March 31, 2023

Boehner Seeking Democrats’ Help on Fiscal Talks

In meetings with Democratic and Republican Congressional leaders on Thursday after a session with Treasury Secretary Jacob J. Lew on Wednesday, Mr. Boehner sought a resumption of negotiations that could keep the government running and yield a deficit-reduction deal that would persuade recalcitrant conservatives to raise the government’s borrowing limit.

Much of the federal government will shut down as of Oct. 1 unless Congress approves new spending bills to replace expiring ones, and by mid-October, the Treasury Department will lose the borrowing authority to finance the government and pay its debts.

“It’s time for the president’s party to show the courage to work with us to solve this problem,” said Mr. Boehner, who argued that budget deals have been part of past agreements to raise the debt limit

But a bloc of 43 House Republicans undercut the speaker’s deficit-reduction focus, introducing yearlong funding legislation that would increase Pentagon and veterans spending and delay President Obama’s health care law for a year — most likely adding to the budget deficit. That bloc is large enough to thwart any compromise that does not attract Democratic support.

“Obamacare is the most dangerous piece of legislation ever passed in Congress,” said Representative John Fleming, Republican of Louisiana. “It is the most existential threat to our economy” that the country has seen “since the Great Depression, so I think a little bit of additional deficit is nothing,” he added.

Just five scheduled legislative days stand between the House and a government shutdown that has loomed for months. As of now, Republican leaders appear to have no idea how to stop it. House members are preparing for the worst. Representative Scott Rigell, Republican of Virginia, began circulating a 14-page fact sheet on the impact of a government shutdown.

Mr. Lew and Congressional Democrats held firm that they would no longer negotiate on raising the debt ceiling, which they see as the duty of the party in power in the House. And they made it clear to the speaker that they would never accept Republican demands to repeal, defund or delay Mr. Obama’s signature health care law. White House officials dismissed it as “a nonstarter.”

“I had to be very candid with him and I told him directly, all these things they’re doing on Obamacare are just a waste of their time,” said Senator Harry Reid, Democrat of Nevada and the Senate majority leader. “Their direction is the direction toward shutting down the government.”

“I like John Boehner,” Mr. Reid added. “I do feel sorry for him.”

Earlier this week, Representative Eric Cantor of Virginia, the No. 2 House Republican, proposed a two-step resolution to the fiscal impasse that was temporarily pushed into the background by Mr. Obama’s request for approval to initiate a military strike on Syria, since delayed.

Under Mr. Cantor’s plan, the House would have voted this week on a stopgap spending bill to keep the government operating through mid-December at the current level, which reflects the sharp across-the-board cuts known as sequestration. That bill would have a companion resolution to withhold all money for the health care law, but the Senate could simply ignore that resolution and approve the short-term spending bill.

Then the House would vote to raise the debt ceiling enough for a year of borrowing, but demand a year’s delay in carrying out the health care law.

Within 24 hours, the House’s most ardent conservatives revolted, declaring the defunding resolution a gimmick that fell well short of their drive to undo the health care law. House Democrats said they would oppose not only stripping the health care law of money but also a spending level that maintains sequestration.

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Strategies: Getting Creative With the G.D.P.

That critique wouldn’t be surprising if it came from an underappreciated artist, scientist or technologist. But it’s being made in what may seem an unexpected quarter: the offices of the federal government. It’s the verdict of the experts who measure the American economy.

We live in an increasingly knowledge-based economy, but until now, official statistics haven’t adequately captured that reality, particularly in the single number describing the economy’s size: the gross domestic product.

That’s the view of Steve Landefeld, director of the Bureau of Economic Analysis, the Commerce Department unit that measures G.D.P. “We’ve been trying to understand the sources of growth in the G.D.P.,” he said. “One of the longstanding gaps in the numbers has been the contributions of intangibles — creations in the arts and entertainment, research and development, things like that — and what they contribute to G.D.P.”

This week, the bureau is doing something about it. It plans to give a greater economic weighting to the creation of many types of intellectual property — from books to movies to music to biotech drugs. The economy won’t change overnight, but the numbers will. Going all the way back to 1929, the G.D.P. will look bigger.

This is to take place on Wednesday, when the bureau releases the results of an immense revaluation of the size and composition of the American economy from the Great Depression to the present. It undertakes this exercise every five years or so, altering its methods as the economy and data quality change. Among the bureau’s revisions is a change in its treatment of research and development and the creation of what it calls “entertainment, literary and other artistic originals.”

That category seemed startling when I saw it in a bureau study on intangibles and the economy.

Artistic originals include books, movies, TV shows, music, photographs and greeting cards — yes, greeting cards. That may seem strange — it did to me, at first — but bear with me.

Copies of an original card that is designed today can still be sold a year or more from now. In that sense, a greeting card is like a building or a machine tool or computer software — it’s a capital investment that can generate revenue for years to come. Items that fit the bureau’s economic definitions will be given a bigger weight in G.D.P. calculations. They will be considered assets — capital investments rather than expenses — and the cost of producing them will be added to G.D.P. In addition, the revenue generated by the cards will be included in G.D.P. later on, when the money flows in.

Money generally needs to change hands for creative work to be considered an investment. Unpaid authors still won’t count as contributors to the G.D.P. Yet in 2007, the accounting change would have added roughly $9 billion to G.D.P. from book-writing alone, a preliminary bureau study found.

That may bolster the self-esteem of some writers, but it will do nothing for those of us who write for newspapers, magazines, blogs and the like. A newspaper column has no enduring value, from the bureau’s pecuniary perspective.

