April 19, 2021

Today’s Economist: Inflationphobia, Part II


Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of the forthcoming book “The Benefit and the Burden: Tax Reform – Why We Need It and What It Will Take.”

Last week, I discussed the phenomenon of inflationphobia – an irrational fear of inflation that is constraining the Federal Reserve and holding back the economy. The roots of inflationphobia go back at least to the Great Depression, when inflationphobes made the same arguments year after year despite continuing deflation – a falling price level.

Today’s Economist

Perspectives from expert contributors.

The defining characteristic of the Great Depression was deflation, which began in 1927, two years before the stock market crash. The following data from the Bureau of Labor Statistics show the average change in the Consumer Price Index.

Bureau of Labor Statistics

Between 1926 and 1933, the price level fell about 25 percent. This meant that any obligation fixed in dollars increased 25 percent in real terms. This was particularly important in two areas – wages and debts. If a worker managed to keep the same monetary wage between 1926 and 1933, she actually got an increase in pay of 25 percent in terms of what she could buy because the prices of things she consumed fell 25 percent.

Similarly, if one had a debt in 1926, the real burden of that debt and the debt service increased 25 percent between 1926 and 1933. This was especially important for farmers because the prices of agricultural produce fell very rapidly and the burden of their debts increased just as rapidly.

The great economist Irving Fisher thought that the increasing real burden of debt resulting from deflation was the core cause of the Great Depression.

Despite the falling price level year after year, there were inflationphobes even then, who saw signs of inflation, inevitably leading to German-style hyperinflation, everywhere. The leading inflationphobe was a writer named Henry Hazlitt. Although not trained as an economist, he had a strong interest in the subject and the rare skill to write about it clearly.

H.L. Mencken once said of Mr. Hazlitt that he was “one of the few economists in human history who could really write.” From 1934 to 1946, he was an editorial writer for The New York Times, writing a vast number of editorials and signed articles, mainly on economic issues.

In 1932, Mr. Hazlitt was still writing for The Nation magazine, where he was a strenuous supporter of the gold standard and a fierce critic of John Maynard Keynes, whom he viewed as nothing but a crude inflationist. Mr. Hazlitt thought the cure for deflation was for all workers to slash their wages, which would lower business costs and restore growth. Debtors would simply repudiate their debts and renegotiate them.

No doubt if workers had been willing to slash their wages 25 percent, and banks and bondholders had been willing to slash their interest and principal 25 percent, this would have gone a long way toward alleviating the negative economic effects of deflation. But absent a law requiring it – which the libertarian Mr. Hazlitt would have opposed – this process could only take place slowly, painfully and unevenly.

By contrast, simply reflating the price level back to its 1926 level was relatively easy. The Federal Reserve just had to increase the money supply sufficiently. By the 1960s, even the arch-conservative Milton Friedman said this was what the Fed should have done.

But in the early 1930s, the idea of reflation was controversial, mainly because bondholders enjoyed getting back 25 percent more than they had lent in real terms. Why should they give that up? That is why one of the strongest supporters of the gold standard and opponents of reflation was Benjamin M. Anderson Jr., chief economist of the Chase National Bank.

Irving Fisher and other economists argued in favor of reflation, even being joined by Winston Churchill, who had lately been chancellor of the Exchequer in England. But the most outspoken advocate of reflation was Mr. Keynes, who was quoted in The Wall Street Journal on March 2, 1932, as saying, “It is unthinkable that we can step straight from the financial crisis to relief of the industrial crisis without the cheap money phase intervening.”

In 1933, Franklin D. Roosevelt became president and tried to stanch the deflation by suspending the gold standard and proposing legislation that would fix prices and prevent them from falling further. But these policies were ineffective because they did not get at the root of the problem, which was a fall in the money supply.

This resulted because there was no deposit insurance, so bank deposits literally disappeared when banks failed, and because the Fed refused to offset the resulting fall in the money supply through open-market monetary operations.

Mr. Fisher and some members of Congress kept pointing to the Fed, but to no avail. Responding to Republican attacks on reflation, Mr. Fisher said, there is “absolutely no escape from our present imminent danger except through reflation.”

