It’s not an unreasonable thought, and it probably resonated with lots of listeners (or at least with the three other people in the world listening to this sort of thing at 8am in the morning).  The notion that the SNAP rolls are “too high” has also become a bit of a conservative meme.

But it’s wrong in at least two ways.  First, because the labor force participation rate has been dropping, in part due to people dropping of out the labor force due to lack of opportunity, the unemployment rate is a less reliable measure of labor slack right now (it’s artificially low because of the dropouts).  A better indicator of the weakness of the recovery and the continued need for nutritional support for low-income households is the employment rate—the share of the population employed.  And that’s been flat-lining for a while, meaning that job growth has just kept up with population growth.  Under those conditions, you’d expect elevated SNAP rolls.

The figure makes the case.  It shows SNAP recipients as a share of the population compared to the unemployment rate and the employment rate (it’s on the right axis).  As you can see, unemployment drifts down but the employment rate stays flat.  I’d argue that right now, it’s the latter—employment rates—that captures the weakness in labor demand more so than unemployment.*

Source: USDA/FNS, BLS

Second, while SNAP rolls increased sharply in the recession, as you’d expect—along with UI, SNAP was and is highly elastic to increased need—they’ve decelerated of late as the economy has slowly improved, though here again, it’s not improved as fast for those more exposed to food insecurity.  I found a careful academic paper by Hoynes and Bitler (new so no link yet) that tests whether the response of the SNAP program to the increase in unemployment was uniquely large in the great recession, a finding that would support the conservative meme of SNAP over-correcting for the downturn (providing more assistance than historical relations would predict).  It finds this not to be the case—the increase in SNAP rolls over the downturn, at least through 2011 (their last data point) was not significantly out-of-line with the historical record.**

So here’s the thing.  Too many people have trained their eyes to look at a trend like the one of the SNAP rolls in the figure, note the sustained increase, and sharpen their fingers with a tut-tut-tut.   Other less knee-jerkers see the trend and ask whether it’s justified given underlying weakness in the part of the economy faced by the eligible population.  Do that, and this SNAP trend is as it should be.

*Extra wonky section for extra-wonky credit: I regressed monthly changes in the SNAP rolls/per capita on a constant, trends, a few dummies for monthly spikes due to disasters, and changes in both labor market variables: employment and unemployment rates, letting them fight it out to see which had more explanatory power.  The winner, by a knockout, was the employment rate…see output table below (note the change in the unemp rate is insignificant and one-third the size of the emp rate change).

**Bitler/Hoynes: The More Things Change, the More They Stay the Same: The Safety Net, Living Arrangements, and Poverty in the Great Recession, Table 4.

Lane’s argument, which suffers a few serious empirical oversights I’ll get to in a moment, is that while Keynesians rightly call for temporary deficit spending to offset private sector contractions, politicians ignore the temporary part.  The pols like spending and dislike taxes, so they’ll neglect to shut off the stimulus spending once the bona fide expansion is underway.

A good solution for that is to set triggers based on real variables to shut off your stimulus, as the Federal Reserve has done, announcing that wind down will commence (roughly) when unemployment goes below 6.5% or inflation about 2.5%.

What’s the empirical problem?  In fact, policy makers have shut off the stimulus—and far too soon!  The Recovery Act has gone the way of Monty Python’s parrot, as has the payroll tax break.  States have cut back on extended UI benefits and the sequester is taking a further whack at UI, despite historically very high levels of long-term unemployment.

In that regard, the reason I like Lane’s trigger solution is that were it in effect, these stimulus measures would still be switched on.

Moreover, the fact that budget deficits are counter-cyclical (economy tanks, they go up and vice versa) poses a broader challenge to Lane’s thesis.  A simple correlation between annual deficits (as a share of GDP) and the unemployment rate is a pretty large -0.73, suggesting adjustments of the type Lane worries about are in fact made (as unemployment goes up, the deficit/GDP “goes down”–becomes more negative).  Of course, part of this is the ebb and flow of “automatic stabilizers,” i.e., the safety net.  But take them out of the picture and the correlation is still a significant -0.53.

