging the debt battle as a culprit.

[an observer]

The words fellow traveler and aider and abettor come to mind when I consider Posner and Becker, after reading the latest news about this farcial, made up crisis (as per Krugman, a real economist)

When describing the Boehner's plan as perceived by the CBO we used one key word: "laughable" in that i) it cut far less than many had expected it would cut, particularly during its "first stage" and ii) it had a pathetic $4 billion of actual discretionary cuts in its first projected year. It seems even the GOP has realized that its plan is nothing but a red herring, and as a result has declared that it is delaying its previously scheduled vote on the debt ceiling which was supposed to take place tomorrow, has now been delayed until Thursday after republicans "scrambled Tuesday night to rewrite the measure to ensure that accompanying spending cuts were large enough."

[an observer]

An economist who knows of what he talks, Robert H. Dugger:

Indeed, if the talks break down and there is no agreement by early August, it could have the paradoxical effect of making Treasury bonds more attractive. Investors expect the government to continue making payments due on its debt. But it could have to slash all manner of other spending, such as Social Security and payments to government contractors, which would weaken the economy. Traditionally, investors pile money into government bonds when the economy is weak.

“Everything that President Obama and [Treasury Secretary] Tim Geithner have said indicates that interest payments and maturing debt will be paid,” said Robert H. Dugger, managing partner of Hanover Investment Group. “The Treasury market is going to be fine. The problem is going to be tens of thousands of companies counting on millions of payments that are going to be delayed or canceled, and the negative impact on the employment prospects of millions of Americans.”

Dugger expects to see the impact of delays raising the debt ceiling to come in the form of lower stock prices and higher borrowing rates for corporations, rather than a sell-off of Treasury bonds.

That matches what has happened in financial markets in the past several days.

[libertarian_adi]

@ an observer

Troll, way to start off through ad hominem. If you are going to whine about republicans and tea party members, you are better off trolling at the Huffington post. Socialist twits like you should be banned from Becker-Posner.

[an observer]

hard, true facts are not ad hominem

you are so typical of the wacko right, charging anyone who disagrees with you stupid assertions, with being a socialist, etc.

unlike you, I support paying off our national debt (the "Ryan" plan doesn't; it calls for continued borrowing for the next 75 years).

thus, first and foremost, my position is that we need leadership to restore confidence, of which the right offers none and Obama damn little, but he is starting.

We need intensity and passion on unemployment, first. Obama made some really stupid mistakes but he is starting to get it. His learning curve is on par with Lincoln during the Civil War, so there is hope.

second, I am a Keynesian, not a Bush/Cheney irresponsible spend thrift like you and every Republican.

Keynes, whom you haven't read, called for surpluses, like Clinton.

Keynes called for deficits under only one circumstance---a collapse of aggregate demand, which is what as happened from the Financial Depression.

Cheney Bush are the cause for our current problems---they never gave a hoot about the possibility of the kinds of rainy days we are having.

And he thought we should pay for wars, as do I. Keynes did not and no Keynesian supports deficits as far as the eye can see or a lot of current gov't spending (military, TSA, ag. subsidies all come to mind)

Democrats have no idea that taxes are trust funds, just as republicans do not understand the necessity of a Democracy is having a social contract that works for everyone.

I betting on the Democrats to learn--clearly the republicans are not.

Gimicks like the Dept Ceiling or balanced budget are not going to work; both are just tools or weapons for terrorists.

We need, urgent and immediately effective government. Instead, all we have is a perpetual campaign of idiots.

There are 10,000 things that we could be doing to put people back to work. For starters, a condition of any gov't assistance like unemployment benefits ought to be that if you are able bodied you work for it. Education ought to be free, through 4 years of tech or college (we have enough idle class space and teachers and books are now digital). Hell, I am learning to Code in Python on the MIT opencourse site and I am several thousand years old on my timesheets. In the long run, the only asset we have is the abilities of all of our people. Free education pays for itself. Look at WWII. We took 20 million people into the armed services (and millions more into factories) and educated them. Look at the wealth. Soldiers came home with skills and leadership ability and a desire to learn (look at all the great minds that came from post WWII universities).

If we can achieve any sort of meaningful gains in employment, then we ought to set a goal of having foreign currency reserves double china and 1/2 the debt.

Mark McCormack wisely used to write and say, First Gauge the Result, then Gauge the effort. We have 15/20 years of hard work in front of us.

1) We need to achieve energy independence, saving us 800 billions we overpay for foreign oil each year, which I view as a tax as it is paid to foreign governments.

2) we need to devalue the dollar until we can sell exports and return manufacturing to the US

3) we need to go to a consumption tax system and abolish the IRS

4) we need to get rid or employer provided and tax subsidized health care.

5) once we get employment under control we need a wealth tax to pay for the two wars we just fought--that would be moral---and to start reducing the debt.

The Financial Times said it best. The people writing this blog, and the entire right, are acting like first class passengers on the Titanic.

Instead, they should be helping under find lifeboats for everyone.

[NEH]

"Socialist twits like you should be banned from Becker-Posner"! So this is what passes as Economic analysis by Libertarians and other Anarcho-Capitalists? No wonder the U.S. is about to default on it's current debt load and why the Economy can't seem to jump start itself and supply the necessary employment to solve the Economic ills.

The Chinese (that land of reticence and full blown authoritarianism and spectacular Economic growth) is coming out and saying, "This current economic decline by the Democracies is giving Democracy a bad name." And they are dyed in the wool Communists. Poor, Poor John Boehner. I'm certainly glad you guys aren't on our side. It's really too bad we can't drag all the Tea Partyers and other fellow travelers out of their offices down to Pennsylvania Ave. and string them up from the lightpoles. Problem solved.

Now let's get back to rebuilding the Economy.

[Predeep Despandee]

Europe is the Titanic of the world, where expectations are so pathetic that achieving a sad 2% annual growth trendline earns you “tiger economy” status. Americans simply said: “Nice boat! Lets follow that one!”

Europe is off to the Northern latitudes. By the time the European Titanic hits the icebergs it will be too late for America to turn back. There is no backpedaling to America’s Europeanization (one even wonders the ultimate utility of the American Independence war if you were going to adopt everything European in the end).

The American middle class will get the social justice it seeks. They will become more equal – to the worldwide average that is.

So, shed your Cowboy Capitalism, keep attacking the most successful amongst you and implement the very central planning that had kept us in the developing world mired in stagnation for centuries. While, on balance, America’s decline will not be an overall positive outcome for the world as a whole, there will be some positive aspects. Like having less competition for natural resources. E.g. we’ll finally get to burn the oil you leave behind.