An original poem!

October 10th, 2016 at 4:40 pm

I almost never understand poetry, beyond like Little Miss Muffett or There once was a guy from Nantucket…

Every few months, I read a poem in the New Yorker just to be sure I’m still clueless in this regard, and you can almost see the words fly over my head.

But the other day, I was inspired to write a poem based on something that really happened. In the spirit of taking a much-deserved break from campaign nonsense, here it is. New Yorker–you know where to find me!


The Mouse’s Table

A few months ago:

I set a trap that killed a dirty grey mouse in our pantry.
It’s never good to take a life, but as that nasty mouse
was in my house
I took what I judged to be the necessary steps.

But as I cleaned the pantry I saw something in there that gave me paws.
The mouse had taken a pretzel nugget
and placed it on a short can, as if to make itself a little table to eat off of.
That changed everything.

When your only tool is a hammer…

October 7th, 2016 at 1:44 pm

Over at the WaPo, Greg Sargent posts a video of Donald Trump answering a question from someone who’s a college grad without a job:

“I recently graduated magna cum laude with a BS in chemistry and I’m having a lot of trouble finding a job. What’s your plan to bring jobs back to America?”

Greg focuses on the candidate’s difficulty staying on topic, and wonders if this could create a challenge for him in Sunday night’s town hall debate, where I expect we’ll hear a number of questions like this one.

I’d like to focus on what Trump said during the few moments wherein he actually addressed the question.

To Trump’s credit, he starts by acknowledging the college-debt problem, which is of course most serious when you can’t get a job (or when you fail to graduate from a real school). For the record, I’m not aware of a Trump plan to deal with student debt burdens beyond getting the government out of the lending business and “doing something with extensions and low-interest rates.” (Hillary Clinton has a plan, of course, accompanied by—you guessed it!—a fact sheet.)

But he quickly pivoted to trade: “Our really good jobs are gone and they’ve gone to other countries. And so many countries are making our products…I want to see the day when Apple will make their iPhones in this country instead of making them in China and Vietnam and all over the place.”

OK, hold up there. I’ve been a strong critic of our trade policy and the impact of our decades of trade deficits. But both in theory and practice, the costs of these problems tend not to fall on those with advanced degrees, particularly those in STEM fields. When we trade with low-wage countries like the ones Trump mentioned, the workers most likely to get hurt are those who can be replaced by factory workers abroad. The “factor price” in the rich country—in this case, the US blue-collar wage—is pushed down by such competition.

It’s one of the ways you get the pattern you see in the figure below, where real, blue collar compensation here has been flat for thirty years. The folks in that slide are not high-end chemistry grads. The other line in the figure is the trade deficit as a share of GDP, so Trump is not wrong to raise these concerns. No question: a smaller trade deficit would deliver faster growth and stronger labor demand, which would be helpful to all workers, though Trump’s vague plans to get there–35-45 percent tariffs–are far more worrisome than reassuring.

Source: BLS, BEA

Source: BLS, BEA

Consider also China’s role in iPhone production: they assemble them (more precisely, workers at the Foxconn plant in Shenzhen assemble them). Is that the big plan: let’s bring those assembly jobs back here? And again, how does that help the questioner? (Though to be fair, that is the way the questioner teed up the question, asking Trump how he was going to “bring jobs back to America.”)

None of this is to deny the problem of trade deficits that are today -2.7 percent of GDP at a time when slow growth is real problem for us, the Federal Reserve is thinking about raising rates (which, by further strengthening the dollar, is likely to deepen the trade deficit), and the Congress is doing nothing to help. Nor is it to deny challenges facing college graduates. As wage analysts at EPI recently wrote: “While young graduates’ economic prospects have brightened in recent years, they still face elevated unemployment rates and stagnant wages.”

But even he could do so, which he can’t, Trump’s plan to bring back consumer electronic assembly jobs from China won’t help people like the person who asked this question, anymore than it will help factory workers who’ve lost higher value-added jobs than what they’re doing at Foxconn (what will help them? Read this). Just because your only tool is a hammer doesn’t make every problem a nail.

Rock Steady: Job market in steady groove, closing in on full emp (but not there yet)

October 7th, 2016 at 9:24 am

Payrolls rose 156,000 last month and the unemployment rate ticked up slightly as more workers came into the steadily improving job market, which continues to close in on full employment, with no signs of overheating. Most importantly, a) the steady progress appears to be pulling some of the missing workforce back into the job market, and b) as the job market tightens, the bargaining clout of middle-wage and lower-paid workers is getting a boost, and that’s helping to nudge up the pace of wage growth.

Note that while some politically motivated types may try to make a big deal over the increase in the unemployment rate—there is an election out there, after all—it actually rose from 4.92 percent to 4.96 percent, statistically indistinguishable from no increase at all. And that increase was largely due to over 400,000 people coming into the labor force last month, a positive development.

To get at the underlying trend in job growth, it’s important to smooth out the monthly noise. Over the past three months, job gains have averaged 192,000, about the same trend as over the past year, and a slight acceleration over the last six months.

Source: BLS, my calculations

Source: BLS, my calculations

Now, let’s get under the hood and tick through some of the key indicators in today’s report:

–The labor force participation rate ticked up to 62.9 percent last month, its highest point since February and a half-a-point higher than a year ago. It still remains well below—about 3 percentage points below–its 2007 peak, though part of this decline is due to aging boomers’ retirements. Most economists believe that a strong job market could claw back at least one of those percentage points, which amounts to 1.6 million workers in today’s labor market, so even slow progress on this front is very welcomed.

–A better metric for a quick look at labor demand is the employment rate for prime-age (25-54) workers, which also ticked up last month, from 77.8 to 78 percent. This important variable also got whacked hard by the downturn but has made back about 2/3’s of its loss (see here for more detail on the important, long-term negative trend in employment rates). Over the past year, it is up 0.7 percentage points.