Still, structural budget deficits—the type that go up even in expansions—exist, so Lane’s got a point.  Though here too, it’s worth noting that long term pressures have far more to do with the unsustainable pace of health care costs than the politicians’ pet cats and dogs implicated in Lane’s rap.

In fact, I would amend Lane in a way with which he might agree.  Keynesian spending often really is temporary.  What lasts forever are foolish, unnecessary tax cuts and tax expenditures (i.e., spending by another name).

Putting it all together, if Lane is saying that austerity never comes, he’s demonstrably wrong—see Europe and especially the US.  But if his point is that Dick Cheney allegedly said “deficits don’t matter” and meant it, and that we’re stuck with asymmetric tax policy—taxes get cut, but almost never go up—then he’s on to something.

But if it is to do so, both sides will need to engage in an extremely careful balancing act.  Immigrant advocates need to embrace the realization that absent real border control and employer verification, there is no viable reform.  And to their credit, they’ve done so.

Those who’ve opposed immigration reform need to recognize that immigrants who are already here need to be wholly integrated into the labor markets and communities where they already work and live, and many former opponents have made this leap.

But one area where some in this debate continue to resist the needed balance is around the concerns of domestic workers and immigrants already here regarding competition from new immigrant flows, including guest workers.  I found this piece from today’s NYT to be a good example of the type of overreach that could tilt the delicate balance and scuttle the deal.

The piece describes ways in which the IT industry, which got a lot of what they wanted in the draft bill, now wants the bill amended in ways that would enable them to employ more guest workers with less oversight from new rules designed to protect domestic workers against unfair competition.

The industry achieved its main goals in the draft Senate bill: an easing of the green card process and an expansion of the number of skilled guest worker visas. That draft, though, includes language that it considers excessive regulatory oversight of when a company can hire a temporary foreign worker and lay off an existing American worker.

The bill significantly kicks up the number of guest-worker visas under the H-1B program and importantly, shifts the rules on permanent residency to focus more on the skills immigrants bring to the national table versus family connections.  Silicon Valley lobbyists have been lobbying for these sorts of changes for decades, and with this draft, they’ve been highly successful.  As one Congressional aide put it, “Overall, tech has gotten, by any metric, the best bill they’ve ever seen on this issue in terms of H-1Bs.”

So why are they risking upsetting the Apple [sic] cart instead of applauding from the sidelines?  Because, at the insistence of labor and other groups representing IT workers, the bill also includes safeguards against abusing the guest worker programs, replacing perfectly good domestic workers with cheaper immigrants, not offering prevailing wages, artificially boosting labor supply in the field, and seeding the “offshore-outsourcing” industry with guest workers.

Look folks, everybody’s not going to get everything they want here, and this part of the bill in particular—the guest worker part (which I like the least…what the h-e-double-toothpicks is a guest worker?!?!)—was the result of a very delicate set of negotiations between business and labor.  So stand down IT lobbyists, before you queer the damn deal!

“If talkin’ were criminal
You’d lead a life of crime.”

Like many people I talk to about this, especially non-economists, most respondents agreed with the proposition that something’s changed, i.e., accelerated, in the impact of labor-saving technology in the workplace (interestingly, most commenters on this blog go the other way).

As I’ve stressed in numerous posts (e.g., here), while I worry that the “people” might be right about this, it’s not yet evident in the data (productivity growth, capital investment) in obvious ways.  One analytic problem is that in the last bunch of years, we’ve had this collision between visible labor-displacing technologies (robotics, AI software) and weak demand for labor.  While it’s natural to assume the former must be prodding the latter, there’s this confounding matter of a massive housing bubble, great recession, and all that mess.

So too soon to tell, and history is replete with examples of this mistaken prediction.  On the other hand, this feels to me like it might be one of those times where folks on the ground are a step ahead of the aggregate data.

I found this to be a moving, smart passage:

My husband thinks back to his father, coming of age during the Depression, and how fortunate that the Civilian Conservation Corps was available for him. A repurposed C.C.C. is just what we could use — and we are so not alone in this. Many people our age have found themselves jobless, but that doesn’t mean we don’t have skills, talents, determination and, most important, the desire to get a feeling of satisfaction back after years on the corporate track.