That made for an awkward moment in a conversation with Robert Kornfeld, a bureau economist. He assured me that he wasn’t making a literary judgment. It’s simply that daily journalism is perishable, he said. It’s not worth much commercially a year after it’s published. In the new digital world, a column might turn into an e-book with long shelf life, and the bureau might be able to embrace it. “Who knows?” he said. “We re-evaluate these things all the time.”

Work in other creative fields is being excluded from the investment category, too, and for similar reasons. “Seinfeld” has long-term commercial value, he said. “Monday Night Football” does not, at least not in the new calculations. TV sitcoms and dramas generally count as investments. Soap operas, reality shows and sports do not.

The big picture is this: Recalculating the treatment of all “artistic originals” that fit the bureau’s definitions would have increased the economy in 2007 by about $70 billion, or 0.5 percent. And R. D., particularly in the field of biotechnology, would have added more than $200 billion. Combined, these two changes would have swelled G.D.P. by almost 3 percent, Mr. Kornfeld said. How it will affect G.D.P. this year and in the restatement of past numbers was being calculated as we spoke. Brent R. Moulton, the bureau’s associate director for national accounts, said the statistics would be out this week. He noted that other nations had been making such shifts as well.

The changes could have profound implications. R. D. and the creation of entertainment originals have generally been treated as a cost of doing business, reducing G.D.P. Now they will be recognized for their potential to add economic value for years to come. Business software has been treated this way since the 1990s. “It makes sense to expand our definitions,” Mr. Landefeld said. “That’s something the bureau has done for decades.”

But the bureau’s changes will widen the gap between corporate and national economic accounting, said Baruch Lev, a professor of accounting and finance at New York University. Despite the change in G.D.P. accounting, he said, R. D. is still generally treated as an expense, not as an investment, in calculating profits and tax liability.

“National accounting — G.D.P. accounting — is giving us a more accurate picture of the world,” he said, adding that various intangibles might constitute as much as 50 percent of the value of publicly traded companies. These assets don’t show up on corporate balance sheets, he said, keeping investors “in the dark about the true value of many of the companies traded in the stock market.”

THE bureau is still in the dark about many things, too. It doesn’t know the commercial value of a new movie or of esoteric R. D. in biotechnology, Mr. Landefeld said. “Some of these things succeed, some fail, some have no enduring value; we don’t make a judgment,” he said.

When George Lucas made the first “Star Wars” movie in the 1970s, for example, no one knew that it would generate hundreds of millions of dollars in revenue in a stream that continues to this day. Should it have been considered an investment? It could easily have bombed.

“From the standpoint of accounting, we wouldn’t care,” Mr. Landefeld said. The bureau is tallying the production costs of movies, blockbusters and clunkers alike, adding them as assets to the G.D.P. in the years when they were made. The revenue they bring in later will be counted, too.

“Some movies are forgettable; some aren’t,” he said. “We’ll average that out and get the big picture and we hope it will give us a better understanding of the economy.”

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Economix Blog: Inflationphobia, Part I


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 Benefit and the Burden: Tax Reform – Why We Need It and What It Will Take.”

Generals and admirals are always fighting the last war, it is said, designing weapons and devising strategies that are inherently out of date, rather than planning for the next war. Thus, before World War II, United States naval strategy was based on battleships, which proved largely useless when war came, rather than aircraft carriers and destroyers, which proved to be decisive.

Today’s Economist

Perspectives from expert contributors.

So, too, with economists. They tend to worry obsessively about the last big national economic problem, seeing its regeneration everywhere, rather than looking at the data and economic conditions objectively, thereby missing new problems that require a different strategy.

The Great Depression was for economists what World War II was for the military — a problem so big that it forced a complete reassessment of traditional thinking. When the depression and the war ended, the new ideas that they led to became the new orthodoxy.

The military learned the importance of air power and that formed the foundation of Cold War strategy, but left the United States vulnerable to guerrilla warfare in Vietnam, for which air power was ill suited.

Economists learned from the Great Depression that easy money and fiscal stimulus could stimulate growth. Pre-Depression classical economics had been based on a rigid balanced budget requirement for government and a gold standard that provided no discretion for the monetary authorities.

The new economic orthodoxy became associated with the theories of the British economist John Maynard Keynes and came to be called Keynesian economics. Supporters of classical economics were relegated to the sidelines of economic discussion, but they never went away. Throughout the 1950s and 1960s they continued to wage war against Keynesian economics, certain that the abiding truths of classical economics would triumph in the end.

The classical economists thought that inflation was the Achilles’ heel of Keynesian economics, and they hammered this point relentlessly. In truth, the Keynesians were vulnerable on that issue, believing that a little inflation was a small price to pay for bringing down the unemployment rate.

One problem for the Keynesians is that as time went by, their theories became increasingly divorced from the economics of John Maynard Keynes, becoming almost a caricature. Moreover, the economic circumstances were vastly different from those of the Great Depression and required different policies. But economists kept advocating more of what had worked in the 1930s and 1940s.

Keynesian economics was essentially reduced to something called the Phillips curve, which showed that there was always a trade-off between inflation and unemployment – more of one would reduce the other. The only question for policy makers was determining which problem, inflation or unemployment, was more important to voters.

Unfortunately, there was a political bias in the calculation; politicians tended to put reducing unemployment above reducing inflation and so inflation ratcheted upward. There was also confusion among economists about the cause of inflation. The Keynesians, whose view was shaped by the experience of the Great Depression, in which deflation or falling prices was the big problem, underestimated the role of the Federal Reserve and monetary policy in generating inflation.

