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Economix Blog: Casey B. Mulligan: Unemployment Compensation Over Time

December 21, 2011 by Leave a Comment

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Casey B. Mulligan is an economics professor at the University of Chicago.

The propensity of unemployed people to receive unemployment benefits reached historical highs after the 2008-9 recession and may indicate that benefit rules have more impact on the economy than ever before. The changing aggregate impact of unemployment insurance may be worth considering as Congress debates benefit extensions.

Today’s Economist

Perspectives from expert contributors.

Unemployment insurance offers funds, for a limited eligibility period (now up to 99 weeks), to “covered” people who lost their jobs and have yet been unable to find and start a new job.

Some economists suggest that unemployment insurance prolongs unemployment because recipients have to give up their benefits as soon as they find and start a new job, or return to working at a previous job.

Some economists also say they believe that unemployment insurance stimulates spending because unemployed people are thought to spend most, if not all, of the money they have on hand.

But neither of these effects can operate unless people take part in the program.

Historically, many of the jobless have not collected unemployment benefits because of ineligibility, lack of awareness or unwillingness to do so.

The chart below graphs the recipiency rate — the percentage of people unemployed who are collecting unemployment benefits that week — to 1986. It was calculated from weekly data, then averaged over 52 weeks to remove some of the large seasonal patterns.

The percentage is always well under 100, fluctuating from 31 to 68 percent. The peak recipiency rates seem to follow recessions; three national recessions have occurred since 1986, in 1990-91, 2001 and 2008-9. Previous studies covering the period 1960-94 found a similar pattern (although perhaps no recipiency rate peak was found after the 1981-82 recession), with a maximum recipiency rate for all 35 years of about 50 percent.

Some unemployed people cannot collect benefits because they quit their jobs, rather than being laid off. But quits are less common during recessions, one reason the recipiency rate is greatest during recessions.

Another reason that recessions can have high recipiency rates is that, by law, benefit eligibility periods are longer during recessions. Laws often increase the eligibility periods by a greater percentage than the average duration of unemployment increases, with the result that a larger percentage of the unemployed are eligible for benefits.

Among other things, the 2009 American Reinvestment and Reinvestment Act expanded eligibility for unemployment insurance by encouraging states to adopt an “alternative base period” benefit calculation rule that allowed a number of people with weak employment histories to qualify for benefits.

Long-term comparisons of recipiency rates are tricky because the data sources change and because of secular changes in the composition of unemployed, but it appears that recipiency rates were higher during 2009 than they have been in 50 years, and perhaps ever.

With such a large percentage of unemployed people receiving benefits, the potential employment and spending effects of those benefits may be greater than ever.

Article source: http://feeds.nytimes.com/click.phdo?i=fddc5be230de41065e9b27f34c633226

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Consumer Confidence Falls as Some Home Prices Rise

October 26, 2011 by Leave a Comment

The Standard Poor’s/Case-Shiller index showed Tuesday that home prices increased in August from July in 10 of the 20 cities tracked. That was the fifth consecutive month that at least half of the cities in the survey showed monthly gains.

The biggest price increases were in Washington, Chicago and Detroit. The greatest declines were in Atlanta and Los Angeles.

The August figures provide a “modest glimmer of hope” that some areas may have bottomed out and could be turning around, said David M. Blitzer, chairman of S. P.’s index committee.

He noted that cities in the Midwest — Chicago, Detroit and Minneapolis — had shown some strength since May.

In Detroit, the recovering auto industry has helped lead a small rebound in the housing market. Home prices have risen 2.7 percent since August 2010, making it and Washington the only two cities to post a year-over-year gain in that time.

Detroit was one of the cities hit hardest after the housing bubble burst more than four years ago. Home prices there are coming off 1995 levels. So the gains are relatively small compared with how far prices had fallen.

In Minneapolis and Chicago, fewer homes are being put on sale, leading to higher prices and better sales figures. That is probably because of fewer foreclosures in those cities. September’s drop in homes for sale in the Twin Cities was the largest in more than seven years, according to the Minneapolis Area Association of Realtors.

