What Should We Do?

July 6th, 2012 at 4:02 pm

The economic data plots look like EKGs of a patient who’s not getting sicker but isn’t getting better fast enough either.  Unless you’re hiding under a rock somewhere—and it must be very hot under there if you are—this morning brought another in a series of weaker-than-expected jobs reports.

Payrolls were up by 80,000 last month and the unemployment rate was unchanged at 8.2%.   That’s not the disaster that partisan politicians will say it is, but it is a clear sign of a downshifting in the pace of job growth from earlier in the year.

In the first quarter of the year, payrolls were up an average of 226,000 per month; in the second quarter, which includes last month’s data reported out today, that average monthly gain fell to 75,000.  The fact that the unemployment rate has been stuck hovering around 8% for months now also confirms that we’re stuck just north of neutral.

Isn’t there anything anyone can do about this?  Just for a (very refreshing) moment, put aside the campaign sparring and congressional gridlock, and let’s think about this.  Actually, I just went on the new MSNBC show, The Cycle, and they asked me what I’d do if I were king for a day (I of course said my first ruling would be to make me king for a month—btw, I think their team is mixing things up in a very cool, fun, and interesting way).

First, some diagnosis.  For the record, it’s not the President’s fault—to the contrary—his fingerprints are all over what growth we’ve seen so far.  It’s not health care reform or the EPA or high taxes or the liberal media or the conservative media.  It’s:

a)      Consumer demand remains weak and when your economy is 70% consumer spending, that’s kinda important;

b)      Housing is not as bad as it was, but it’s bumping along the bottom—that’s better than continued home-price declines, but neither is the sector leading us out of the woods;

c)      Europe is definitely shaving growth off of our economy, through diminished exports and financial distress;

d)      Fiscal policy is pushing the wrong way in various ways.  It’s not just nervousness around the fiscal cliff (the big tax hikes and spending cuts set to kick in on Jan 1, 2013).  It’s fiscal drag from fading stimulus and state budget cuts.

Next, prescriptions—and remember, I’m king:

Monetary policy: Benny B and Co. over at the Fed keep saying they’re waiting to see if the economy has slowed for real.  I think we can say, based on that quarterly deceleration in job growth cited above that it likely has.

There’s more the Fed could do and they should do it, but without getting into the details of their “quantitative easing,” the key diagnostic point is that the Feds are targeting interest rates.  In this case, it’s longer term rates, and their actions are intended to bring those rates down (short term rates are already about zero).

But investors aren’t sitting on the sidelines (and atop heaps of cash reserves) because interest rates are too high.  It’s because demand is too weak and they just don’t see projects here in America that promise to yield them much of a return.  That’s why the profitability you see—and there’s been plenty in the corporate sector—has come from abroad.  In fact, last month corporate profits stumbled, as even foreign emerging market economies began to slow.

No, the only thing that will really help right now is a solid slug of job creation measures, the more direct the better.

—We should get started right away on two big, phat infrastructure projects: 1) bury the power lines (and I was writing about this before last week’s derecho), and 2) repair the public schools (FAST!)

—Fiscal relief to states to prevent more layoiffs of teachers, cops, etc.  Last month saw yet another significant decline in local education jobs (-14,000) and in all but three of the last 25 months, the public sector has shed jobs.

—Kick the FHFA into gear regarding cooperation on principal reduction.  If this means rolling some heads, then do so.  This is a time for such action.

—Extend unemployment benefits which are now fading—they’ve got a great bang-for-the-buck and to extend them is perfectly consistent with the downshift in the job market and the fact that long-term unemployment remains highly elevated.

Boom—four simple, solid ideas that can get to work quickly, complementing and juicing the Fed’s monetary stimulus (which is why Bernanke, not exactly a radical economist, has called for fiscal help).  IMHO, that’s what we should do.  If you’ve got a different diagnosis and prescription, lay it on me.

OK…dream over.  For the record, most of these ideas are on the White House’s agenda.  When the President said today something like, “We’ve got good answers—but we’ve got a stalemate,” he speaks truth.

But back here in reality, my kingship over, what will we do?  Bake in the sun until the problems fix themselves, I guess.

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14 comments in reply to "What Should We Do?"

  1. Tyler Healey says:

    I recommend a full suspension of the payroll tax. Every year, the payroll tax takes about one trillion dollars out of primarily the middle class’s pockets. This is a demand killer, which means it is a jobs killer.

    • Joe Marinaro says:

      Social Security and Medicare are already effectively bankrupt. You now want to stop all funding contributions. Curious as to how that would impact:

      1. Deficit and debt levels.
      2. Future health of those programs
      3. With less contributions how would individual future payouts be impacted?

      No, we have to maintain or even increase contributions. Instead, reduce the lowest marginal tax rate to put money into the taxpaying public’s hands.

      • Arline Mathews says:

        The statistics say otherwise. Neither Social Security or Medicare are bankrupt. This is false propaganda from those who have been out to destroy Soc. Sec. since the Roosevelt Administration.