This led to a counterattack by classical economists based mainly at the University of Chicago. By the 1980s, these economists had essentially overthrown the Keynesians by asserting that inflation had one and only one cause – excessive money growth by the Fed. Tight money had broken the back of inflation and the idea of tying the Fed’s hands, as the gold standard had done, gained popularity.

Fast forward to 2008. The nation fell into another recession. Initially, economists thought it was not dissimilar to those the economy had faced throughout the postwar era; they were slow to recognize its severity as a depression about one-third the size of the Great Depression.

Fortunately, the Fed was led by Ben Bernanke, whose expertise as an academic economist was the Great Depression. He knew that the Fed’s errors had contributed mightily to the depression’s origins, length and depth, and resolved not to make the same mistakes twice. Mr. Bernanke opened the monetary floodgates to keep the financial system and the economy from imploding. I believe that what the Fed did saved us from a rerun of the Great Depression or worse.

But the classical economists, whose ranks were much strengthened by the failure of Keynesian economics in the fight against inflation and the apparent triumph of classical policies in the 1980s and 1990s, immediately saw an inevitable replay of the 1970s. They were fighting the last war.

Virtually every classical economist declared that inflation would quickly return. Many urged people to buy gold to protect themselves, which led the gold price to rise, which was then taken as proof of impending inflation. They demanded that the Fed immediately rescind its emergency actions, withdraw the excess money that had been injected into the banking system and nip inflation in the bud.

Unfortunately, this was more than an academic debate, because many of the Federal Reserve’s regional bank presidents, five of whom sit on the policy-making Federal Open Market Committee, were inflation hawks who shared the view of the classical economists that high inflation was certain unless the Fed tightened monetary policy as soon as possible. They were supported by Republicans in Congress, who berated Mr. Bernanke in the harshest possible terms at every opportunity, as well as a large number of private economists and pundits with access to wide-circulation publications such as The Wall Street Journal and its editorial page.

While the Fed has generally maintained an easy money policy, inflation has remained dormant; some of the Fed’s inflation hawks have even become doves. But the constant drumbeat of attacks on the Fed for fostering inflation has constrained its actions, condemning the economy to slower growth and higher unemployment than necessary.

Next week I will have more to say about inflationphobia.

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Today’s Economist: Recessions Save Lives


Casey B. Mulligan is an economics professor at the University of Chicago. He is the author of “The Redistribution Recession: How Labor Market Distortions Contracted the Economy.”

More people die in economic expansions, and fewer die in recessions.  Whether and how policy makers should heed this pattern depends on the hitherto unknown links between mortality and economic activity.

Today’s Economist

Perspectives from expert contributors.

Recessions can be stressful and depressing, especially for the people who lose their jobs.  Suicide rates spike during recessions, and for that reason alone recessions have been called deadly.  Two researchers, David Stuckler and Sanjay Basu, noted that suicides and binge drinking are positively correlated with unemployment and concluded that “Austerity kills” by adding to unemployment.

Even if we could be sure that austerity and related fiscal policies create recessions, it would be premature to conclude that they literally kill people.  Industrial and construction accidents are more common in economic expansions, and less common in recessions because those industries’ activities follow the business cycle.  Overtime hours may be more dangerous than average, and overtime is more common at the peak of the business cycle.  Moreover, the share of people working in construction – one of the most hazardous industries – increases during expansions and falls during recessions.

Highway accidents also follow the business cycle because more vehicles are on the road during economic expansions, and fewer on the road during recessions. (Mr. Stuckley and Mr. Basu noted that the United States’ Great Depression of the 1930s also had abnormally low rates of fatalities due to traffic accidents.)

With more accidents at work and on the road during expansions, expansions have more deaths by such accidents, and recessions have fewer.

It turns out that the business cycle for suicides is more than offset by the business cycle for other deaths.  Mortality and the unemployment rate are negatively correlated.  Christopher J. Ruhm, a professor of public policy and economics at the University of Virginia, has looked at all causes of death and found that most of them – suicide was the exception – occur less frequently at the depths of the business cycle.

Perhaps most surprising is that the business cycle for overall deaths is dominated by the business cycle for deaths among elderly people, perhaps especially elderly women.  Because so many elderly people are retired, they are especially unlikely to have recently been laid off from their job (which can lead to suicide), to drive their car to work hurriedly, or to take part in a dangerous construction project.

We don’t really know how the business cycle for economic activity is connected to the cycle for elderly deaths.  One hypothesis is that economic expansions create air pollution, and air pollution kills elderly people.  Another hypothesis is that nursing homes have more trouble retaining their staffs during expansions because they have to compete with other businesses.  Perhaps family members who are busy at work during expansions spend less time helping their elderly relatives.

Life is valuable, so it may be at least as important to understand what determines mortality and its cycles as it is to understand what causes recessions.

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Economix Blog: Housing Trends, Short and Long Term

Home construction this spring in Matthews, N.C., near Charlotte.Chuck Burton/Associated Press Home construction this spring in Matthews, N.C., near Charlotte.

Home prices in the United States have been on a roller coaster ride for the last decade — soaring through 2005, then plunging in the steepest decline since the Great Depression. In 2012, though, prices began moving upward.

How solid is the incipient housing recovery, and what are the prospects for home prices in the decade ahead?

Some fresh clues about the short-term trends began arriving this week. And an analysis of the long-term prospects for home prices began appearing in a three-part series of columns in Sunday Business by Robert Shiller, the Yale economist.