Still, Robert J. Shiller, the co-founder of the index and an economics professor at Yale, told CNBC that overall home prices were “flat” and a recovery in the housing market was not on the horizon.

The index, which covers half of all homes in the United States, measures prices compared with those in January 2000 and creates a three-month moving average. The August figures are the latest available.

Prices are certain to fall again once banks resume millions of foreclosures. They have been delayed because of a yearlong government investigation of mortgage lending practices.

A second private group reported on Tuesday that Americans say they feel worse about the economy than they have since the depths of the great recession. Consumer confidence fell in October to the lowest level since March 2009, reflecting the big hit the stock market took this summer and frustration with an recovery that does not feel like one.

The Conference Board, a private research group, said its index of consumer sentiment came in at 39.8, down about six points from September and seven points lower than economists were expecting.

The reading is still well above the 26.9 recorded two and a half years ago. But it is not even within shouting distance of 90, which is what it takes to signal that the economy is on solid footing.

Economists watch consumer confidence closely because consumer spending accounts for about 70 percent of economic activity. The index measures how shoppers feel about business conditions, the job market and the next six months.

Article source: http://feeds.nytimes.com/click.phdo?i=78b60ff394b0c85bb5d73bff741bd9cf

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Economix Blog: Casey B. Mulligan: Local and National Stimulus

August 25, 2011 by Leave a Comment

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Casey B. Mulligan is an economics professor at the University of Chicago.

It’s a lot easier to move spending from one area to another than it is to create spending anew. That’s why it may be too much to ask the federal government to use its ability to spend to get the recovery going.

Today’s Economist

Perspectives from expert contributors.

In 2009 the New York Yankees opened their new stadium on the north side of East 161st Street, replacing the historic stadium on the south side of the street. Not surprisingly, 2009 spending by consumers, news organizations and entertainment businesses, among others, on the north side of East 161st Street was a lot more than it had been in years past. It all started from the Yankees’ spending at the new location.

So a spending advocate might assert that this episode is proof that spending by one organization can stimulate spending by others, because the spending by the others on the north side of the street surged at exactly the same time that the Yankees started having their people work there.

Of course, such an analysis is flawed, because it ignores what happened on the other side of the street. Much of what happened north of East 161st Street was just a displacement of activity from the south side, rather than a creation of new activity. Even the construction workers building the stadium may well have been drawn from other tasks.

This pattern is not special to the Yankees’ move. A number of studies have shown that consumer spending associated with a sports team to a large degree displaces spending in other areas and displaces spending on other leisure activities; a family is unlikely to conclude that because there’s a new team in town or a new stadium, it should sharply increase its spending on entertainment.

Yet ignoring the displacement effects is exactly what Paul Krugman and Dean Baker have done in their praise of recent studies that use “cross-state variation in stimulus spending per capita to estimate the employment effects of the stimulus,” studies comparing states that received more stimulus to states that received less.

Spending from the American Recovery and Reinvestment Act (a.k.a., the “stimulus”) could be very much like the stadium spending — a locality that received more stimulus spending merely enjoyed a displacement of activity into its area from localities that received less spending, and that nationally little or no additional spending occurred as a result of the legislation.

If you want to know about the national effects of the stimulus, at least part of the analysis has to look at the nation as a whole. The same is true of the national effects of changes in labor supply. If one group suddenly becomes more willing to work, it is possible that the group solely takes jobs from the rest of the population, with no new jobs being created for the nation as a whole.

That is why, in addition to looking at the experiences of specific groups and specific regions, I have examined the effects of supply and demand on national employment. (Professor Krugman and Dr. Baker assert in so many words that I ignore national employment, though my papers on the subject look very much at national aggregates. For example, see Figure 3 and Figure 6 of this paper and Table 2, Table 3, Figure 2, Figure 3, Figure 4 or Figure 5 of this paper).

