The Great Recession

NDN President Simon Rosenberg on FOX News 7/20/2011

NDN President and Founder Simon Rosenberg on FOX News 7.20.2011 re: debt ceiling

NDN Senior Advisor Alicia Menendez on MSNBC 7.15.2011

NDN Senior Advisor Alicia Menendez on MSNBC 7.15.2011 regarding Obama and the debt ceiling vote.


NDN President Simon Rosenberg on FOX- 6/29

NDN President Simon Rosenberg was on FOX News this morning regarding President Obama's re-election chances in the current economic climate:

Simon on Fox News in 30 minutes! Tune in! / Alicia on Fox News this past Sunday! Tune in!

In about 30 minutes, at 2:30 Eastern time, NDN's President Simon Rosenberg will be on Fox News to talk about the Obama administration's response to the oil spill and the achievements it ought to take credit for. Be sure to check it out!


And this past Sunday morning, Alicia went on Fox and Friends to talk about the Democrats' plan to let the Bush tax cuts for the wealthiest 1 percent of Americans expire. Rolling back the tax cuts will reduce the deficit by 25 times the amount that continuing unemployment benefits will add to the deficit.

NDN's Alicia Menendez Makes the Rounds on TV

This past Thursday and Friday, NDN's own Alicia Menendez made the rounds on cable news to do battle on a number of important issues. Above all, she succeeded in reinforcing a message that has become abundantly clear after the Obama administration's successful last week: the administration has shown decisive leadership with its handling of Gen. Stanley McChrystal's comments in Rolling Stone. On the economic front, Alicia argued, the recent Republican filibuster of the Senate jobs bill shows which party actually has a concrete plan for mitigating the effects of the Great Recession (we'll leave you to guess which one).

As usual, she succeeded in moving beyond talking points and finding a nuanced, pragmatic common ground. Here she is on MSNBC's Dylan Ratigan Show on Friday:


One Way to Create More Jobs without Increasing the Deficit

At last week’s Jobs Summit, President Obama said he’ll consider any good idea to create jobs.  I heard him say it, and I believe him.  His speech yesterday at the Brookings Institution offered some decent, standard approaches, including more infrastructure spending and tax breaks for small businesses.  The President would be well-served to cast his policy net a bit wider.  Since the Great Recession began, the economy has shed an astounding 7.3 million private-sector jobs – and based on the last two recoveries, businesses could continue to cut back their labor forces for another year or longer.  The President and Congress can create more government jobs whenever they like, for example by giving states an additional $50 billion or so targeted to jobs.  But finding the right lever to get private companies to hire more people than they would otherwise is a lot harder. 

The most direct and sensible approach is to somehow reduce the costs of hiring for companies.  The unsurprising catch is that the incentives required to get them to hire a million or more new people, whom otherwise they wouldn’t have hired, are very expensive.  So, most serious jobs proposals would either drive up our already-mammoth deficits or require a significant new tax.  

Most, but not all, because there is one approach I know of that wouldn’t cost taxpayers anything.  The foreign subsidiaries of America’s multinational companies currently hold offshore an estimated $1 trillion in past earnings, because our tax laws defer the U.S. corporate tax on those earnings until the parent companies bring them back to the U.S. parent company.  The challenge is to leverage these funds for job creation at home, by creating a strong incentive for them to bring back a share of those earnings tied to a requirement that they use the funds to finance new hires.  It’s the closest thing to “found money” that this administration and Congress will ever find. 

We actually tried this once before, in a fashion, and it worked reasonably well.  In 2004, Congress slashed the corporate tax on such “repatriated” earnings for one year, from 35 percent to 5.25 percent, and IRS data show that it increased net inflows of those earnings by $312 billion, including $252 billion by U.S. manufacturers.  The 2004 law also told companies they had to use the new funds they brought back to, among other things, finance new workers, new investment, or pay down domestic debt.  Recent surveys found $73 billion of the repatriated earnings went to create or retain jobs, $75 billion for new capital spending, and $39 billion to pay down domestic debt.   Here’s the free lunch: In the short run, the temporary program raised $34 billion in new federal revenues.  And it may not even have reduced revenues over the long-term, or not by much, since without the tax break, most U.S. multinationals keep their foreign-source earnings abroad indefinitely, or at least until they can be used to offset domestic losses for tax purposes. 

We can estimate what would happen if we tried this approach again.  A recent analysis I did with AEI’s Aparna Mathur found that such a policy could bring back $420 billion in foreign-source income now held abroad.  And if the program were targeted again in the same way as in 2004, it could mean $97 billion for new employment, or enough to create or save 2.6 million jobs over two years, as well as $101 billion for new capital spending, enough to produce long-term wage gains of 1.3 percent.  

