Tomorrow, I will consider the furore that has arisen in the last few days after the US Congressional Budget Office released its latest forecasts, which showed the US deficit will rise, and, because they still insist in matching the deficit with bond-issuance to feed the corporate welfare machine, public debt will also expand. With an on-going jobs gap and depressed labour force participation rate, the rising deficit if properly targetted would be desirable. The rising public debt is a negative but only as a result of its unnecessary corporate welfare dimension rather than any concerns about capacity to pay etc. But today, given it is Wednesday and a ‘blog light’ day for me now I have only one related observation to make, which will contextualise tomorrow’s more detailed discussion. For today though I am mostly engaged in revising the final manuscript of our new, upcoming Modern Monetary Theory (MMT) textbook after receiving edits from the publishers, Macmillan.
On April 6, 2018, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – March 2018 – which showed that total non-farm employment from the payroll survey rose by just 103,000 in March – or “edged up” to use the BLS words. The Labour Force Survey data, however, showed that employment fell (37 thousand) in March 2018 but was accompanied by an even larger fall in the labour force (158 thousand) which meant that total unemployment fell by 121 thousand. The weaker labour market means that underutilisation outside of the official labour force will have risen (‘hidden unemployment’). There is still a large jobs deficit remaining and the bias towards low paid work intensified in the first three months of 2018. Finally, there is no evidence of a wages breakout going on. Taken together, the US labour market is showing no definite trend up or down at present and it is still some distance from being at full employment.
I am generally not in favour of trade protection. I grew up in a country that had very extensive protection (tariffs, import quotas) on manufacturing goods, which was justified on a number of grounds – capacity to shift to defense industries; stable employment; and more abstractly, an expression of becoming a ‘modern’ nation, leaving our agrarian roots behind. The initial move to impose high tariffs was that a young industry would take time to develop – the so-called infant industry argument, which goes back to the 1790 Report on Manufactures written by American economist Alexander Hamilton. The problem is that the infant never really grew up and the tariffs just became a cosy rent-sharing margin for unions and multinational corporations. Meanwhile consumers paid excessive prices for deficient-quality motor vehicles (among other products). It is clear that as trade opens up there are workers and regions that lose – and lose badly. The answer is not try to reinvent the past through protection. Rather, it is to use the government’s fiscal capacity to create new opportunities in these regions to ensure that workers disadvantaged by import competition can transit into new jobs with stable incomes. That option is often overlooked because modern governments have become obsessed with austerity. And, as I argue below, that obsession will in the context of Donald Trump’s tariff hikes, work against the European nations that are running ridiculously large current account surpluses.
On March 9, 2018, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – February 2018 – which showed that total non-farm employment from the payroll survey rose by 313,000 in February. The Labour Force Survey data also showed a relatively strong net employment gain (785 thousand (net) jobs were created) in February 2018. The labour force was estimated to have risen by 806 thousand with participation rising by 0.3 points. The BLS thus estimated that unemployment rose by 22 thousand and the official unemployment rate was unchanged at 4.14 per cent. There is still a large jobs deficit remaining and other indicators suggest the labour market is still below where it was prior to the crisis. Finally, there is no evidence of a wages breakout going on. Taken together, while the US labour market has strengthened in the first two months of 2018, it is still some distance from being at full employment.
Last week (February 8, 2018), we witnessed the US Senate spectacle with Rand Paul embarrassing himself with his lack of economic knowledge but also embarrassing both major parties – the Republicans for their gross hypocrisy and the Democrats for their gross idiocy. The – Congressional Record – of Paul’s speech (starting S817) is a classic. Also, last week, the stables were stirring apparently, as the ‘bond vigilantes’ were strapping on their saddles and getting ready to make the US government suffer for its so-called fiscal ‘ill discipline’. These characters apparently emerge out of the darkness of fiscal profligacy to defend our interests and force the government to run surpluses. Fantasy stuff all round. In fact, Rand Paul should resign and get a job he is more suited for (which would be?) and the bond vigilantes should make sure their Shetland ponies are not to wild for them. These bond traders play this elaborate game of bluff and pretend they have the power over the government. In fact, they are mendicants queuing up for their daily dollop of corporate welfare and the government could play them out of the game anytime it chose to. The problem is that the bluff works because governments are captive to the neoliberal nonsense that my professsion preaches.