I found, for example, that national employment increases during the summer precisely because young people are more willing to work. Not surprisingly, the summer surge of young job seekers does seem to reduce employment of the rest of the population, but the net national effect is still almost a million more jobs in the summer.

For now, it appears that government spending reduces private spending, even while it may benefit specific regions or groups.

Article source: http://feeds.nytimes.com/click.phdo?i=3de0f98783f264b64f43021f2aa6a23b

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Economix Blog: Local and National Stimulus

August 24, 2011 by Leave a Comment

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Casey B. Mulligan is an economics professor at the University of Chicago.

It’s a lot easier to move spending from one area to another than it is to create spending anew. That’s why it may be too much to ask the federal government to use its ability to spend to get the recovery going.

Today’s Economist

Perspectives from expert contributors.

In 2009 the New York Yankees opened their new stadium on the north side of East 161st Street, replacing the historic stadium on the south side of the street. Not surprisingly, 2009 spending by consumers, news organizations and entertainment businesses, among others, on the north side of East 161st Street was a lot more than it had been in years past. It all started from the Yankees’ spending at the new location.

So a spending advocate might assert that this episode is proof that spending by one organization can stimulate spending by others, because the spending by the others on the north side of the street surged at exactly the same time that the Yankees started having their people work there.

Of course, such an analysis is flawed, because it ignores what happened on the other side of the street. Much of what happened north of East 161st Street was just a displacement of activity from the south side, rather than a creation of new activity. Even the construction workers building the stadium may well have been drawn from other tasks.

This pattern is not special to the Yankees’ move. A number of studies have shown that consumer spending associated with a sports team to a large degree displaces spending in other areas and displaces spending on other leisure activities; a family is unlikely to conclude that because there’s a new team in town or a new stadium, it should sharply increase its spending on entertainment.

Yet ignoring the displacement effects is exactly what Paul Krugman and Dean Baker have done in their praise of recent studies that use “cross-state variation in stimulus spending per capita to estimate the employment effects of the stimulus,” studies comparing states that received more stimulus to states that received less.

Spending from the American Recovery and Reinvestment Act (a.k.a., the “stimulus”) could be very much like the stadium spending — a locality that received more stimulus spending merely enjoyed a displacement of activity into its area from localities that received less spending, and that nationally little or no additional spending occurred as a result of the legislation.

If you want to know about the national effects of the stimulus, at least part of the analysis has to look at the nation as a whole. The same is true of the national effects of changes in labor supply. If one group suddenly becomes more willing to work, it is possible that the group solely takes jobs from the rest of the population, with no new jobs being created for the nation as a whole.

That is why, in addition to looking at the experiences of specific groups and specific regions, I have examined the effects of supply and demand on national employment. (Professor Krugman and Dr. Baker assert in so many words that I ignore national employment, though my papers on the subject look very much at national aggregates. For example, see Figure 3 and Figure 6 of this paper and Table 2, Table 3, Figure 2, Figure 3, Figure 4 or Figure 5 of this paper).

I found, for example, that national employment increases during the summer precisely because young people are more willing to work. Not surprisingly, the summer surge of young job seekers does seem to reduce employment of the rest of the population, but the net national effect is still almost a million more jobs in the summer.

For now, it appears that government spending reduces private spending, even while it may benefit specific regions or groups.

Article source: http://feeds.nytimes.com/click.phdo?i=3de0f98783f264b64f43021f2aa6a23b

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Economix Blog: A Sales Tax on Wall Street Transactions

August 23, 2011 by Leave a Comment

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Nancy Folbre is an economics professor at the University of Massachusetts Amherst.

Most of us pay state and local sales taxes on most things we buy, and most casino gambling is subject to state taxes ranging from up to 6.75 percent in Nevada to 55 percent on slot machines in Pennsylvania.

Today’s Economist

Perspectives from expert contributors.

But speculative purchases of stocks, bonds and other financial instruments in the United States go untaxed but for a tiny fee (less than a half-cent) on stock trades that helps finance the Securities and Exchange Commission.