They were opposed by Mr. Anderson and the New York banker James P. Warburg, who demanded restoration of the gold standard. In 1934, Mr. Warburg published a book detailing his criticism of reflation that was favorably reviewed in The Times by Mr. Hazlitt.

In a June 10, 1934, article for The Times, Keynes explained that monetary stimulus by itself was insufficient to stop deflation and that the
price-fixing instituted by the National Industrial Recovery Act was counterproductive, if well intentioned. He said government spending was essential to get money moving throughout the economy and recommended an increase of $400 million per month – close to $100 billion per month in today’s economy.

In an editorial probably written by Mr. Hazlitt, The Times rejected any resort to inflation no matter how much prices fell. “The one thing your inflationist cannot have too much of is inflation,” the editorial said. “Give him one dose and he becomes much more emphatic in his demands for another.”

In other words, it’s always a slippery slope – a little inflation today invariably leads to hyperinflation tomorrow. If economic stagnation and high unemployment result, it’s a small price to pay to avoid something worse, the inflationphobes always assert.

Next week I will have more to say about inflationphobia.

Article source: http://economix.blogs.nytimes.com/2013/07/16/inflationphobia-part-ii/?partner=rss&emc=rss

Shortcuts: A Quest to Make College Graduates Employable

It’s that last part of the equation that I’m going to focus on. My heart sinks every time I read a news story or opinion piece quoting employers who charge that four-year colleges and universities are failing to provide graduates with the skills they need to become and remain employable.

Of course, in many ways, this isn’t a new story.

“A four-year liberal arts education doesn’t prepare kids for work and it never has,” said Alec R. Levenson a senior research scientist for the Center for Effective Organizations at the University of Southern California.

Mara Swan, the executive vice president of global strategy and talent at Manpower Group, agreed.

“There’s always been a gap between what colleges produce and what employers want,” she said. “But now it’s widening.” That’s because workplaces are more complex and globalized, profit margins are slimmer, companies are leaner and managers expect their workers to get up to speed much faster than in the past.

“Employers are under pressure to do more with less,” Ms. Swan said.

Unemployment rates for those with bachelor’s degrees or higher are still much better — at 3.8 percent in May — than those with only a high school diploma, which was 7.4 percent in May, according to the U.S. Bureau of Labor Statistics.

Nonetheless, a special report by The Chronicle of Higher Education and American Public Media’s Marketplace published in March found that about half of 704 employers who participated in the study said they had trouble finding recent college graduates qualified to fill positions at their company.

But, surprisingly, it wasn’t necessarily specific technical skills that were lacking.

“When it comes to the skills most needed by employers, job candidates are lacking most in written and oral communication skills, adaptability and managing multiple priorities, and making decisions and problem solving,” the report said.

Jaime S. Fall, a vice president at the HR Policy Association, an organization of chief human resources managers from large employers, said these findings backed up what his organization was hearing over and over from employers.

Young employees “are very good at finding information, but not as good at putting that information into context,” Mr. Fall said. “They’re really good at technology, but not at how to take those skills and resolve specific business problems.”

This isn’t a dilemma just in this country, but around the world, Ms. Swan said. A global study conducted last year of interviews with 25,000 employers found that nine out of 10 employees believed that colleges were not fully preparing students for the workplace.

“There were the same problems,” she said. “Problems with collaboration, interpersonal skills, the ability to deal with ambiguity, flexibility and professionalism.”

But it’s easy for the issue to degenerate into finger-pointing.

“If you sat down with a committee of professors, and told them students are not coming out with the skills they need, they would say, ‘you’re smoking something,’ ” Mr. Levenson said. “The trouble is, those skills are applied in a college context, not a workplace context.”

But, he added, “you can’t create a school-based curriculum that can help someone transition to being highly productive on the job in 10 days.”

In other words, the onus shouldn’t just be on universities; employers also need to step up to the plate.

The in-depth training programs and apprenticeships of the past are unlikely to come back, so companies must become more innovative in helping young employees come up to speed, according to a report released in May by Accenture, a management consulting and outsourcing company.

