The Pennsylvania Policy Blog

Via Krugman:

“Anyone who is willing to work and is serious about it will certainly find a job. Only you must not go to the man who tells you this, for he has no job to offer and doesn’t know anyone who knows of a vacancy. This is exactly the reason why he gives you such generous advice, out of brotherly love, and to demonstrate how little he knows the world.”

There isn’t much in the way of good news from the update to the employment situation.  Pennsylvania did add 9,600 jobs in January but we really have to see several consecutive months of that kind of growth before we can conclude that recovery has taken hold.  And on that count the US employment situation in February (US nonfarm payrolls fell by 36,000) signals we are unlikely to see as good an employment number in Pennsylvania in February.

Unemployment rates held stead in PA at 8.8% in January and for the US in February at 9.7%.

Employment gains in Pennsylvania in January were concentrated in the service sector as both construction and manufacturing continued to shed jobs.

Benchmark and Seasonal Adjustment Revisions:

With this release of employment and unemployment data the Center for Workforce Information and Analysis has incorporated two major changes in it’s historical series of unemployment and employment.  The first revision is the annual benchmark revision where estimates of job growth are replaced by actual counts derived the unemployment insurance system which provides a virtual census of employment in the state.  The benchmark revision at the national level (a decline of 902,000 jobs) and for Pennsylvania (a decline of -24,600) jobs is the largest on record.  The chief source of the revision the fact that the Bureau of Labor Statistics projects current employment using past trends in the birth and death of companies.  The contraction in economic activity associated with the Financial Crisis was far more severe than any model based on historical data could predict and thus it turns out that employment in both the nation and Pennsylvania was much lower than we thought.

To put the “Great Recession”  in context take a look at this stunning figure from the Center for Workforce Information and Analysis:

A second round of revisions have also been made this year to the seasonally adjusted data that stretches back to 1976 for unemployment data and back to 1990 for employment data.  The Bureau of Labor Statistics has changed the way it adjusts employment counts to control for seasonal fluctuations in employment.  This is done so we can compare this months employment level to last months level without having to worry whether the change we observe is real or driven by the normal pattern of hiring and layoffs we see each month.

The Lost Decade:

The following statistics are deeply depressing:

• Total employment in 2000 = 5,691,300
• Total employment in 2009= 5,608,500

For more on the national employment situation here are links to the analysis by CEPR, EPI and CAP.

The following was recently posted on the Commonwealth Foundation blog:

The Congressional Budget Office announced last month that 1.5 million jobs were created or saved by the $862 billion stimulus package, a number many use to claim the stimulus worked, and therefore we need another one.
But the CBO’s numbers are based on an economic model that assumes government spending creates jobs. Using a predetermined multiplier the model computes GDP growth for every dollar the government spends; this number is then converted into jobs created.

• Every $1 of government spending that directly purchases goods and services ultimately raises the GDP by $1.75;
• Every $1 of government spending sent to state and local governments for infrastructure ultimately raises GDP by $1.75;
• Every $1 of government spending sent to state and local governments for non-infrastructure spending ultimately raises GDP by $1.25; and
• Every $1 of government spending sent to an individual as a transfer payment ultimately raises GDP by $1.45.

Hence, the estimate of jobs created is identical to what the model predicted before the stimulus passed, and bears no connection to what actually happened.

Just to clarify the spending multipliers quoted from the CBO are empirical estimates which are within the range of estimates that are widely accepted.  The Commonwealth Foundation artfully omits that these multipliers are derived from actual research into the past relationship between government spending and employment.  They are attempting to leave the impression they were plucked out of thin air.

But what is most interesting about this post is the fact that Commonwealth Foundation on occasion contracts with economists to help it quantify the affects of various policies. For example

• they hired an economist to estimate the impact of raising the minimum wage in Pennsylvania.
• they hired economists with the Beacon-Hill institute to help estimate the economic impact of raising the personal income tax in Pennsylvania.

These reports rely upon economic models that all make assumptions to calculate the impact of the policy choice in question. Whether the impacts estimated are accurate depends on careful research that has to be done well into the future.  Still policy decisions have to be made now and so we have to rely upon models and we choose between those models based on the reasonableness of their assumptions. We for instance disagreed with the conclusions of Commonwealth Foundation minimum wage report because their model relied upon an estimate of the elasticity of labor demand that in our view was not fully supported by empirical research.  This is the stuff of economics and the stuff that economists argue about.