In Britain, by contrast, a 0.5 percent tax on stock transactions raises about $40 billion a year. President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany recently announced plans to introduce a similar tax in the 27 nations of the European Community.

It is variously called a “transactions tax,” a “financial transactions tax,” a “security transaction excise tax” or a Tobin tax (after the Nobel Prize-winning economist James Tobin, who famously argued for its application to foreign exchange purchases in the late 1970s).

By any name, Wall Street hates it, because it would cut into trading profits. But proponents like Dean Baker, co-director of the Center for Economic and Policy Research assert that it would primarily affect short-term “noise traders” and discourage speculation rather than productive investment.

Less speculation could lead to less volatility in prices, encouraging long-term investors.

Further, a sales tax on Wall Street of 0.5 percent could raise up to $175 billion in tax revenue a year, even if, by discouraging frequent trades, it cuts the total number of transactions in half.

A small financial transaction tax proposed by Representative Peter DiFazio, Democrat of Oregon, and supported by Senator Tom Harkin, Democrat of Iowa, the Let Wall Street Pay for the Restoration of Main Street Act (with specific details of a co-sponsored bill still being negotiated) is likely to raise less revenue.

Plenty of highly respected economists support the basic concept, and plenty disagree. In a recent review of the literature, Neil McCulloch and Grazia Pacillo of the Institute of Development Studies in Britain conclude that it is unlikely to reduce speculation but nonetheless represents a relatively good source of tax revenue. A recent report by Thornton Matheson, published by the International Monetary Fund, expresses negative views.

An engaging summary of the pros and cons can be found in a videotaped debate sponsored by the Center for the Study of Responsive Law on July 8 as part of its “Debating Taboos” series.

My University of Massachusetts colleague Robert Pollin argues in favor, while James Angel of Georgetown argues against.

Professor Angel insists that short-term traders are not primarily speculators and describes them as a healthy part of the financial ecosystem that might be killed off. Professor Pollin’s view, with which I agree, is that short-term trading has increased enormously in recent years, with no positive impacts on economic efficiency. In any case, I don’t think a 0.5 percent tax on transactions will cause serious fatalities.

Professor Angel also points out that a tax on financial transactions will be passed on, at least in part, to all investors, with negative consequences for retirement savings. But all taxes are passed on, at least in part, to consumers. I agree with Professor Pollin when he argues that the effect of a financial transactions tax on most people would be very small compared with other sales taxes.

Economists point out that sales taxes discourage consumption, which is better than discouraging investments that can pay off in the future. But many consumption decisions that ordinary people make have important consequences for future productivity.

As Professor Pollin points out, current sales taxes bite those who buy materials to increase energy conservation in their homes or purchase a more fuel-efficient car.

My own research emphasizes that parental expenditures on children, as well as public spending on health and education, represent a form of investment in human capital.

Most state and local sales taxes are very regressive, with low-income families paying more as a percentage of their income. A proposed national sales tax, or a value-added tax, would have an even more negative impact on families at the bottom.

Our current tax policies favor speculative investment in financial instruments over productive investments in human capabilities. This imbalance helps explain why nurses’ unions in the United States have been particularly outspoken advocates of a financial transactions tax.

As they put it: “Heal America. Tax Wall Street.”

Article source: http://feeds.nytimes.com/click.phdo?i=b0a9254e024845297c7e072d032a1fc1

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Economix Blog: The Credit Rating War

August 15, 2011 by Leave a Comment

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Nancy Folbre is an economics professor at the University of Massachusetts Amherst.

The continuing brouhaha over Standard Poor’s downgrade of the United States government’s credit rating offers a powerful lesson in institutional economics.

Today’s Economist

Perspectives from expert contributors.

In standard economic models of “efficient markets,” we can all easily obtain the accurate information we need to make good decisions. In the real world, we often cannot, in part because so much mis- and disinformation competes for our attention.