The latest news from the US, other than the regular counts of the number of times the President has lied on any particular day, is that there is a wages breakout looming. Yes, you read that correctly. The CNN report (February 2, 2018) – America gets a raise: Wage growth fastest since 2009 – was representative of the media responses to the latest data from the US Bureau of Labor Statistics on the same day. We read that “Economists say its time to take note of how strong , or ‘tight’ the U.S. job market is”. One bank economist quoted claimed that “It’s too early to call this a trend but the breakout [in wage growth] is very welcome news”. Is that fake news? I am an economists and I don’t see any wages breakout or anything remotely like it. On February 2, 2018, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – January 2018 – which showed that total non-farm employment from the payroll survey rose by 200,000 in January. The Labour Force Survey data also showed a relatively strong net employment gain (409 thousand (net) jobs were created) in January 2018. The labour force was estimated to have risen by 518 thousand with participation constant. The BLS thus estimated that unemployment rose by 108 thousand and the official unemployment rate rose slightly from 4.09 to 4.15 per cent. There is still a large jobs deficit remaining and other indicators suggest the labour market is still below where it was prior to the crisis. But as I show below there is no wages breakout going on despite claims to the contrary.
A few weeks ago, in my three part series answering questions about Modern Monetary Theory (MMT), I addressed the issue often raised about the fiscal policy emphasis in MMT, that it is difficult to time government spending injections to match the cyclical need. These criticisms go back a long way and were used by the likes of Milton Friedman to build up his case against discretionary fiscal activism in favour of monetary rules. Of course, that was an ideological preference, given the Monetarists wanted ‘small’ government and technocrats implementing economic policy. The basic precepts of Monetarism have not stood the test of time and the GFC and its aftermath have showed, beyond doubt, that monetary policy is an ineffective means of stimulating aggregate spending and that fiscal policy is the best way to counter non-government spending collapses. In those blogs, I outlined several ways in which fiscal policy could overcome ‘timing’ issues and deliver prompt stimulus when needed and be able to contract the stimulus in a timely manner once non-government confidence and spending had recovered. The points I raised are not new and have been discussed and made operational many times in the past. A tweet from my MMT colleague Stephanie Kelton last week reminded us of this again when the US National Resources Planning Board (NPP) was mentioned with a link to the The Internet Archive is a “non-profit library of millions of free books, movies, software, music, websites, and more” and is a fabulous resource for researchers. Reading the Report from the NPP is like music to the ears! History has a lot to say if we listen properly.
The Federal Reserve Bank of St Louis published a very interesting article earlier this month (January 15, 2018) – Older Workers Account for All Net Job Growth Since 2000 – which was written by William Emmons, the Lead Economist with the Bank’s Center for Household Financial Stability. The Center focuses on the “balance sheets of struggling American families” and was launched in May 2013 in response to the GFC. It seeks to investigate factors that impact on the fragility of household finances. The research paper finds that since 2000, workers older than 55 have captured almost all the net employment growth leaving the prime-age workers (more than a million) languishing. This abnormal pattern is not predicted to continue for much longer but that is disputable. Further, even if the domination of older workers ends within the decade, the lack of opportunities that are apparent for those who are moving through the prime-age years now spells a looming disaster in a decade or more in the form of increased poverty rates and disadvantage. Then you will hear the screams that the US government cannot afford the income support that will be needed. But at the same time, without that income support the situation will get worse. Something needs to be done now to interrupt this trend.
An enduring myth among mainstream economists is that so-called ‘structural’ impediments in the labour market prevent aggregate spending initiatives from government being an effective solution to mass unemployment. According to this view, if the government attempts to reduce the unemployment rate below some ‘natural rate’ then accelerating inflation will be the only outcome. The ‘natural rate’ can, in turn, only be reduced by structural policies – attacks on trade unions, welfare state retrenchment, cutting the minimum wage, and the rest of the litany of neoliberal policies. And, in this view, the unemployed are to blame for their own state – a lack of effort on their part to adequately present themselves to the labour market. The prior view that mass unemployment is a systemic failure to create enough jobs is rejected. A piece of this fiction is that one of long-term unemployed (and other disadvantaged workers) are not capable of being absorbed into employment without extensive re-training and other personal rehabilitation and this also prevents the unemployment rate from falling quickly. The problem with all of these related propositions is that reality interferes and generates outcomes that contradict the assertions. It is quite obvious that if the economy is run at high pressure then firms are forced to scrap prejudice for disadvantaged groups and offer on-the-job training to them to ensure they can maintain market share. In other words, the long-term unemployed do not present an impediment to growth. Events in the US labour market at present are demonstrating this reality.
On January 5, 2018, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – December 2017 – which showed that total non-farm employment from the payroll survey rose by 148,000 in December, well down on the 228,000 rise in November. While the payroll data showed a fairly strong employment outcome, the Labour Force Survey data estimated a that 104 thousand (net) jobs were created in November, up from the weaker rise in employment (57 thousand) in November. The labour force was estimated to have risen by 64 thousand with participation constant. The BLS thus estimated that unemployment fell by 40 thousand and the official unemployment rate fell slightly from 4.12 to 4.09 per cent. There is still a large jobs deficit remaining and other indicators suggest the labour market is still below where it was prior to the crisis.