First, the short-term trend: based, at least, on a report on Monday morning, it appeared to be taking a zigzag path rather than a straight line upward. According to the National Association of Home Builders/Wells Fargo Housing Market index, sentiment among home builders declined in April for the third consecutive month, to 42 from 44 the previous month. While that index climbed in 2012, it has not been above the neutral level of 50 since April 2006, when the market collapse was already under way.

Another report is due on Tuesday. That’s the Commerce Department’s tally of housing starts and building permits in March. Both numbers rose sharply in February and Wall Street economists were expecting another set of strong numbers.

The short-term trend for the housing market seemed clear and strong enough for Michael E. Feroli, chief United States economist at JPMorgan Chase, to conclude in a report on April 10 that residential investment – including homebuilding, repairs, renovation and brokers fees – would rise enough this year to add 0.5 percent to G.D.P. growth.

As for home prices, no major reports were imminent. But in the fourth quarter of 2012, the latest home period included in the Standard Poor’s Case-Shiller 20-city index, prices rose sharply, at the fastest rate since June 2006.

Professor Shiller, who helped devise the Case-Shiller index, says in his Economic View column on Sunday even if the upward trend for prices continues for a while, historical data shows that it’s not necessarily meaningful over the long haul.

“One-year home price increases, after correcting for inflation, have had almost no statistical relationship to increases 10 years down the road,” he writes. “Thus, the upturn last year is irrelevant to long-run forecasting. Booms are typically followed by busts, usually in far less than 10 years. In a decade, an entire housing boom, if there is one in inflation-corrected terms, is likely to have been reversed and completely washed away.”

Source: Robert J. Shiller, “Irrational Exuberance,” Second Edition (Princeton University Press), as updated by author.

In assessing long-term price trends, he says, prospective home buyers ought to emphasize fundamental factors like inflation and construction costs, which he discusses in his first column. While inflation creates the illusion that real home prices are increasing, rising productivity in the construction industry often drives down the cost of housing.

Next Sunday’s column will deal with real estate bubbles, and with the speculative effects of years of declining interest rates on housing and other markets. The third will consider cultural and demographic trends, including the stimulative market influence of a rising population — and the potential constraints on prices that could occur as America ages..

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Today’s Economist: Laura D’Andrea Tyson: The Tradeoff Between Economic Growth and Deficit Reduction


Laura D’Andrea Tyson is a professor at the Haas School of Business at the University of California, Berkeley, and served as chairwoman of the Council of Economic Advisers under President Bill Clinton.

The economy is continuing to recover from its deepest recession since the Great Depression, but the pace of recovery is frustratingly slow. The question is why, and the answer has profound implications for fiscal policy and for the debate over deficit reduction and economic growth that has transfixed Washington.

Today’s Economist

Perspectives from expert contributors.

Since 2010, annual growth of gross domestic product has averaged about 2.1 percent. This is less than half the average pace of recoveries from previous recessions in the United States since the end of World War II, according to a recent study by the Congressional Budget Office. Both potential G.D.P., a measure of the economy’s underlying capacity, and actual G.D.P. have grown unusually slowly compared with previous recovery periods.

Slow G.D.P. growth has meant slow growth in employment. Payroll employment has been expanding at a rate of about 150,000 jobs per month during the last two years, only slightly above the growth of the labor force. Employment growth has been largely consistent with overall G.D.P. growth and with the “jobless” pattern of the 1990-91 and 2001 recoveries.

In both this recovery and the previous two, the rebound in employment growth has been weaker and later than the rebound in G.D.P. growth. But G.D.P. growth in the current, jobless recovery has been slower. Another salient difference is that the loss of jobs in the most recent recession was more than twice as large as in previous recessions, so a slow recovery has also meant a much higher unemployment rate.

Why has G.D.P. growth been so tepid compared with previous recoveries? Most economists believe that weak aggregate demand is the primary culprit. The 2008 recession resulted from a systemic financial crisis rooted in an asset bubble that gripped the housing market with particular ferocity. Private sector demand contracts sharply and recovers slowly after such crises.
The large and persistent decline in private-sector demand that began the 2008 recession and that explains the painfully slow recovery is apparent in the private-sector financial balance — net private saving, the difference between private saving and private investment.

The private-sector financial balance swung from a deficit of −3.7 percent of G.D.P. in 2006, at the height of the boom, to a surplus of about 6.8 percent in 2010 and about 5 percent today. This represents the sharpest contraction and weakest recovery in private-sector demand in the post-World War II period.

Growth in two components of private demand — consumption and residential investment — has been especially slow in this recovery compared with the average for previous recoveries. This is not surprising.

Residential investment is still depressed as a result of overbuilding during the 2004-8 housing boom and the tsunami of foreclosures that followed. Large losses in household wealth, deleveraging from excessive debt, weak growth in wages and household income, and a decline in labor’s share of national income to a historic low have combined to constrain consumption growth. Wobbly consumer confidence and the concentration of most income gains at the top of the income distribution have also contributed.

The recovery of business investment demand has followed a different pattern. Indeed, the growth of business investment has been slightly stronger during the current recovery than the average for previous ones. But after plummeting to new lows during the recession, the ratio of net business investment to G.D.P. remains depressed by historical standards. Lower net investment compared with the economy’s capital stock is a major reason that the growth rate of potential G.D.P. has been so slow.

Throughout the recovery, business surveys have identified lackluster customer demand and weak sales prospects as the primary factors holding down business investment. Business confidence has remained subdued as a result of uncertainty about the future growth of markets both at home and abroad and more recently about the future course of United States fiscal policy.