“Rather than simply bemoaning the inability to find employees with the skills required for available jobs, organizations must step up with new and more comprehensive enterprise learning strategies,” Accenture stated in a summary of The Accenture 2013 College Graduate Employment Survey, which queried 1,010 students graduating from college in 2013 and 1,005 who graduated in 2011 and 2012.

The problem, it said, is that most recent college graduates expect employers to provide on-the-ground training, but most of them don’t actually receive it.

E-mail: shortcuts@nytimes.com

Article source: http://www.nytimes.com/2013/06/29/your-money/a-quest-to-make-college-graduates-employable.html?partner=rss&emc=rss

Employment in U.S. Lags Where It Was in 2007

Indeed, contrary to the widespread view that the United States is an island of relative prosperity in a global sea of economic torpor, employment in several other nations has bounced back more quickly, according to a new analysis by the Bureau of Labor Statistics.

The government reported Friday that the nation added 175,000 jobs in May, continuing a 32-month run of job gains. The unemployment rate moved up slightly to 7.6 percent, from 7.5 percent in April.

But overall employment in the United States remained 2.1 percent below where it was at the end of 2007, according to the statistics bureau. By comparison, over the same period, between December 2007 and March 2013, the number of jobs was up 8.1 percent in Australia; Germany, the biggest economy in the troubled euro zone, has managed a 5.8 percent gain in employment.

“The United States is way below where it should be,” said Lawrence F. Katz, a professor of economics at Harvard. “We had a massive downturn and a tepid recovery.”

Still, Friday’s jobs report appeared to be just what Wall Street was hoping for. Major stock market indexes jumped by 1.3 percent as traders bet that the modest employment gains and the uptick in joblessness meant that the Federal Reserve would be forced to keep pumping money into the economy in a bid to stimulate greater growth.

The Fed’s push to keep short-term interest rates near zero and flood the economy with trillions of dollars since the onset of the recession has been credited with staving off a far deeper downturn. It also has helped stabilize the housing market and given Wall Street a major lift since the dark days of early 2009, when the Dow Jones industrial average was below 7,000. On Friday, the Dow closed at 15,248.12, more than double the recession low.

The United States economy is performing relatively well by some yardsticks — a steady increase in economic output, a surge in corporate profits and new stock market highs — but the robust job market that is a key focus now of Ben S. Bernanke, the chairman of the Federal Reserve, and other Fed policy makers remains out of reach.

While several European countries have fared worse, Canada, Sweden and even Britain, which is trapped in yet another recession, have enjoyed healthier job gains than the United States. In fact, of the nine countries surveyed by the Bureau of Labor Statistics, only perennially-troubled Italy and Japan performed worse.

A big part of the problem, economists say, is just how big a hole the American economy fell into in the first place. Not only did the global economic downturn begin here, it also enveloped the housing market and the banking system, sectors that were largely spared in many other countries.

“Canada didn’t really have much of a housing bust,” Mr. Katz said.

A new paper by two economists from the University of British Columbia, Florian Hoffmann and Thomas Lemieux, concludes that over half of the recent variation in employment trends between the United States on the one hand, and Canada and Germany on the other, can be attributed to the construction sector.

Although the construction field gained 69,000 jobs in the first five months of 2013, with 5.8 million jobs in May, that was still nearly two million fewer jobs than in 2007, according to the Labor Department.

Other countries have generated jobs on the basis of strong exports. Germany’s economy, for example, was powered until recently by shipments of machinery, cars and other products of its high-end manufacturing industries. Australia emerged largely unscathed from the downturn, thanks to booming Chinese demand for raw materials.

The German government also went to great lengths to discourage outright layoffs, instead encouraging employers to keep workers in a part-time capacity. At the same time, letting workers go in Europe is a much more costly proposition for big employers than it is in the United States.

Another challenge in the United States, Mr. Katz said, is the fiscal squeeze in the public sector, as the government continues to shed jobs at a rapid rate.

Reporting was contributed by Catherine Rampell, Annie Lowrey and Binyamin Appelbaum.

Article source: http://www.nytimes.com/2013/06/08/business/employment-in-us-lags-where-it-was-in-2007.html?partner=rss&emc=rss

Economix: Life Is O.K., if You Went to College



Dollars to doughnuts.

Despite all the questions about whether college is worth it or not, college graduates have gotten through the recession and lackluster recovery with remarkable resilience.