Many economic actors have an incentive to lie and cheat, and it is often hard to figure which ones actually do. Markets work best in an institutional environment that creates strong incentives for everyone to tell the truth.

Whether you call this institutional environment law and order or, more specifically, regulation, it’s not easy to design because it is so easily corrupted. Those who anticipate the largest potential gains or losses typically dominate the decision-making process.

Some observers, as well as some representatives of the Obama administration, view the Standard Poor’s downgrade as a strategic effort to retaliate against regulatory changes that would adversely affect the company as well as a political intervention in the deficit-reduction debate.

Their fury was intensified when John Bellows, acting assistant Treasury secretary for economic policy, discovered a significant informational error (a miscalculation amounting to $2 trillion) in Standard Poor’s initial explanation of the rating change. The rating agency declined to change its assessment after the error was pointed out.

Most Republicans interpreted the rating change as support for their insistence on deeper budget cuts, although some were perhaps chastened by Standard Poor’s emphasis on a crisis of governance induced by resistance to compromise.

Yet there is widespread bipartisan agreement that our dependence on the current credit ratings system is dysfunctional.

Ratings provide a far simpler and more comparable measure of creditworthiness than an in-depth analysis of every company’s balance sheet can offer. Reports from Standard Poor’s, Moody’s and Fitch, the three most prominent agencies recognized as nationally recognized statistical rating organizations help guide both individual and institutional investment decisions.

But the ratings that these companies provide are often incredibly misleading. Their epic disregard of mortgage-backed derivative scams contributed to the near-collapse of the financial sector in 2008.

In general, ratings tend to follow the market rather than to inform it and may even worsen information problems, by giving investors a false sense of security. Rating companies argue that they can’t be held legally liable for mistakes, because this would infringe on their free speech (an argument that will eventually be tested in court).

These failures are clearly linked to a basic flaw in institutional design: credit agencies receive payment from the very companies they rate, not the potential buyers who seek information about those companies.

Imagine baseball umpires who could be hired and fired by one team, movie reviewers paid entirely by Hollywood or restaurant critics who depend on the chefs they evaluate for every meal. All these arrangements violate a basic economic principle that incentives should be aligned to encourage rather than discourage honesty.

Conservatives sometimes play down this issue, emphasizing instead that government regulation has squelched competition by requiring many institutions to meet targets for portfolio composition based on ratings by the top three firms.

But these two problems are not mutually exclusive. The links between them have long been emphasized by scholars like Frank Partnoy, who published a detailed law review article on the topic in 1999.

It’s not regulation per se that causes the problem, but bad regulation that could, in principle, be fixed. Thanks in part to the efforts of Senator Al Franken, Democrat of Minnesota, the Dodd-Frank Wall Street Reform and Consumer Protection Act outlines a number of specific policies that would diminish the influence of the top three rating firms.

These policies won’t solve the misinformation problem, but they could substantially reduce it. (For a more detailed analysis of this issue, see this working paper by my University of Massachusetts colleagues Gerald Epstein and Robert Pollin.)

Of course, these policies will also reduce the profitability of the rating agencies. And implementation of Dodd-Frank as a whole faces enormous resistance, manifest in Congressional maneuvers to starve the Securities and Exchange Commission of money necessary for its effective enforcement.

The credit rating war is likely to escalate. Large institutional investors and hedge funds, with their hefty research departments, will be able to rise above the fray. Small investors trying to garner the information they need to make intelligent investments in stocks and bonds will continue to suffer casualties.

As for ordinary workers — they are just part of the supply chain. The business community has already lowered their rating far below investment grade.

Article source: http://feeds.nytimes.com/click.phdo?i=3372b44a26aecab4fb2b5aa8c24d21f8

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Economix: Could This Deal Raise Budget Deficits?