Limits on credit availability were also significant deterrents to investment, especially by small and medium-size firms at least through 2010, when banks began to ease their commercial loan terms.

Weak investment demand cannot be explained by low profits and high taxes: the profit share of national income has hit a historic peak and taxes on investment income are at historic lows.

Another factor contributing to the slow pace of the current recovery relative to previous recoveries has been the relatively weak growth of government spending on goods and services by both state and local governments and by the federal government.

Indeed, the contraction in state and local government spending and the associated decline in public-sector employment have been major headwinds restraining G.D.P. growth.

The increase in federal government purchases of goods and services in the 2009 stimulus bill mitigated but did not offset the effects of weak private-sector demand through 2010. But since then, the slowdown in such purchases has been a drag on G.D.P. and employment growth.

After three years of recovery, the economy is still operating far below its potential and long-term interest rates are hovering near historic lows. Under these circumstances, the case for expansionary fiscal measures, even if they increase the deficit temporarily, is compelling.

A recent study by the International Monetary Fund finds large positive multiplier effects of expansionary fiscal policy on output and employment under such circumstances.

And more output and employment now would mean higher levels in the future, because stronger demand now would encourage more private investment and stem the loss of skills and productivity resulting from long-term unemployment and the drop in the labor force participation rate.

The rationale for expansionary fiscal policy is particularly compelling for federal investment spending in areas like education and infrastructure that have large multiplier effects on the current level of output and employment and strong returns over time.

By the same logic, the $600 billion of revenue increases and spending cuts scheduled for next year — the so-called fiscal cliff — would have large negative effects on demand, output and employment and would reduce future potential output as well.

The fiscal cliff packs a powerful punch: there will be 3.4 million fewer jobs by the end of 2013 if Congress allows these policies to take effect.

The economy does not need an outsize dose of fiscal austerity now; it does need a credible deficit-reduction plan to stabilize the debt-to-G.D.P. ratio gradually as the economy recovers. As I contended in an earlier Economix post, the plan should have an unemployment-rate target or trigger that would postpone deficit-reduction measures until the target is achieved. (In a move that signals its abiding concern about the recovery’s strength and resilience, the Federal Reserve has just announced an unemployment-rate target for monetary policy, committing to keep short-term interest rates near zero until the unemployment rate falls to 6.5 percent.)

The goal of deficit reduction is to ensure the economy’s long-term growth and stability.

It would be the height of fiscal folly to kill the economy’s painful recovery from the Great Recession in pursuit of this goal.

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Jobs Report Offers Little Change in Dynamic Between Obama and Romney

Instead, somewhat stronger job growth than expected and a slight uptick in the unemployment rate seemed to offer little change in the dynamic between President Obama and his Republican challenger, Mitt Romney, as they enter the final weekend of an election already shaped by the changing contours of the nation’s economy.

Economists had predicted the addition of about 125,000 jobs and said the unemployment rate, which had dropped to 7.8 percent in September, might rise slightly.

The report from the Bureau of Labor Statistics beat those expectations for job growth, showing the addition of 171,000 jobs in October. And the unemployment rate, which ticked up to 7.9 percent, remained below 8 percent.

Mr. Obama is likely to cite the report as further evidence that the nation’s economy is continuing to recover slowly under his policies. The president argues that nearly three years of expansion in employer’s payrolls has added almost five million jobs since the economic collapse in 2008 and 2009.

That the unemployment rate remains below 8 percent allows Mr. Obama and his supporters to argue that the economic improvement over the past several months is not a fluke and that the country is headed in the right direction.

The White House said the jobs report showed the “biggest monthly gain in eight months.” In a statement, Alan B. Krueger, the chairman of the president’s Council of Economic Advisers, said it provided “further evidence that the U.S. economy is continuing to heal from the wounds inflicted by the worst downturn since the Great Depression.”

But the data did not provide the kind of unambiguous boost for the president that he received last month, when the unemployment rate dropped unexpectedly from 8.1 percent to 7.8 percent.

For Mr. Romney, the numbers offer little new ammunition. For months, he has hammered the president for presiding over an economy with unemployment over 8 percent. With Friday’s report, the rate remains below that level for the second month in a row.

On the campaign trail in recent weeks, Mr. Romney has argued that the country’s modest jobs growth is inadequate in the face of an economy that continues to struggle.

In a statement Friday morning, Mr. Romney said the jobs report was evidence of the need to change the nation’s economic policies.

“Today’s increase in the unemployment rate is a sad reminder that the economy is at a virtual standstill,” Mr. Romney said. “The jobless rate is higher than it was when President Obama took office, and there are still 23 million Americans struggling for work. On Tuesday, America will make a choice between stagnation and prosperity.”

In fact, there are about 12 million people unemployed in the country. Mr. Romney often says that there are 23 million people who are out of work, have stopped looking for work or are in part-time jobs when they want full-time work.

For economists, the new report is just one piece of evidence about how the economy is doing. But among voters, the unemployment rate remains one of the most recognized barometers of economic progress or retrenchment.

The jobs reports, usually released on the first Friday of every month, have become a regular feature of the 2012 presidential campaign. Political strategists in Boston and Chicago — where the two campaigns have their headquarters — nervously anticipated the impact of the report each month.

But none was anticipated more than the one on Friday. Coming just days before the end of the election, the report was viewed by some as a potential bombshell that might have helped sway undecided or uncertain voters in a race that polls suggest could be exceptionally close.

Still, the trajectory of the economic arguments by the candidates has been set for months, with even last month’s unexpected improvement doing little to change the political dynamic in the race.