        The Soc. Sec. Adm. has enough cash on hand to fund it for the next 30 years. The fear has to do with the fact that the baby boomers are getting toward retirement age.

        If the money that the Republicans borrowed from it that would totally answer any future problem.

        The reason Soc.Sec. is called an “entitlement” is because this was required insurance that would keep you from abject poverty in old age. You paid all of your premiums into the insurance program all of your working years and depending upon how much you invested of your money that was the benefit you would receive ay age 65.

        If a private insurer made a deal with you, drew up a contract or policy, and then changed the terms on you by saying – no you can’t receive your benefits until a later age because the insurer says they are having tough times. It would be called FRAUD and you would have a really good law suit against them in which they could pay punitive or punishment damages.

        • Darrell Prince says:

          Thank god; someone smashed that. Those blatantly wrong comments plucked straight from fox headlines.Medicare and Social Security are NOT the problems, and they are paid into insurance… changing the bargain or not keeping it the same way is borderline FRAUD, something you prefer your government to stay out of. *
          So since we have now cleared that conversation, we can get back to how to fix things.
          Conservation now.
          Less you use, less you spend.
          Less is more, especially with energy.
          Money put in now pays off for years.

          *There are some efficiencies to be gained, by using surpluses to invest in homes seniors can have their choice of, and can be operated at a very low cost with a community pot. Hopefully most folks can get support from their families, and are stable with or without.

  2. Guest says:

    The cost to bury the power lines in just DC (where much are already buried, and in a moderately dense city) is 6 billion dollars. Divided by 600,000 people and that is $10,000 per person. Doesn’t seem that stimulative for a once in a blue moon power outage. Might as well just cut a check to people for 10,000 rather than burying power lines.


    • Stephen R Langenthal says:

      I’m not sure where the 6 billion figure comes from. In Concord, Massachusetts they do it for about $600,000 per mile and the figure thrown out by most utilities is $1,000,000 per mile.
      The work would create jobs, stimulate manufacturing, improve dependability and security and improve the visual environment.
      In addition, the undergrounding does not have to be done all at once. it could be done gradually.
      Power Underground, Inc., has arranged with MIT to study undergrounding and come up with solid numbers on job creation,manufacturing stimulation and the rest.

  3. Sandwichman says:

    “Isn’t there anything anyone can do about this?”

    As Dean wrote in the Guardian on Tuesday, “There is nothing natural about the length of the average work week or work year and there are, in fact, large variations across countries. The average worker in Germany and the Netherlands puts in 20% fewer hours in a year than the average worker in the United States. This means that if the US adopted Germany’s work patterns tomorrow, it would immediately eliminate unemployment.”


  4. rjs says:

    repairs are faster than new infrastructure, which would get bogged down in permitting & environmental reviews…

    some things needing repair:

    100+ year old sewer & water systems, most eastern cities…

    locks on the ohio river (delays are costing industry plenty)

    gulf ports (cant handle large asian container ships that will pass thru enlarged panama canal)

    get on it right away, before we wake up one morning & find we’re living in a 3rd world country…

    • Joe Marinaro says:

      You’re forgetting the biggest repair … simply repaving roads and highways. Problems with doing those nuts and bolts works is that a politician can’t well attach his or her name to a basic repaving project – “The Chuck Schumer Repaved Rt. 25”?? Don’t think so.

  5. masaccio says:

    This isn’t going to happen. You know it and I know it. We are well and truly screwed.

    Too bad we didn’t prosecute banksters. That would have restored my confidence.

  6. davesnyd says:

    OK; but as much as your readers might wish it, you won’t be king for a day. Or President, either. Or FED chief.

    On your list, there’s only one thing President can do unilaterally– the FHFA stuff.

    Does that mean that the test of how serious he is about job growth (and reelection) is whether he moves on that?

    What’s not on your list– that Paul K discusses frequently– is the FED setting an expectation that inflation should and will be at the 4% level. His claim is that will push companies to invest their hordes. So that’s another (almost unilateral by Ben B.) step that *could* be taken.

    Other than that, I think we’re left with the President campaigning against a do-nothing Congress. Best case, he wins and has two houses. More likely case, he might win and have one.

    In neither case do I see a likely improvement in the governing climate.

  7. Misaki says:

    Great, you created 1 million jobs but unemployment is still at 7.5% because of people re-entering the work force. But it was a good start for day one of a month-long reign!

  8. Arline Mathews says:

    It is imperative that we invest in our own people, whether it be burying power lines, shoring up bridges and making the dams and roads and levees safer, or all of the above, this investment in jobs and ultimate consumerism is essential if we are to remain a power to be reckoned with.

    Our country depends on our ability to have consumer buying power and a strong and growing middle class. Through investing in education, teaching job skills, and building homes and streets to get to work from suburbia we became a world power. THE G.I.BILL DID THAT FOR US AFTER WW2.