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October 5, 2010

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Latest Posts from Economist's View

"Retraining Workers Won't Work"

Posted: 05 Oct 2010 12:42 AM PDT

Rebecca Wilder:

Retraining workers won't work: From the NY Times, White House Plans Job Training Partnership (bold by me):

As part of efforts to address record-high levels of long-term unemployment, President Obama plans to announce a new national public-private partnership on Monday to help retrain workers for jobs that are in demand.

The national program is a response to frustrations from both workers and employers who complain that public retraining programs frequently do not provide students with employable skills. This new initiative is intended to help better align community college curriculums with the demands of local companies.

"The goal is to encourage community colleges and other training providers to work in close partnership with employers, to design a curriculum where they want to hire the people coming out of these programs right away," said Austan Goolsbee, chairman of the President's Council of Economic Advisers.

The White House has coined this program Skills for America's Future. The complication is, that lack of skills is not the problem for the 66% of the labor force aged 25 years and over without a bachelor's degree. The problem is the lack of jobs.


The chart illustrates the dynamics of employment by level of education through August 2010, as measured by the Bureau of Labor Statistics. Note that the data are indexed to the onset of the recession, December 2008, where 100 implies that employment is now at its pre-recession level.

The only category to recover employment in full is that requiring a Bachelor's degree or higher. Furthermore, no material change in employment for BA's (or higher) has occurred since about a year ago, as indexed employment hovers around 100. No new jobs.

The levels of employment for those workers with the lowest levels of educational attainment, 1. and 2., are 3.4% and 5.4% below pre-recession levels, respectively. That is near 2 million jobs.

The White House program is targeted at community college students, or education category 3., some college or associate degree in the chart above. Employment for workers with a community college degree sits over 2.5% below pre-recession levels, or 1 million jobs. Retraining workers will not raise the employment level further.

The government needs to "add jobs", not "retrain workers", and stimulate domestic aggregate demand.

"Bernanke Breaks Promise, Discusses Fiscal Issues"

Posted: 05 Oct 2010 12:33 AM PDT

CR is blunt:

Bernanke breaks promise, discusses fiscal issues, by Calulated Risk: This speech isn't worth reading for substance (Ben Bernanke is clueless on budget issues), but it reveals something about Bernanke.

From Fed Chairman Ben Bernanke speaking at the Rhode Island Public Expenditure Council meeting tonight: Fiscal Sustainability and Fiscal Rules

Bernanke never mentioned "PAYGO" when he was head of the Council of Economic Advisors in 2005. In fact Bernanke barely mentioned the deficit in 2005 - except in postive terms - even though the structural deficit was in place and the cyclical deficit was coming (because of the housing bubble). I wonder why? Well, he missed the housing bubble completely - but what about the structural deficit?

Today he said:

Our fiscal challenges are especially daunting because they are mostly the product of powerful underlying trends, not short-term or temporary factors. Two of the most important driving forces are the aging of the U.S. population, the pace of which will intensify over the next couple of decades as the baby-boom generation retires, and rapidly rising health-care costs.
Weren't the baby boomers going to get older in 2005? Oh my ...

This is an issue that 1) is outside of Bernanke's area of responsibility, 2) he has promised not to discuss, and 3) he has zero credibility on. Enough said.

On fiscal policy issues, I believe Bernanke should explain the choices the Fed would face under various fiscal scenarios, and how the Fed would be likely to react -- that's information Congress and the president need to make informed fiscal choices. But he shouldn't recommend one budget path over the other except as it affects monetary policy choices (search the speech for "money" or "monetary" and see how many times they come up, or try "inflation" -- try to find anything at all in the speech about the consequences of the current projected budget path for monetary policy). And he certainly shouldn't be trying to dictate how a particular budget choice should be achieved (e.g. he identifies "a top priority" that includes reduced "government health spending"). Why politicize the Fed unnecessarily by talking using examples such as changing the retirement age for Social Security -- people might wonder why you didn't choose to mention, say, raising the income cap instead -- especially at a time like now when the Fed has a critical role to play in the economy?

Obama versus Feldstein

Posted: 05 Oct 2010 12:24 AM PDT

Obama tells Martin Feldstein that he's not compromising on his plan to let tax cuts expire for high income households.:

Obama Advisers Challenge President on Tax Cuts, by John D. McKinnon, Washington Wire: President Obama got into a protracted public debate on Monday ... over whether to extend the Bush-era tax breaks for upper-income taxpayers. The answer from Obama essentially remained "no." ...
The debate came at a meeting ... on ideas for boosting the economy. When Harvard professor Martin Feldstein's turn came to talk, he suggested continuing the current tax rates for two years for everybody, then ending them. He said that course would bolster demand at a time when the economy is weak, and also would reduce the long-term federal debt...
William Donaldson, a former chairman of the Securities and Exchange Commission, then offered ... that confusion over future tax policy is adding to business uncertainty. Obama should "step forward with a statement that you're not going to, at this time, increase taxes for anybody, and relieve that uncertainty," he said. Both Donaldson and Feldstein have ties to previous Republican administrations.
In response, Obama offered two arguments: To Feldstein's suggestion, the president said that if the government extends the breaks for higher earners for a year or two, it will be forced to keep extending them forever. "The consequences of extending the upper-income tax cuts—based on what we've heard fairly explicitly in the political environment—is that you do that now, you're going to do it forever," Obama said.
In response to Donaldson's argument, Obama suggested that much of the current business uncertainty is, basically, psychological. ...
When Feldstein said that raising tax rates on higher earners could be seen as another signal of the administration's hostility to the business community, Obama interrupted. The signal is that "they have to pay slightly higher taxes," the president said. ...

I don't know if he'll hang as tough as he's trying to sound. I suspect he'll end up giving something away to try to get this passed, that's the pattern, the question is what it will be.

links for 2010-10-04

Posted: 04 Oct 2010 11:01 PM PDT

What are the Risks to a Long Period of Economic Stagnation?

Posted: 04 Oct 2010 01:48 PM PDT

The Economist asks:

What are the risks to a long period -- say, a decade -- of economic stagnation? Are policymakers underestimating these risks? What threat is most underappreciated?

My answer, which shouldn't be too surprising, is here. There are also responses from Ricardo Caballero ("There is no risk for most rich countries") and Jesper Koll ("Government may cause the stagnation"). Additional responses may be posted later, but so far I seem to be the only one who sees risks ahead, and thinks government can help to reduce them. [All Responses]

The Pay Structure for Executives Creates Bad Incentives

Posted: 04 Oct 2010 11:56 AM PDT

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