There is now little time for new television ads or rewritten stump speeches. And in many of the most important swing states, millions of people have already voted, diminishing any potential impact of Friday jobs report, the final one of the campaign.

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You’re the Boss Blog: This Week in Small Business: GoDaddy Goes Dark


A weekly roundup of small-business developments.

What’s affecting me, my clients and other small-business owners this week.

The Economy: The Fed Makes Its Move

Economic growth in the third quarter is forecast to be slightly stronger, and the Federal Reserve announces another stimulus plan. The Treasury recovers bailout money from A.I.G. Barry Ritholtz questions the success of government bailouts: “By most measures, the bailouts did stabilize the system and prevented another Great Depression (so far). … However, there are legitimate criticisms of the societal costs of these bailouts, about the collateral damage that it wrought.” Moody’s warns of a cut in the United States credit rating. An economics blogger says we’re not heading toward a fiscal cliff. The United States Chamber of Commerce’s chief economist says we’re staring down the barrel of a recession. Manufacturing profits are 35 percent above prerecession levels, but a new poll finds that manufacturers remain anxious. A strong holiday season is forecast. Some researchers fear growth in the informal economy.

The Big Story: A Subtle and Sublime Phone

The charms of Apple’s new iPhone are “subtle and sublime.” One observer says the device includes a new feature that will give shape and purpose to previously empty and meaningless lives. CollegeHumor pokes fun. Morgan Stanley says the new iPhone could add half a percent to gross domestic product, but Jacob Goldstein says not to believe it. Here is Gizmodo’s full rundown of the day. But is the phone being built by forced labor? A Chinese company makes a play to become the world’s largest smartphone maker. Smartphone shipments will pass one billion in 2016.

Technology: GoDaddy Goes Dark

A blackout at GoDaddy affects thousands of small-business Web sites. Solar power is rocking it. A vending machine swindler gets two years in jail. Here are five technology events that are affecting small businesses. QuickBooks introduces a new product for the Mac. How about this idea for cutting payroll: a remote-controlled robot that video-chats with those it encounters and peers into the spaces where it roams. Which is better: storage software or hardware? And even inside Microsoft, users rarely “Bing it.”

The Election: A Republican Bear Hug

A business blog outlines what’s at stake for the economy, and Diana Ransom begins a series analyzing the issues affecting entrepreneurs. Small-business optimism rises but a report by the National Small Business Association finds that small-business owners are less optimistic about the outlook of their own companies and the overall economy than in the previous six months. Leaders at the Small Business and Entrepreneurship Council talk about election-year issues. Ian Salisbury offers 10 things small businesses won’t tell you, including, “The tax code favors us — when we pay.” If President Obama wins another term, Robert Reich believes his biggest challenge will be getting consumers to spend. A Republican small-business owner in Florida gives the president a bear hug.

The Data: Home Sales Gain

Many cities’ August home sales show double-digit gains. Wholesale sales and inventories improve but producer prices rise. North Dakota oil production continues to set records. The trade gap widens. The July job openings and labor turnover survey gives a mixed view of job growth. Machine tool orders fall for the second straight month.

Marketing: Nokia’s Mistake

Darren Herman says five tech trends are changing marketing. John Parham shares five classic strategies for expanding your brand. Here are five lessons you can learn from Nokia’s marketing mistake. A new Pitney Bowes survey finds most small businesses are missing opportunities to reach customers. James Hughes tells an interesting history of ad jingles. Emily Suess suggests essential phone skills for business owners. Drew McLellan finds that e-mail click rates rates are rising. A theater chain uses Facebook to promote its mobile coupons. Here are five ways to spot a fake review online.

Social Media: Google Plus Has Swag

A new study finds that online networking is growing among small businesses. Grocery markets are going social. Philip Roth writes an open letter to Wikipedia. Robert Cringely is annoyed with LinkedIn. Tara Hornor says that Google Plus is a “station wagon with swag.” Attend this webinar to learn how nine companies are doing Facebook right. A new study finds that fewer than 20 percent of small businesses are using Twitter. Here are three strategies for social media marketing for business-to-business marketers. John Jantsch suggests five habits practiced by market leaders. And here’s how to deal with false third-party matches on YouTube.

Start-Ups: Latinos Lead

Small-business starts are highest among Latinos. A start-up wants to bring unused patents back from the dead. A start-up bus begins its tour of Maryland. This company wants to be the Zipcar of scooters. These are the three questions Yahoo’s chief asks start-ups. The “Uber of car maintenance” wins a TechCrunch Disrupt award in San Francisco.

Management: Crazy Busy or Fake Busy?

Mark Zuckerberg acknowledges missteps. Matthew Toren says it’s never too early to encourage your children’s interest in entrepreneurship. Meryl Evans wants to know if you’re crazy busy or fake busy: “It’s critical — not selfish — to take care of yourself first and keep your busyness under control.” Geoff Vincent suggests 10 steps for small-business planning. This guy is using bacon as currency. Schuyler Velasco says these are the companies we love in eight industries we hate. Here are a few under-the-radar industries where you can profit. Jim Connolly asks whether your customers would miss you if you weren’t there. A new book explains the science behind the entrepreneurial mind-set. Here are some amazing facts that will blow your mind.

Your People: Yelling Doesn’t Work

Ryder Cullison says yelling doesn’t work and shares five other workplace truths (but yelling does seem to work for this little girl). A retiring boss surprises his employees with thank-you checks. Did you know that green companies have more productive employees? Here’s a different way to judge if your company is one of the best to work for. Jay Goltz wonders whether it is a mistake to pick an employee of the month. A report from Deloitte reveals that 80 percent of employees plan to stay with their current employers in the next year. Here are nine keys to successful safety processes for your plant.