Skeptics will claim that most companies would use their repatriated funds in other ways, such as stock buy-backs; and since money is fungible, the government couldn’t stop them.  Two academic studies built models which inferred that this happened last time; but there’s no real evidence that companies evaded the restrictions, and a recent academic survey suggests that most did follow the law.  Even if some didn’t, we can tighten the restrictions this time.  We could allow multinationals to bring back offshore earnings for one or two years and pay just 5 or 10 percent corporate tax on them here, so long as they use those funds only to create new, net jobs or increase their net investment.  That means they would have to not only hire new people, but expand their overall workforces. It might just help businesses create between 1 million and 2 million new jobs while actually reducing the deficit, which seems like the kind of new idea the President is looking for.

Where is Employment Headed?

Friday’s unemployment report of fewer jobs lost than expected surely beats the alternative, but that does not mean that the employment situation will improve significantly anytime soon. What it hopefully means is that things won’t get dramatically worse, although that certainly can’t be ruled out.

Calculated Risk, perhaps the most prolific chart maker and data analyst of all economics blogs, presents an analysis on the potential speed of the employment recovery. These estimates are based on Okun’s Law (an established relationship between GDP growth and job creation):

unemployment and GDP

In the 2010 budget, OMB projects real GDP growth of 3.5 percent from the fourth quarter of this year to next, meaning that, if Okun’s law were still operable, we’d be somewhere in the mid to high 9 percent unemployment range at the end of next year. (The Federal Reserve sees similar numbers.)

Having said that, many leading economists, including NDN’s Rob Shapiro and the Director of the National Economic Council Larry Summers, have argued that Okun’s law has broken down, making the relationship between GDP growth and employment weaker, which means these projections may be - sadly - optimistic. 

The New Reality of Heightened Structural Unemployment

Mark Thoma, who has a new blog, ponders a "new normal" (read: higher) unemployment rate. He points to something both NDN and Thoma have been writing about: concerns of higher structural unemployment.

I expect structural unemployment to be higher than it was, particularly in the next few years. We had too many resources in housing, finance, and automobile production, and it will take time for the economy to make the necessary structural adjustments. When this is combined with continuing globalization, as well as the higher savings rate and correspondingly lower consumption expected from households in the future, both of which cause structural change within the economy, the expectation is that the new target rate of unemployment will rise above the 4 percent level it was at before the recession.

Exactly how much it will rise and for how long is hard to say. A 5 or 6 percent rate, or even somewhat higher is certainly imaginable, but getting it right is important. If policymakers target an unemployment rate that is too low, they risk causing inflation (one reason for the high rate of inflation in the 1970s is that the Fed targeted a 4 percent unemployment rate when the actual rate of normal unemployment was much higher due to structural and demographic change). If they target a rate that is too high, then they risk having people be unnecessarily unemployed in the economy.

He goes on to point to a few ideas of how to deal with this - worker training and extended unemployment benefits among them. With unemployment at 10 percent, there are massive challenges involved in bringing that level back to "normal," but, as we craft economic policy going forward, it is important to understand that we're not going back to what we had, and policy must be responsive to the new economic realities. 

NDN believes this structural change, as well as the structural changes that have de-linked GDP and wage growth, represent the great governing challenges of the day. For years we've pointed to a three part agenda to deal with these issues. This agenda includes containing health care and energy costs, accelerating innovation, and investing in infrastructure and skills, all steps that will have to be taken to create broad based prosperity in the 21st century economy. 

End of the day reading: Growth

Some end of the day reading:

TNR's Zubin Jelveh covers an element of something I wrote about last week - political attacks on the stimulus for being a negative factor on growth. Unfortunately, this attack comes from a conservative economist who should know better. 

The WSJ says the International Energy Agency sees good news in that oil demand will remain relatively low, even as growth picks up. Generally, growth is associated with higher oil prices, which can be economically troublesome (or worse), but this time efficiency policies are saving the day. Renewed growth with low energy prices is just what the doctor ordered. 

And David Leonhardt writes that, even as bad as things look, we just don't know that the economy won't boom again soon. He says an economy transforming innovation we don't know about could come along soon, which is a fair point. So let's do the things we know encourage innovation: upgrading worker skills, R&D funding, creating competition, valuing IP, and more. (All of these are especially applicable to climate-friendly technologies.)

Statement on New Economic Data Released by the Commerce Department

Today, NDN issued the following press release:

Statement from Dr. Robert J. Shapiro, Chair of NDN’s Globalization Initiative, on new economic data released by the Commerce Department:

“While this week’s news on the economy growing in the third quarter is welcome, most of those gains came from the President’s stimulus, so we’re still a long way from a self-sustaining recovery.  And today’s news of falling personal incomes last month and a sharp downturn in consumer spending shows how hard this recession has been for most Americans,” said Shapiro, former Under Secretary of Commerce for Economic Affairs in the Clinton Administration. “These developments come on top of what happened to most people in the last expansion – when their wages stagnated even as the economy was growing.  Political leaders in Washington shouldn’t let wishful thinking cloud their planning for 2010 – the economy still needs help, and the American people need a government prepared to make serious long-term investments in their future prosperity.”

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