The unemployment rate for college graduates in April was a mere 3.9 percent, compared to 7.5 percent for everyone else. And among all segments of workers sorted by educational attainment, college graduates are the only group that has more people employed today than when the recession started.

Here’s a look at how employment has changed since the recession officially began, in December 2007, sorted by education.

Source: Bureau of Labor Statistics, via Haver Analytics. Data refer to workers age 25 and older. Source: Bureau of Labor Statistics, via Haver Analytics. Data refer to workers age 25 and older.

The number of college-educated workers with jobs has risen by 9.1 percent since the beginning of the recession. Those with a high school diploma and no further education are the near mirror image, with employment down 9 percent on net. Workers without even a high school diploma have seen their employment levels fall 14.1 percent.

Finally, for those with some college but no bachelor’s degree, employment fell during the recession and is now back to exactly where it began: There were 34,992,000 workers with some college employed in December 2007, and there are 34,992,000 in the same boat today

In other words, college-educated workers have gobbled up all of the net job gains. In fact there are now more employed college graduates than there are employed high school graduates and high school dropouts put together.

Source: Bureau of Labor Statistics, via Haver Analytics. Data refer to workers age 25 and older. Source: Bureau of Labor Statistics, via Haver Analytics. Data refer to workers age 25 and older.

It’s worth noting, too, that even young college graduates are finding jobs, if you look at the most recent cut of data on this subgroup (which is from 2011).

As I wrote in an earlier post, in 2011, the unemployment rate for people in their 20s with college degrees or more education was 5.7 percent (for those whose highest credential was no more than a bachelor’s, the number was 5.8 percent). For those with only a high school diploma or G.E.D., it was more than twice as high, at 16.2 percent.

Sources: October School Enrollment Supplement, Current Population Survey, Bureau of Labor Statistics; Thomas Luke Spreen. Sources: October School Enrollment Supplement, Current Population Survey, Bureau of Labor Statistics; Thomas Luke Spreen.

Of course, just because college graduates have jobs doesn’t mean they have “good” jobs.

There is ample evidence that employers are hiring college-educated workers to perform jobs that don’t actually require college-level skills — positions like receptionists, file clerks, waitresses and car rental agents. This form of underemployment might be one reason why we see so much growth in employment among college graduates despite the fact that the bulk of the jobs created in the last few years have been low-wage and low-skilled.

Clearly positions in retail and food services are not the best use of the hard-earned (and expensive!) skills of college-educated workers. But at least those graduates are finding work and income of some kind, unlike their less-educated peers. And as the economy improves, college graduates will be better situated to find promotions to jobs that do use their more advanced skills and that pay better wages.

Article source: http://economix.blogs.nytimes.com/2013/05/03/life-is-o-k-if-you-went-to-college/?partner=rss&emc=rss

Economix Blog: Betting on Job Growth

The latest government figures detailing job growth in August — or lack thereof — won’t be out until Friday morning, but some economists are already speculating that the figures may be stronger than expected.

Making predictions is notoriously tricky, but better-than-expected data on Thursday from Automatic Data Processing, a private payroll firm, showed a private sector job gain for August of 201,000, much higher than the 145,000 private sector forecast from economists.

As a result, the chief United States economist at Morgan Stanley, Vincent Reinhart, raised his prediction for Friday’s government report to 125,000 total nonfarm payroll jobs from an earlier estimate of 100,000.

Other economists cautioned against reading too much into Thursday’s figures from A.D.P., which tracks private sector employment. Friday’s figures include both public and private jobs.

“The A.D.P. number is unexpectedly strong today, but it hasn’t been a terrific predictor of where the Bureau of Labor Statistics figures will be,” said Peter Cappelli, a professor of management at the Wharton School and director of the school’s Center for Human Resources. A.D.P. figures have trended higher than government data in the past.

Another forecasting tool is the weekly report on first-time unemployment claims. Last week, they fell 12,000, to 365,000. The prediction had been for 370,000 new claims.

Ahead of Friday’s release, the consensus estimate among economists stood at 125,000 for the total number of new nonfarm jobs created in August.