Also, the accompanying illustration was…um…unsettling, and very well done.

NYT, John Hendrix

–There’s a long cover story on the Cincinnati IRS office which is ground zero for the recent scandal.  The piece paints a picture of an understaffed, poorly managed group of mid-level bureaucrats, trying to follow impossible guidelines.  Clearly, the agency screwed up in a big way that threatens to worsen our already dysfunctional politics.  That said, partisan bias on behalf of the agents is not obvious.

What would help clear up this part of the issue is a number I’ve yet to see showing that (c)(4) groups with conservative names were disproportionately targeted.  It’s clear, for example, that more “Tea Party” and similarly named applications were given extra scrutiny than liberal ones (like those with “Progress” in their title) but it also seems that there were a lot more of the former.  The question of proportionality has yet to be answered.

Even so, i.e., even if the numbers ultimately show that conservative groups were not disproportionately targeted relative to their number of applications, how did the impropriety of the exemption agents’ actions evolve?  That’s the subject of this very informative Propublica piece that tells the story of decentralized decision making, under-staffing, diminished training efforts, and basically relegating these impossibly complex decisions to a relatively low-paid backwater with little guidance from DC, even as the number of applications from political groups was exploding.

All this combined to create an isolated office in Cincinnati, plagued by what an inspector general this week described as “insufficient oversight,” of fewer than 200 low-level employees responsible for reviewing more than 60,000 nonprofit applications a year.

The Congressional Budget Office always re-estimates the President’s budget.  Not that they don’t trust the President’s budget analysts at OMB, but, you know…they’re the official scorekeepers.  When you work in the White House, as I did, you quiver a bit at the specter of an unfavorable CBO score, one that says, e.g., “OMB said the debt would go down under its budget; we say it will go up.”

Well, here’s a case of the opposite result.   As the figure reveals, the CBO scores the President’s budget to reduce the debt ratio even faster than the projections by the President’s own budget analysts at OMB.

Why?  I’m not sure yet but will let you know.  It doesn’t seem to be that CBO has better economic assumptions, as GDP grows about the same amount in both forecasts (though OMB has faster growth up front and slower growth later).  And just to inject a bit of reality into the discussion, it’s awfully hard to see the path by which this or any of the other budgets out there becomes law any time soon.

But the WH can legitimately make the case that through a balanced package of tax increases on those at the top of income scale, spending cuts, and measures to help control the growth of health care costs, they get the debt ratio headed in the right direction.

So sayeth CBO.

Sources: CBO, OMB

Got questions about any of the stuff we talk about here–unemployment, automation, jobs, full employment, income inequality, budgets, trade, taxes, state policies, minimum wages, growth economics, health care, Europe, financial markets, romance, great music?

Submit your questions in the comments section, and I’ll post a video responding to a bunch of them in the next few weeks.  Usual charges apply (i.e., none).

Here’s my comments:

A tale of two debts: Bob’s book is a very rich one, and I’m just pulling out one theme here, though it’s one that’s central to the book: there’s good debt and bad debt.  Economists and policy makers pretty fundamentally misunderstand the difference, which is one reason we’ve fallen prey to a) a massive housing bubble inflated by reckless leverage from which we’re still recovering, and b) austerity regarding public debt which is prolonging the recessionary damage here and in Europe.

Note the policy perversity driven by our inadequte understanding of these different aspects of debt: we allow bad debt to tank the economy, and we refuse to apply good debt to fix it.

“Good debt” serves at least two functions.  Through private debt markets, it provides investment capital to borrowers who will put excess savings to productive use, and through public borrowing, it offsets private slumps through Keynesian measures.

“Bad debt” is harder to identify.  Debt-financed “speculation” can’t be the answer.  That goes on all the time.  Bob’s got a great quote in the book from Edward Chancellor: “”The line separating speculation from investment is so thin that it has been said both that speculation is the name given to a failed investment and that investment is the name given to a successful speculation.”

As I see it, a key to bad debt is what I think of as underpriced debt, or more fundamentally, underpriced risk.  When an economy gets that price wrong, bad things happen.

