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August 14, 2009

Economist's View - 4 new articles

"Part-Time for Economic Reasons"

Why has the increase in involuntary part-time work been so much higher in this recession as compared to past recessions?

What's really different about this recession?, by Menbere Shiferaw, Macroblog: The short answer to the question posed in the title of this blog post is, of course, "lots of things." One of those things is featured in the latest edition of Economic Highlights, the Atlanta Fed's weekly digest of newly released economic statistics. Here, specifically, is a chart reflecting the trajectories of individuals working part-time for economic reasons in the current and past recessions.
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As the chart clearly shows, the increase in people reporting that they are involuntarily working part-time rather than full-time is considerably higher in this recession than in past recessions. Although the increase in these workers has moderated some since the spring of this year, the number of people in the category of working part-time for economic reasons remains at 8.8 million, well above the level of past contractions in both absolute and relative terms.
This recession has given us many puzzles to mull over. Now we can add the unusual pattern of part-time work to the list.

Why is this happening? Here's one explanation:

Lawrence Katz...: This recession has been so bad, that even after businesses have laid off workers, they've been forced to reduce many of their remaining employees from full-time to part-time status. That's what happens when you have to cut to the bone. And then keep cutting.

As the economy recovers, this slack will likely be taken up before firms begin to hire new workers, yet another reason to think that employment will lag far behind the recovery in output.


Stavins: Waxman-Markey is Not a Massive Corporate Give-Away

This is a follow-up to the recent discussion between Brad DeLong and Greg Mankiw on the effects of giving away rather than auctioning carbon permits under a cap and trade system (see, e.g., here, here, here, and here). Mankiw begins with the premise that:

Rather than auctioning the carbon allowances, the bill that recently passed the House would give most of them away to powerful special interests.

But is it correct to classify the program as "giving most of them away to powerful special interests"? Here's Harvard's Robert Stavins who knows a thing or two about this topic. He notes that "it is remarkable (and unfortunate) how misleading so much of the coverage has been of the issues and the numbers surrounding the proposed allowance allocation." He also says that "we should be honest that the legislation, for all its flaws, is by no means the 'massive corporate give-away' that it has been labeled. On the contrary, 80% of the value of allowances accrue to consumers and public purposes":

The Wonderful Politics of Cap-and-Trade: A Closer Look at Waxman-Markey, by Robert Stavins: ...Now, let's go back to the hand-wringing in the press and blogosphere about the so-called massive political "give-away" of allowances. Perhaps unintentionally, there has been some misleading press coverage, suggesting that up to 75% or 80% of the allowances are given away to private industry as a windfall over the life of the program, 2012-2050 (in contrast with the 100% auction originally favored by President Obama).
Given the nature of the allowance allocation in the Waxman-Markey legislation, the best way to assess its implications is not as "free allocation" versus "auction," but rather in terms of who is the ultimate beneficiary of each element of the allocation and auction, that is, how the value of the allowances is allocated. On closer inspection, it turns out that many of the elements of the apparently free allocation accrue to consumers and public purposes, not private industry.
First of all, let's looks at the elements which will accrue to consumers and public purposes. Next to each allocation element is the respective share of allowances over the period 2012-2050 (measured as share of the cap, after the removal - sale — of allowances to private industry from a "strategic reserve," which functions as a cost-containment measure.):

a. Electricity and natural gas local distribution companies (22.2%), minus share (6%) that benefits industry as consumers of electricity (note: there is a consequent 3% reduction in the allocation to energy-intensive trade-exposed industries, below, which is then dedicated to broad-based consumer rebates, below), 22.2 - 6 = 16.2%b. Home heating oil/propane, 0.9%