Maury Harris, chief United States economist at UBS, said that if the number came in at 100,000 or lower and the unemployment rate stayed at 8.3 percent, that would be a big disappointment for traders. But he said that anything higher than 150,000 would be a positive surprise.

Article source: http://economix.blogs.nytimes.com/2012/09/06/betting-on-job-growth/?partner=rss&emc=rss

Bankrupt Restaurants Are Still Holding On

Many of the undead are part of familiar chains that filed for Chapter 11 bankruptcy protection this year: Friendly’s, Chevys, Sbarro, Perkins. The zombie restaurants, barely bringing in enough cash to cover basic expenses, always seem to be one sizzling fajita or glazed chicken skewer away from a merciful end, but somehow keep hanging on — leaving too many restaurants chasing after scarce dining dollars.

“There’s a lot of walking dead,” said Bob Goldin, executive vice president for Technomic, a consulting firm that works with restaurant companies. “A lot of chains, they hang in there and they’re hard to kill off.”

Consumers, who have generally cut back on the number of meals out since the recession began, are benefiting from the proliferation of zombies. Healthy and failing restaurants alike have been forced to discount relentlessly to lure diners. But for the restaurants, particularly small independent operators, the competition from the undead is a nightmare that just won’t end.

The hard times for restaurants began in 2008, as the recession and staggering unemployment forced Americans to cut back on dining out. During the 12-month period ending in August, the average American ate or got takeout at restaurants 195 times, down from 208 times in 2008, according to Harry Balzer, the chief food industry analyst for the NPD Group.

The industry puffed up like a soufflé in the boom years. Led by quickly expanding chains, the number of restaurants in the country grew by more than 100,000 from 1996 to 2008. By that year, there were 545,678 restaurants nationwide, according to the Bureau of Labor Statistics.

When things turned bad, many analysts said the total number of restaurants needed to shrink by at least 20,000 to bring supply and demand back into balance.

Instead, the number of restaurants kept growing, albeit more slowly.

Sales have taken a beating along the way. For example, at Applebee’s, one of the nation’s largest midprice chains with more than 2,000 restaurants, sales at restaurants open at least 18 months slumped every quarter from mid-2008 through the middle of 2010. The chain’s sales have grown modestly since then, compared with the low level of sales during the recession, but dipped again in the three months ending Sept. 30.

Analysts say the restaurant industry bears some similarities to the consumer electronics retail industry. Before 2009, there were far too many electronics stores. Then, Circuit City failed, closing 567 stores. The sudden shuttering was painful for the chain’s 34,000 employees, but it meant greater market share for other retailers, like Best Buy, Walmart and Target.

“We need that Circuit City event,” said Steve West, a restaurant industry analyst for ITG Investment Research.

That kind of reckoning has remained elusive, despite bankruptcy filings this year by several major chains.

When Friendly’s Ice Cream, the chain based in Massachusetts, filed for bankruptcy protection in October, it said it would close 63 underperforming restaurants. But the company said it would continue to operate 420 stores, and a spokesman said it was making plans to expand again.

In California, Real Mex Restaurants, which owns several chains, including the midprice Chevys Fresh Mex, closed just 30 outlets after it filed for bankruptcy in October. It continues to operate 156 restaurants.

After Sbarro, the Italian fast-food chain, filed for bankruptcy in April, it closed 31 stores in the United States, but kept the doors open on 429.

Mr. West said that many chains and independent restaurants were able to survive the recession because their costs fell along with demand. Labor costs went down, as high unemployment led to lower worker turnover and gave restaurant owners greater ability to adjust worker schedules and hours.

Prices for food commodities also fell sharply. “It saved all these companies that we thought were going bankrupt,” Mr. West said.

Article source: http://feeds.nytimes.com/click.phdo?i=f98f2e243231d35786033f34a0865c2a

Economix Blog: Cubicle Nation



Dollars to doughnuts.

The occupation employing the greatest share of American workers is paper pushers, according to the Bureau of Labor Statistics.

Well, technically the bureau reports that a plurality of workers — 16.9 percent — are employed as “office and administrative support,” but you get the idea. Here’s a chart from a new report on occupational employment:

DESCRIPTIONSource: Bureau of Labor Statistics, “Occupational Employment and Wages, 2010.” Excludes farming, fishing, and forestry occupations because the report does not cover the majority of the agricultural sector.