Around the Country: The Future

Is franchising the answer for job growth? An entrepreneur puts Detroit’s homeless to work making coats. A plane flies over 1941 San Francisco. Bloomberg ranks the most and least miserable states. Bend, Ore., could be the next big city for entrepreneurship. Lockheed Martin receives an award for its work with small businesses. Pennsylvania’s governor signs antiregulation legislation for small businesses. Expedia introduces a new reward plan, and Staples announces a disaster preparedness program. In October, the Singularity Summit will bring more than 800 thought leaders to San Francisco to discuss technological advances on the horizon, and the World Future Trends Summit will be in Miami. Oct. 2 will be National Encore Entrepreneur Mentor Day, and if you can name the female entrepreneur who inspires you the most, you might win a free ticket to a future Women 2.0 conference in New York.

Around the World: 54 Hours in Iran

Entrepreneurship flourishes for 54 hours in Iran. Car sales in India are down 19 percent. China’s industrial growth continues to slow, and these are four likely situations for its economy in 2013. A Malaysian car wash owner’s highly unusual marketing idea is shot down by the police. Britain is experiencing a surge in high-tech investment. Canada introduces a new visa for immigrant entrepreneurs. Russia looks to enter the tablet market.

Finance: A Cash Mob in Tennessee

Rob Russell has three questions for your financial adviser, including: “How well did you do in 2008?” Billy Patterson offers some personal finance tips for small-business owners. Odysseas Papadimitriou reveals the biggest credit card mistake entrepreneurs make. Here are six tips for running a layaway program. A representative from Score offers financing ideas for new businesses. A cash mob will infuse dollars into businesses in Cleveland, Tenn.

Tweets of the Week

@petershankman: The Simpsons first aired 25 years ago this week. We’re old. Have a nice day.

@badbanana: The new iPhone, while larger, is still not quite large enough to fill the hole in my soul. Excellent news for Hostess Brands.

@WarrenWhitlock: “An entrepreneur always searches for change, responds to it, and exploits it as an opportunity.” — Peter Drucker

The Week’s Bests:

Ed Powers says private equity investors are looking for liquidity: “Liquidity is going to become more of an issue, because the private equity fund probably used some leverage to buy your company. Private equity managers will want weekly, monthly and quarterly cash flow models (perhaps even daily in a crisis) to make sure your company stays within the liquidity covenants negotiated with its lenders. It’s impossible to predict liquidity needs perfectly, but modeling helps avoid crises.”

Al Natanagara explains how to manage your team without turning into Bill Lumbergh, the manager in “Office Space”: “Don’t be too proud to get your hands dirty. One of the first things we learn as managers is how to effectively delegate work. Some managers take this to mean that everything outside of the strictest definition of ‘management’ should be done by employees, and this is a mistake. If you have skills that match any of your employees’, help out during crunch time. Get coffee for people every once in a while. Even something as simple as throwing away garbage or wiping up a spill can go a long way toward showing that even though you are higher up the corporate ladder, you are still a regular person like everyone else.”

This Week’s Question: Do you ever Bing it?

Gene Marks owns the Marks Group, a Bala Cynwyd, Pa., consulting firm that helps clients with customer relationship management. You can follow him on Twitter.

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Economic View: Long-Term Unemployment Carries Risks for U.S.

Yet without government intervention, we may well have high unemployment and social discord for years to come. How did this disaster happen?

Probably the most important reasons for the failure to rescue the unemployed are intellectual, rather than purely political. First, there is a lack of scientific proof that government spending — fiscal stimulus — will do much to remedy unemployment. Second, there is a lack of appreciation of the human impact and social consequences of high, long-term joblessness.

To see how divided economists are about the effects of fiscal stimulus, ask them to gauge the “multiplier” effect — the response of the broader economy to a dollar spent by the government. In September, the Journal of Economic Literature published several surveys of the literature on the subject; those surveys came up with so many different answers that it’s hard to show with certainty that stimulus even works. One of those surveys, by Jonathan Parker of Northwestern University, said that, in general, academic studies of multipliers “almost entirely ignore the state of the economy.” Most studies fail to give credible estimates of the effects of such stimulus in a period of abysmal confidence and near-zero interest rates.

We are in such a situation now — for the first time since the Great Depression. It may be ruinous to assume that the situation is hopeless and that we should thus do nothing for the unemployed. Richard Kahn, the man who invented the mathematical theory of the multiplier in a 1931 article, later said that it was a mistake to think of fiscal stimulus only in mechanistic terms. Government action, he suggested, affects public confidence in ways that his model did not fully capture. But economists have generally run with his mathematical model, or fundamental variations on it, and ignored his caveat.

We have to close the government deficit eventually, but that can be done with tax increases and solid programs to create jobs. It was within the supercommittee’s scope to devise a plan to accomplish this in a stimulative way. The contractionary effects of tax increases could have been offset by some expenditure increases that would stimulate the economy and help provide jobs. But that didn’t happen. I’ve written before that this kind of plan, termed a “balanced-budget stimulus,” ought to work.

FURTHERMORE, we have been ignoring the serious consequences of allowing long-term unemployment to continue.

Bad as it is for those without jobs and their immediate families, unemployment tears the fabric of our society. Duha T. Altindag of Auburn University and Naci H. Mocan of Louisiana State University used data collected by the World Values Survey on more than 130,000 people from 69 countries to learn how unemployment affects confidence in civil society and basic democratic institutions.