August 1, 2011 by Leave a Comment

“From an accounting point of view, it seems obvious that you would reduce G.D.P. if you cut government spending,” said Randall Kroszner, an economics professor at the University of Chicago and a former Fed governor appointed by Mr. Bush. “But the key is really the impact on consumption and investment. If you reduce government spending and if people think that reduces uncertainty about the tax burden down the line, they may be more comfortable with spending.”

FLOYD NORRIS

FLOYD NORRIS

Notions on high and low finance.

It is virtually impossible to think of the impact of the debt deal as doing anything to help the economy. But give Mr. Kroszner credit for trying, in today’s front-page article by Binyamin Appelbaum and Catherine Rampell.

To come up with a rosy scenario, he suggests that uncertainty may somehow be reduced, leading to more consumption and investment. I cannot imagine anyone actually thinking this deal — with its clear potential for another bruising fight and deadlock that will do more to hurt the economy — decreases uncertainty.

In fact, this deal could manage to do the exact opposite of what it promises — raise the deficit.

If that happens, it will be because a major determinant of tax revenue is the health of the economy. Profits and growth bring revenues. This could damage the economy enough to send tax receipts down again. Although you never would have guessed it from the rhetoric, tax receipts are at the lowest level in years, as a percentage of gross domestic product. Get a healthy economy and tax revenues rise while a lot of spending, on such things as unemployment benefits, goes away.


What this has shown is that the Republican Congressional leadership is terrified of the Tea Party and of people like Sarah Palin, who hinted she would support a primary challenge to any Republican who voted to raise the debt ceiling. The leadership knew that not raising the ceiling was unthinkable, but many of the members did not.

The next showdown — assuming Congress passes the deal on Monday — will come directly after the 2012 election, but with the current Congress. So even if these people are thrown out, they have assured themselves one last chance to be totally irresponsible. Then, when the new Congress tries to undo the damage, the ones who are still there can filibuster.

What has been proved by this is that there are a substantial number of members of Congress who basically are opposed to the government and welcome anything that would keep it from functioning. If the Republican leadership again grants them veto power over anything, some of them will think that forcing huge spending cuts at the end of 2012 will have been a triumph, no matter what it does to the economy or to Americans less well off than themselves.

If Mr. Kroszner’s rosy scenario seems unreal, there might still be one. It relies on the fact that fiscal and monetary stimulus work with lags. When recoveries really get going, they can become self-sustaining quickly.

The normal course after recessions before the 1990s was for complaints that nothing was happening to turn overnight to amazement about how fast recovery is taking hold, and then to be followed by complaints that the last round of stimulus was unnecessary.

Is it possible that we have reached an inflection point, and that despite the weak economic numbers there is really no need for more stimulus?

Yes, it is.

Is it likely?

Not so much.

What is clear is that the lessons of the 1930s — that you don’t deal with weakness by cutting back — have been forgotten or were never learned.

Article source: http://feeds.nytimes.com/click.phdo?i=56fa5a3a0833185177c70cf6162bbbf1

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Economix: Unemployment? Who Cares?

July 11, 2011 by Leave a Comment

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Nancy Folbre is an economics professor at the University of Massachusetts Amherst.

High unemployment has become the new normal. Two years after the official end of the recession, the monthly refrain of poor jobs reports showing an unemployment rate stalled at about 9 percent does little to increase any sense of political urgency.

The monthly employment numbers, released Friday, were more bad news, showing that for the second month in a row, employers added barely any jobs in June.

Today’s Economist

Perspectives from expert contributors.

The sound of indignation can be heard outside of Washington. Twenty-six percent of Americans surveyed in the latest New York Times/CBS News Poll named unemployment the most important problem facing the country (27 percent cited the economy in general).

The A.F.L.-C.I.O. and other unions keep demanding “Good jobs now!” Progressive think tanks like the Economic Policy Institute carefully monitor employment trends. Many economists, including the professionally prominent members of the Employment Policy Research Network, insist on the need for more attention to the issue. As Till von Wachter of Columbia University put it, “Unemployment is the No. 1 economic problem facing the country today.”