c. Protection for low- and moderate-income households, 15.0%
d. Worker assistance and job training, 0.8%
e. States for renewable energy, efficiency, and building codes, 5.8%
f. Clean energy innovation centers, 1.0%
g. International deforestation, clean technology, and adaptation, 8.7%
h. Domestic adaptation, 5.0%
The following elements will accrue to private industry, again with average (2012-2050) shares of allowances:
i. Merchant coal generators, 3.0%
j. Energy-intensive, trade-exposed industries (minus reduction in allocation due to EITE benefits from LDC allocation above) 8.0% - 3% = 5%
k. Carbon-capture and storage incentives, 4.1%
l. Clean vehicle technology standards, 1.0%
m. Oil refiners, 1.0%
n. Net benefits to industry as consumers of lower-priced electricity from allocation to LDCs, 6.0%
The split over the entire period from 2012 to 2050 is 53.4% for consumers and public purposes, and 20.1% for private industry. This 20% is drastically different from the suggestions that 70%, 80%, or more of the allowances will be given freely to private industry in a "massive corporate give-away."
All categories - (a) through (n), above - sum to 73.5% of the total quantity of allowances over the period 2012-2050. The remaining allowances — 26.5% over 2012 to 2050 — are scheduled in Waxman-Markey to be used almost entirely for consumer rebates, with the share of available allowances for this purpose rising from approximately 10% in 2025 to more than 50% by 2050. Thus, the totals become 79.9% for consumers and public purposes versus 20.1% for private industry, or approximately 80% versus 20% — the opposite of the "80% free allowance corporate give-away" featured in many press and blogosphere accounts. Moreover, because some of the allocations to private industry are - for better or for worse - conditional on recipients undertaking specific costly investments, such as investments in carbon capture and storage, part of the 20% free allocation to private industry should not be viewed as a windfall.
Speaking of the conditional allocations, I should also note that some observers (who are skeptical about government programs) may reasonably question some of the dedicated public purposes of the allowance distribution, but such questioning is equivalent to questioning dedicated uses of auction revenues. The fundamental reality remains: the appropriate characterization of the Waxman-Markey allocation is that 80% of the value of allowances go to consumers and public purposes, and 20% to private industry.
Finally, it should be noted that this 80-20 split is roughly consistent with empirical economic analyses of the share that would be required - on average — to fully compensate (but no more) private industry for equity losses due to the policy's implementation. In a series of analyses that considered the share of allowances that would be required in perpetuity for full compensation, Bovenberg and Goulder (2003) found that 13 percent would be sufficient for compensation of the fossil fuel extraction sectors, and Smith, Ross, and Montgomery (2002) found that 21 percent would be needed to compensate primary energy producers and electricity generators.
In my work for the Hamilton Project in 2007, I recommended beginning with a 50-50 auction-free-allocation split, moving to 100% auction over 25 years, because that time-path of numerical division between the share of allowances that is freely allocated to regulated firms and the share that is auctioned is equivalent (in terms of present discounted value) to perpetual allocations of 15 percent, 19 percent, and 22 percent, at real interest rates of 3, 4, and 5 percent, respectively. My recommended allocation was designed to be consistent with the principal of targeting free allocations to burdened sectors in proportion to their relative burdens, while being politically pragmatic with more generous allocations in the early years of the program.
So, the Waxman-Markey 80/20 allowance split turns out to be consistent — on average, i.e. economy-wide — with independent economic analysis of the share that would be required to fully compensate (but no more) the private sector for equity losses due to the imposition of the cap, and consistent with my Hamilton Project recommendation of a 50/50 split phased out to 100% auction over 25 years.
Going forward, many observers and participants in the policy process may continue to question the wisdom of some elements of the Waxman-Markey allowance allocation. There's nothing wrong with that.
But let's be clear that, first, for the most part, the allocation of allowances affects neither the environmental performance of the cap-and-trade system nor its aggregate social cost.
Second, questioning should continue about the output-based allocation elements, because of the perverse incentives they put in place.
Third, we should be honest that the legislation, for all its flaws, is by no means the "massive corporate give-away" that it has been labeled. On the contrary, 80% of the value of allowances accrue to consumers and public purposes, and some 20% accrue to covered, private industry. This split is roughly consistent with the recommendations of independent economic research.
Fourth and finally, it should not be forgotten that the much-lamented deal-making that took place in the House committee last week for shares of the allowances for various purposes was a good example of the useful, important, and fundamentally benign mechanism through which a cap-and-trade system provides the means for a political constituency of support and action to be assembled (without reducing the policy's effectiveness or driving up its cost).
Although there has surely been some insightful press coverage and intelligent public debate (including in the blogosphere) about the pros and cons of cap-and-trade, the Waxman-Markey legislation, and many of its design elements, it is remarkable (and unfortunate) how misleading so much of the coverage has been of the issues and the numbers surrounding the proposed allowance allocation.