–The underemployment rate, which includes the 5.9 million part-timers who want full-time jobs, is stubbornly stuck at an elevated 9.7 percent, which is where it has been since July. I estimate that an underemployment rate in the mid-8’s is consistent with full employment, so this is one of the stronger indicators showing that we’re not yet where we need to be.

–Manufacturing employment fell 13,000 last month and is down 58,000 so far this year. Since 2015, job growth in the factory sector has been flat, after rising over 300,000 from 2013-14. One factor in play here is the stronger dollar (along with slower growth abroad), which has made our exports more expensive in foreign markets, generating competitive pressures for our manufacturers. Given the political salience of this issue in the current election, it’s important to note that the stronger dollar is far more a function of relative growth rates and the plans of our Fed to raise rates than it is evidence of currency manipulation. (That’s not to say we shouldn’t worry about currency manipulation—I still take my umbrella even when the sun’s out.)

–Wages! I’ve long argued that as the job market tightens up, middle and low-wage workers get more bargaining clout, which in turn helps steer more of the economy’s growth their way. After being stuck at around 2 percent for years, average hourly wage growth has trended up and is up 2.6 percent over the past year (see figure). Fed Chair Janet Yellen has argued that 3.5 percent is the non-inflationary ceiling for wage growth (compensation, really, but we only get the wage part in this report), so we’re still well below that target, with a lot more room to grow.

Source: BLS

Source: BLS

It is, of course, important when you’re talking wage growth to get away from the average: the blue-collar, non-manager wage has also accelerated, up 2.7 percent over the past year.

Bottom line, the job market is into a very steady groove, as employers continue to add jobs at a rate of around 160K-200K per month. That may be fast enough to pull workers in off the sidelines; it’s clearly enough to generate some wage pressures, though I hasten to add that they’ve been non-inflationary. We still have a ways to go on both underemployment and the employment rates of prime-age workers, but at least on the latter, the gap is closing. While the real value of the dollar in international markets has not grown much in recent months, its elevated level continues to take a toll on job growth in manufacturing.

Of course, this report will become fodder for the campaigns. The fact is that there’s nothing at all in this report, or much more importantly, the trend labor market data, to make a case that the US job situation is in terrible, horrible shape. Nothing, nada, zip. It’s not in the data. We’re not at full employment, and there are the negatives I just noted. But we’re moving in the right direction at a good clip, and that’s finally starting to steer some long-awaited wage growth to those who depend on paychecks as opposed to tax avoidance.

Larry Lindsey picks cherries, ignores jobs

October 5th, 2016 at 3:12 pm

I tend not to bother with the WSJ’s editorials and op-eds; they often read to me like news from an alternative universe, one where the facts are whatever you say they are. More interesting are pieces, such as this one by economist Lawrence Lindsey, that gets some facts right, but portrays them in a misleading way that deserves to be corrected.

In the course of producing their budget, presidential administrations generate economic forecasts of GDP growth, unemployment, interest rates, and price growth. Lindsey went through a bunch of these forecasts by team Obama (of which I was once a member) and showed that they’ve consistently overestimated GDP growth. From there, he concludes that President Obama failed to learn from his mistakes and that any “plan to continue the same failing policies for another four years while expecting a different result is simply insane.”

First, it’s notable the Lindsey says not a word about jobs. The figure below replaces GDP with the unemployment rate and performs a similar analysis as that in his piece. Here, the administration’s forecast were generally on track; if anything, they were too pessimistic, as the actual jobless rate fell faster than they expected. In fact, as the Obama economists love to remind us, “U.S. businesses have now added 15.1 million jobs since early 2010…the longest streak of total job growth on record.”

Source: Obama admin's Office of Management and Budget (OMB)

Source: Obama admin’s Office of Management and Budget (OMB)

Some of that is due to ongoing weakness in labor force participation, but there’s no question that the job market is closing in on full employment. And thanks to the tightening job market, real wages are rising, middle- and low-income households are posting historically large income gains, and the Fed is poised to raise rates to slow the economy down, all of which is completely inconsistent with Lindsey’s conclusion.

To be clear, I’m much less quick than Lindsey to link everything that’s happening in the economy to the president. After all, congressional dysfunction has got to be in the mix here, too, not to mention demographic trends and technological developments that are far less blown about by the winds (mostly hot air) of politics. But that said, given recent gains in jobs and middle-class incomes and declining poverty rates, building on this progress seems as far from “insane” as you can get.

Adding in the sharp decline in the share of Americans without health coverage—a clear outcome of an Obama policy—only further bolsters my point, as does this recent assessment by Obama’s economists of the extent to which his policies have reduced income inequality. And let’s not forget that any useful economic policy the administration has been able to implement, like health care reform or progressive tax changes, has been achieved in the face of hurricane force political headwinds.

Second, while it’s certainly true that the Obama Administration has overestimated GDP growth, so has almost everyone else, including the Fed, CBO, and the IMF, which has overestimated GDP growth in most other economies as well. (As a snarky side-note, I’ll add that when Lindsey was a top economist with the GW Bush team, they forecast GDP to go up 2.6% in 2001 when the actual change was a recession-induced 0.2%.)

What’s really going on here is revealed by simple arithmetic: relatively low GDP growth coupled with strong employment growth implies weak productivity growth, a real problem which we see across all advanced economies.

Serious economic analysis must take up this challenge of understanding the slowdown in productivity growth, as I’ve tried to do in various places. But if we’re too busy cherry-picking the data to whack the administration while ignoring any positive developments on the plus side of the ledger, we’ll never learn anything useful.