While obviously the folks at the Commonwealth Foundation are not economists they repeatedly rely upon the work of economists to push their policy agenda.

And yet they put up this blog post that could have easily been written about some of their own public policy research. It would seem they don’t understand how the research they buy is done and frankly I wonder if they even read the research they buy?

To be fair to the Commonwealth Foundation they were just trying to repeat a post by Brian Riedl at the Heritage Foundation.  Unfortunately they missed Riedl’s main point.  Not to worry Brad Delong and Paul Krugman did catch Riedl’s main point. Enjoy!

Can We Please Shut National Review and the Heritage Foundation Down Now?

Stupidest and most intellectually dishonest thanktanks and magazines alive…

Brian Reidl:

• “Obama’s Faith-Based Economics: The idea that government spending creates jobs makes sense only if you never ask where the government got the money. It didn’t fall from the sky. The only way Congress can inject spending into the economy is by first taxing or borrowing it out of the economy.[1] No new demand is created; it’s a zero-sum transfer of existing demand…”

What Brian Riedl doesn’t seem to realize is that the only way he can get extra money to spend is by borrowing it or selling his assets. In either case, the person he borrowed it from or sold his assets to no longer has the money to spend–and so by Reidl’s “logic” any private-sector decision to spend more (or less!) money doesn’t create (or destroy!) demand: “it’s [just] a zero-sum transfer of existing demand.” According to Reidl’s logic, no private decision to spend more or less can ever change the flow of existing demand: spending in the economy must always be a constant.

You have only to look at employment in America to understand that the claim that spending in the American economy is always a constant is simply and completely false:

According to Reidl’s logic, none of these fluctuations in the employment-to-population ratio ever happened. He and his ignorant cohorts just close their eyes, plug their ears, and the more literate and well-read of them say: “Say! Bastiat! Say! Bastiat! Say! Bastiat!”

If we move from the fantasy-land of ignorant partisan hacks into the real world in which we live, the fact that economic actors get the cash they spend by selling their assets to others, borrowing from others, or taxing others does not mean that every decision to spend creates “no new demand… [is] a zero-sum transfer of existing demand…” Reidl’s claim would be true if we lived in a pure cash-in-advance economy with a rigid technological velocity constraint–if the only way you could buy things was by paying cash on the barrelhead immediately, if you could only spend your cash once every “market day,” and if you were forced on pain of confiscation to spend your cash every “market day.” But we don’t live in such an economy. We never lived in such an economy. Even Gyges King of Lydia, inventor of coinage, did not live in such an economy.

And since we don’t live in a pure cash-in-advance economy with a rigid technological velocity constraint, everyone’s decisions to spend more or less contribute to or subtract from the flow of demand–and the government’s decisions to spend more or less are just as good as anyone else’s, for it is just another economic actor (albeit a rather large one).

This is a first-day-of-econ-1 mistake…

And briefly from Paul Krugman:

“Brad looks at John Cochrane asserting that fiscal expansion does nothing but shift money around, and tries to figure out Cochrane’s model. It’s a hopeless quest…Matter are different when we’re talking about, say, John Taylor’s anti-stimulus arguments; there is a model there, so we have to discuss the assumptions of that model and whether they look plausible. (I say no, but at least we’re having a real discussion). But when it comes to Cochrane, or Brian Riedl, there’s no there there, and Brad is wasting his time looking for it.”

The US Employment and Training Administration released new data this morning on unemployment claims. In the week ending February 20th there 35,237 initial claims for unemployment insurance in Pennsylvania. The four week moving average was 35,549 a figure which is 11% lower than during a comparable period in 2009.

Following the national release of claims data there were a raft of news reports that sounded like there was a dramatic change in the numbers that were released. Calculated Risk reviews the national numbers and makes clear there is little to celebrate in the new national data. The level of claims continues to signal net job losses in the economy.

New nonfarm payroll employment data for Pennsylvania in January will be out today. There is typically a longer lag in the release of the state level employment data for January because of a set of adjustments which US Department of Labor makes to Local Area Unemployment Statistics.

We need a Consumer Financial Protection Agency but don’t take our word for it, here are what living and dead former Presidents have to say on the matter.

To read more on what the Consumer Protection Financial Agency is and what kind of authority it needs to protect us all from Wall Street see Americans for Financial Reform.