Some business leaders have spoken up. Last summer, Andrew Grove, the former chief executive of Intel, wrote a passionate commentary for Bloomberg BusinessWeek calling for a “job-centric” economy.

But this is not something the country can achieve with jobs-oblivious politicians. Why isn’t unemployment reduction front and center on the policy agenda? More specifically, why has the debate over deficit reduction shoved it aside?

Here are three possible reasons.

First, unemployment is concentrated among the less educated, blacks and Hispanics who lack political or economic clout.

Second, high unemployment is not hurting overall business profits, which have soared to historic heights. In the 1930s, joblessness reduced the demand for consumer goods, idling many businesses as well as workers, creating economic incentives to support public job-creation efforts.

Today, our largest corporations and richest investors are well positioned to take advantage of growing demand in emerging markets far from our shores, whether in the form of increased exports or new investment opportunities.

As a small-business owner explained in a recent Wall Street Journal article, he only sells domestically and does not have the opportunity to “exploit foreign markets that are growing faster.”

Third, the jobless individuals, public employees and small-business owners who could, in theory, form a strong political coalition to support more active job creation are constantly subjected to a barrage of arguments that we should do nothing but cut government spending and hope for the best.

A recent Bloomberg BusinessWeek article, for example, asserted, “There’s vanishingly little that policy makers can do to create jobs for their citizens.” Yet solid research based on analysis of differences in state and county spending shows that some components of President Obama’s initial fiscal stimulus were quite effective at creating jobs. Unemployment would have soared higher without them.

A conspicuously large repertoire of more targeted job-creation proposals could significantly lower unemployment, including public investments in energy-saving projects and cheap credit for small businesses (both developed by economists at the Political Economy Research Institute at the University of Massachusetts, my academic home) and increased investment in infrastructure (advocated by the Economix blogger Laura D’Andrea Tyson, among others).

But political interest is low among most Democrats, and Republican governors and Republicans in Congress are pushing to cut unemployment insurance benefits, proclaiming that this would help the economic recovery. I’ve tackled this argument before, and a detailed critique can be found in this article by David R. Howell, an economist at The New School, and Bert M. Azizoglu, a graduate student there, forthcoming in the Oxford Review of Economic Policy.

On the state level, many efforts to expand employment involve attempts to woo businesses from other states with tax breaks, hardly a process that is likely to increase jobs for the nation as a whole. A fascinating “This American Life” episode on public radio, “How to Create a Job,” describes a special government office in Arizona that does nothing but try to persuade California businesses to relocate.

How can advocates for public job creation reach a wider audience? We need to keep making the case wherever and whenever we can.

If you or someone else you know (employed or not) needs some fun summer reading, I recommend the new graphic novel, “The Adventures of Unemployed Man.” It describes a heroic search for work that requires an epic battle against the Just Us League.

Article source: http://feeds.nytimes.com/click.phdo?i=ba372ff78bac7aeae7aa9f55d59342ba

Filed Under: Business News Tagged With: , ,

After a Lift From Corporate Deals, Stocks Sag

June 13, 2011 by Leave a Comment

Stocks rose at the start of trading after Wendy’s/Arby’s Group said it would sell control of its Arby’s business to a private equity firm. VF Corporation, whose brands include Wrangler and The North Face, also said it would buy boot maker Timberland for more than $2.2 billion.

The deals gave investors some much-needed confidence, and the Dow Jones industrial average quickly rose as much as 65 points. By midday, the enthusiasm had sagged, and the Dow closed up 1.06 points to 11,952.97. The Standard Poor’s 500-stock index rose 0.85 points at 1,271.83, and the Nasdaq lost 4.04 points at 2,639.69.

The deal-making on Wall Street came after weak economic news has sent stocks lower for six straight weeks. On Friday, the Dow fell below 12,000 for the first time since March.

Over the past month, the economic news, particularly out of the United States, has turned distinctly negative. Investors are now worried that the rise in share prices in the early part of the year may have been overdone.