Paul Krugman: Republican Death Trip

What's the best way to respond to the lies that are being used to scare people into opposing health care reform?:

Republican Death Trip, by Paul Krugman, Commentary, NY Times: "I am in this race because I don't want to see us spend the next year re-fighting the Washington battles of the 1990s. I don't want to pit Blue America against Red America; I want to lead a United States of America." So declared Barack Obama in November 2007, making the case that Democrats should nominate him ... because he could free the nation from the bitter partisanship of the past. ...
So, how's it going? Sure enough, President Obama is now facing the same kind of opposition that President Bill Clinton had to deal with: an enraged right that denies the legitimacy of his presidency, that eagerly seizes on every wild rumor manufactured by the right-wing media complex. This opposition cannot be appeased...
Right now, the charge that's gaining the most traction is the claim that health care reform will create "death panels" (in Sarah Palin's words) that will shuffle the elderly and others off to an early grave. It's a complete fabrication...
And not long ago, some of the most enthusiastic peddlers of the ... smear, including Newt Gingrich ... and Mrs. Palin herself, were all for "advance directives" ... the event that you are incapacitated or comatose. That's exactly what was being proposed — and has now, in the face of all the hysteria, been dropped from the bill.
Yet the smear continues to spread. And ... Senior G.O.P. figures, including so-called moderates, have endorsed the lie. Senator Chuck Grassley, Republican of Iowa, is one of these supposed moderates. I'm not sure where his centrist reputation comes from..., his role in the health care debate has been flat-out despicable.
Last week, Mr. Grassley claimed that ... Ted Kennedy's brain tumor wouldn't have been treated properly in other countries because they prefer to "spend money on people who can contribute more to the economy." This week, he told an audience that "you have every right to fear," that we "should not have a government-run plan to decide when to pull the plug on grandma."
Again, that's what a supposedly centrist Republican, a member of the Gang of Six trying to devise a bipartisan health plan, sounds like.
So much, then, for Mr. Obama's dream of moving beyond divisive politics. The truth is that the factors that made politics so ugly in the Clinton years — the paranoia of a significant minority of Americans and the cynical willingness of leading Republicans to cater to that paranoia — are as strong as ever. In fact, the situation may be even worse ... because the collapse of the Bush administration has left the G.O.P. with no real leaders other than Rush Limbaugh.
The question now is how Mr. Obama will deal with the death of his postpartisan dream. So far, at least, the Obama administration's response ... has had a deer-in-the-headlights quality. It's as if officials still can't wrap their minds around the fact that things like this can happen to people who aren't named Clinton...
What, then, should Mr. Obama do? It would certainly help if he gave clearer and more concise explanations of his health care plan. To be fair, he's gotten much better at that over the past couple of weeks.
What's still missing, however, is a sense of passion and outrage — passion for the goal of ensuring that every American gets the health care he or she needs, outrage at the lies and fear-mongering that are being used to block that goal.
So can Mr. Obama, who can be so eloquent when delivering a message of uplift, rise to the challenge of unreasoning, unappeasable opposition? Only time will tell.

Maybe the answer is to scare people with the truth. Without health care reform that reduces the growth in costs, we won't be able to sustain the level of health care we are delivering now let alone cover those who don't have access to the care they need. Other countries have demonstrated conclusively that it's possible to deliver high quality universal care at a much lower cost than in the US, so a failure to implement reform is also a failure to maximize the availability of high quality health care. For that reason the people trying to block reform are -- to put it in their terms -- the death squads. They are the the the ones putting health care at risk, particularly care for those reliant upon government programs such as Medicare that will face budget pressures if costs aren't controlled, so lets hope the fabrications and other antics don't deter us from implementing the changes that are necessary to ensure that we can meet our health care needs.


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