They looked at a survey question inquiring whether “having a strong leader who does not have to bother with Parliament or elections” is a good thing. In the United States, being jobless increases the propensity to agree by about 11 percentage points, to 38 percent from the sample mean of 27 percent, after controlling for other factors like income and education. They also found that, in countries where they had the appropriate data, people who have been unemployed for more than a year are even more likely to agree, if other factors are held constant.

Some of the social discord and mistrust of government in our country of late is surely connected to long-term unemployment. We need to accept that we are now in very unusual times, and that unusual steps are needed.

One approach is to raise taxes and use the proceeds to subsidize hiring of the unemployed. In the 2007 book “Rewarding Work,” Edmund S. Phelps, the Nobel laureate economist from Columbia University, had an interesting idea for spurring hiring. As he has updated that proposal, the government should provide a subsidy of $4.50 an hour for the lowest-paid workers, with declining amounts until they earn more than $15 an hour. Unlike the current “earned income tax credit,” his plan would not be biased toward families with dependent children, but would apply equally to all workers.

He estimates today that the cost of such a program would be about $150 billion a year, around 1 percent of gross domestic product. The program would be well worth the expense.

The American Jobs Act proposed by President Obama in September includes subsidies in the form of re-employment services, wage insurance, work-sharing benefits and self-employment assistance. Stephen A. Wandner of the Urban Institute and the W. E. Upjohn Institute for Employment Research testified before the Senate Finance Committee this month and offered a number of other ideas that have been successful on an experimental basis. Among them are comprehensive job search assistance and re-employment bonuses.

The stakes are very high here, and they are not just economic. As anger rises in today’s economy, I’m reminded of Thomas Jefferson’s words about the danger of “angry passions” arising between the North and South over the question of extending slavery to the Missouri territory. In an 1820 letter, he wrote that “this momentous question, like a fire bell in the night, awakened and filled me with terror.” He went on to predict, from his observations of such rancor, the secession of the South that was to come 40 years later.

Our country is a much more stable and just society now than it was in 1820. Still, we should regard the current economic dispute as another fire bell in the night. It is important to recreate the sense of a just society, without anger — and an important step in that direction is to ensure that there are enough


Robert J. Shiller is a professor of economics and finance at Yale.

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Off the Shelf: ‘Keynes Hayek’ Views Origins of an Economics Debate — Review

What these men actually thought — about the economy and each other — is more complicated, as Nicholas Wapshott demonstrates in “Keynes Hayek: The Clash That Defined Modern Economics” (W. W. Norton, $28.95). This lively book explores one of the most pressing economic questions of our time: To what extent should government intervene in markets? And in that search, it traces the interaction of the two men most responsible for the way we approach this question: the British economist Keynes and the Austrian economist Hayek.

Both men came of intellectual age in the aftermath of World War I. They lived through the boom of the 1920s and through the Great Depression and arrived at radically different views of the wisdom of letting free-market capitalism run its course.

Keynes concluded that markets would not automatically provide full employment and that during downturns there could be long periods of large-scale unemployment. He argued that it was the government’s duty to relieve the plight of the jobless by increasing aggregate demand for goods and services.

Mr. Wapshott, a Reuters contributing columnist and a former senior editor at The Times of London, skillfully reconstructs the context in which Keynes formulated his theory. During the 1920s, Britain endured persistently high unemployment. Successive policy makers, worried about rising expenditures and falling tax revenue, ignored Keynes’s calls for public spending, setting off what he called a “vicious circle.”

“We do nothing because we have not the money,” Keynes said in 1930 to a government committee investigating the causes of the economic crisis. “But it is precisely because we do not do anything that we have not the money.” With the unemployment rate now at 9.1 percent, I gulped long and hard as I read these pages.

Hayek came to a very different conclusion. After serving in World War I, he found his beloved Vienna “devastated and its people’s confidence broken,” Mr. Wapshott writes. During the ensuing decade, hyperinflation pummeled the Austrian economy, melting away the savings of millions of people.

This experience, Mr. Wapshott argues, hardened Hayek “against those who advocated inflation as a cure for a broken economy.” And he came to believe “that those who advocated large-scale public spending programs to cure unemployment were inviting not just uncontrollable inflation but political tyranny.”

Thus, the author writes, the battle lines between Keynes and Hayek were drawn. Yet it was a duel characterized by mutual respect. Keynes, for example, shared Hayek’s distrust of socialism, while Hayek conceded that in the case of chronic unemployment, planning might play a role without leading to oppression.

But it was still a duel. In 1936, Keynes published “The General Theory of Employment, Interest and Money,” which took on classical economics and people like Hayek who subscribed to its tenets. Keynes’s targets included several long-accepted ideas: that employment levels are determined by the price of labor, that supply creates its own demand and that savings automatically translate into investment.

Keynes didn’t expect that his findings would lead to an infringement of personal liberty. Instead, the author writes, Keynes believed “that a prosperous society in which everyone is employed was the surest way of maintaining the independence of thought and action he considered the guarantor of true democracy.”

Hayek did not publicly detail any criticisms of “The General Theory.” But in 1944, he brought out “The Road to Serfdom,” which has become a libertarian classic. Hayek aimed to expose socialism and fascism as twin evils, warning of the potential dangers of central economic planning in the aftermath of World War II.

“It is Germany whose fate we are in some danger of repeating,” Hayek wrote.

Keynes was swift to respond, reminding Hayek that the rise of National Socialism was fueled not by big government but by mass unemployment and a failure of capitalism.

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