Nouriel Roubini, the New York University economics professor known for predicting the 2008 financial crisis, cautioned against risky investments.

“In the last month, things have changed, the evidence is that maybe this is not just a soft patch but something worse,” he said in a speech in Singapore. “If your horizon is the next two or three months, I would be a bit defensive on equities. …This is time to be cautious, and safe rather than sorry.”

Tuesday may have more to offer, with the release of Chinese inflation data that is expected to stoke concerns that the central bank there will tighten monetary policy again soon. Retail sales figures in the United States for May will also provide an insight into the state of the economic recovery; consumer spending accounts for around 70 percent of the American economy.

In the oil markets, crude continued to fall on concerns over the global economic recovery and speculation that Saudi Arabia would decide to raise production levels despite last week’s surprise decision by the OPEC oil cartel to maintain current levels.

Benchmark oil for July delivery was down 79 cents at $98.50 a barrel at the New York Mercantile Exchange.

Article source: http://feeds.nytimes.com/click.phdo?i=963fe598d63a447f8e9d9bd3f025b1dc

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Economix: Financial Lobbying and the Housing Crisis

May 25, 2011 by Leave a Comment

Today's Economist

Casey B. Mulligan is an economics professor at the University of Chicago.

A recent update to a continuing study finds a link between bailouts and the lobbying of the financial industry.

It is sometimes asserted that the housing boom of the first half of the last decade was largely a result of easy credit by the Federal Reserve – that low interest rates made it too easy for too many people to borrow to purchase a new, bigger home.

But interest rates were only a bit lower in the decade than they were in the 1990s, when there was not a housing boom. By the standards of the 1990s, one might expect the somewhat lower interest rates of the last decade to elevate housing prices only a bit (as I have estimated; Edward Glaeser of Harvard and his co-authors have, as well), rather than the much sharper increase that actually occurred.

It’s also true that bank lending standards were relaxed during the housing boom, with risky borrowers allowed to purchase homes, and all kinds of borrowers allowed to purchase homes with little money down. But as Professor Glaeser has frequently noted, for instance in this post, the housing boom is not primary explained by easy credit.

Even if interest rates and lending standards had been the same in the last decade as they were in the 1990s, however, a crisis might still have been brewing, because interest rates should have been higher during the housing boom than they were before.

Housing prices were elevated during the boom (in part for the reasons cited above) and, by comparison with the 1990s, this made it more likely that — if and when housing prices came back down — even high-income borrowers making 20 percent down payments would default. With default more likely, interest rates needed to be higher, even for high-income borrowers putting 20 percent down.

The study, by Deniz Igan, Prachi Mishra, Thierry Tressel, three economists at the International Monetary Fund, suggests that implicit subsidies and a lack of regulation helped make it possible for lenders to offer lower rates on mortgages that were increasingly likely to default. My fellow Economix blogger Simon Johnson has also noted the interplay of political influence on regulation and finance.

The study by the I.M.F. economists found that the heaviest lobbying came from lenders making riskier loans and expanding their mortgage business most rapidly during the housing boom. The loans originated by those lenders were, by 2008, more likely to be delinquent.

Most important, lobbying meant access to tax dollars. The lenders lobbying more heavily were 7 percent more likely to receive bailout funds, received larger amounts of those funds, and enjoyed a 27 percent greater increase in their market capitalization in October 2008, the month the bailout program was announced.

The authors did not disentangle the path by which lobbying brought forth bailout funds, but it is likely to have followed some combination of political access enjoyed at the time and the lobbying lenders’ assertions of need — created by the lax lending that had gone before, itself facilitated by lobbying during the housing boom years.

Nobody knows for sure how much of the blame for the housing boom can be put on the federal government, but we’re starting to see how political influence was associated with mortgage lending and, ultimately, with taxpayer subsidization of delinquent and defaulting mortgages.

Article source: http://feeds.nytimes.com/click.phdo?i=4c7c00a6ca86d21c17dd1a6796eef523

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