So a good way to avoid some of the pitfalls Bob documents is to think about what leads to risk being underpriced and how we can prevent it.   Bob spends considerable time thinking about and reflecting on periods in history when financial market regulation worked a lot better than it does today, leading him to an insight that I consider fundamental: the best way to avoid moral hazard is to not get to a point where you have to invoke it to avoid a prolonged recession or worse.

Clearly, the problem with putting debtors in prison is that they can’t pay back even part of their loan once they’re in jail.  But the problem with debt forgiveness is moral hazard: if debtors can costlessly default, then many will do so and debt markets will collapse.  Bob’s book is in no small part an illuminating tour through ways in which economies throughout history have struggled with this dilemma.  And one of his noteworthy, if unsurprising, conclusions is through stringent oversight.

What does that mean in practice?  Here’s a handy list of practices that underprice risk and are thus targets in preventing bad debt build-ups:

–non-transparency: when financial instruments and sub-markets (shadow sectors) are poorly understood, the risks they engender are also misunderstood.  So, when finance CEOs themselves readily admitted that they didn’t really understand the stuff their traders were fooling around with, that was a bad sign.

Now, you might well argue that since humans are generally thought to be risk averse, when they don’t understand something like a synthetic CDO, they won’t screw around with it, right?  Actually, wrong.  Go read your Minsky: as expansions mature, risk aversion flips.  As John Cassidy put it, when it comes to financial markets stability is destabilizing…go figure.

–Securitization: It’s a fine thing in terms of generating liquidity to package and recirculate debt, but only if at least two criteria are met.  First, the credit rating agencies must reliably rate the quality of securitized debt, and two, lenders need to always have some skin in the game.  Absent those criteria—Bob reminds us of IBGYBG loans (broker one to broker two: “by the time this note comes due, I’ll Be Gone, You’ll Be Gone, so why worry?”)—securitization can lead to underpriced risk.

–Too much easy money printed by the Federal Reserve: I tend to support Fed monetary stimulus and have worried much more about the central bank choking off growth based on the phantom menace of inflationary spirals.  But I put this in here because it’s probably the most common view as to why risk has been underpriced.  Many observers incorrectly believe that the Fed is stoking the shampoo cycle (“bubble, bust, repeat”).   How can I brazenly say “incorrect?”  Read the book.

–Income inequality and wage stagnation: When inequality creates a wedge between the economy’s growth and the paychecks of lower- and middle-income people, the only way for them to get ahead is by borrowing.  When that demand collides with the supply of credit flows suffering from the flaws just noted, risk is underpriced and bubbles inflate.

So, fix all of those, and the likelihood a bad debt accumulation is much diminished.

Finally, reading Bob’s anti-austerity message at a time when budget deficits are contracting sharply led me to wonder: do those of us who inveigh daily about the damage of austerity measures right now believe that deficits matter at all?  Is there no time when we should worry about fiscal imbalances?

I’d be very interested in Bob’s thoughts on this [listen to them at the end of the video] but I’ll offer two right here:

–First, a higher debt level means we’re more exposed to interest rate spikes.  That’s not a reason to avoid higher debt in downturns, especially given the lower interest rates that accompany periods like this one.  But it is a motivating factor for lowering your stock of publicly held debt in recovery.

–Second, you don’t want your debt/GDP ratio to be perceived by policy makers as “too high” at the end of an economic expansion, because when the next recession hits, it will need to go higher.  So you want to get to a lower perch, as it were, in the recovery so you’re well positioned for the debt ratio to go up, as it must in a downturn.

Falling energy costs drove the slide over the last few months–core inflation, which exlcudes volitile food and energy, has been declerating more slowly.  Also, gas prices have reversed course over the last week or so.

But the message here is that the underlying economy remains considerably weaker than you’d know about if you just tracked the stock market and corporate profits.  Low inflation at a time like this also slows down the deleverging process regarding household debt, since higher prices erode nominal debt burdens.  At any rate, I’m sure the Fed is watching and I suspect and hope that if this continues, they’ll push out their plans for unwinding their monetary stimulus.

Source: BLS