The Labor Department predicts that many of the jobs in this group — for example, mail clerks and proofreaders — will be replaced by automation in the next few years. Occupations in customer service, however, are expected to add about 399,500 by 2018 “as businesses put an increased emphasis on building customer relationships,” according to the bureau’s Occupational Outlook Handbook.

Article source: http://feeds.nytimes.com/click.phdo?i=5bfec5b1e331929dc55160650c5495a1

Economix Blog: City Hall Woes on the Jobs Front

Time was that government jobs were supposed to be safe.

Never mind.


Notions on high and low finance.

Today’s jobs report shows that the number of jobs in state and local government is down 3.3 percent from the peak reached in August 2008, the month before Lehman Brothers failed. (These numbers are after seasonal adjustment.)

That is the largest decline in such jobs registered since the Korean War, exceeding the fall during the early 1980s. The following chart shows the two downturns.

Source: Bureau of Labor Statistics, via Haver Analytics

What is remarkable about the current decline has been its relentlessness. There is an occasional one-month bounce — there was one in August — but that is probably more a reflection of poor seasonal adjustments than of actual hiring.

The early 1980s fall was more rapid, but the number of state and local government jobs hit bottom in July 1982, four months before the official end of the recession, and began to recover. The 2007-9 recession ended two years ago, but you can’t see any evidence of that in this chart.

Article source: http://feeds.nytimes.com/click.phdo?i=74f807090a7ca2de45770704c30f595a

Economix Blog: Spending Less on Entertainment and Charity



Dollars to doughnuts.

Americans ratcheted down their spending on entertainment and philanthropic donations in 2010, according to a new report from the Bureau of Labor Statistics.

Every year the bureau collects data on how Americans spend their money. Here’s a look at the budget of the average household:

DESCRIPTIONSource: Consumer Expenditures Survey, Bureau of Labor Statistics

According to these survey data, the average pretax income per consumer unit (which is, more or less, a household) fell 0.6 percent in 2010, to $62,481 from $62,857. But households disproportionately tightened their spending, which fell 2 percent in 2010, to $48,109 from $49,067. Spending had fallen 2.8 percent the previous year.

In fact, in these nominal dollars, the 2010 level of average annual consumer expenditures was lower than that for 2006.

Just about every major spending category fell last year, with two exceptions: health care (up 1 percent) and transportation (up 0.2 percent).

Percentage-wise, the biggest spending decline was in entertainment, which fell 7 percent last year, to $2,504 a household. The second biggest decline was in cash contributions — including payments to charities and religious organizations — which fell 5.2 percent, to $1,633 a household.

After that came spending on food away from home, which declined by 4.4 percent, to $2,505 a family.

Article source: http://feeds.nytimes.com/click.phdo?i=203ec94df434cbce32c08a5e2457e938

Economix Blog: The North Dakota Miracle

Forget the Texas Miracle. Let’s instead take a look at North Dakota, which has the lowest unemployment rate and the fastest job growth rate in the country.

According to new data released by the Bureau of Labor Statistics today, North Dakota had an unemployment rate of just 3.3 percent in July — that’s just over a third of the national rate (9.1 percent), and about a quarter of the rate of the state with the highest joblessness (Nevada, at 12.9 percent).



Dollars to doughnuts.

North Dakota has had the lowest unemployment in the country (or was tied for the lowest unemployment rate in the country) every single month since July 2008.

Its healthy job market is also reflected in its payroll growth numbers. North Dakota had 19,700 more jobs in July than it did during the same month last year.

That probably sounds like small potatoes when you look at Texas, which had 269,500 more jobs last month than it did a year earlier. But Texas is a much bigger, more populous state, and had many more jobs to begin with. In terms of percentage growth, North Dakota has a better record: year over year, its payrolls grew by 5.2 percent. Texas came in second, with an increase of 2.6 percent.

Why is North Dakota doing so well? For one of the same reasons that Texas has been doing well: oil.

Article source: http://feeds.nytimes.com/click.phdo?i=2939bba5680c96a34cf6813834e4fcb4