This is the part where I imitate the behaviour of the eminent professor DeLong and bang my head against the wall for being confronted with a WaPo economic pundit who dares not tell the truth. Is he a diehard republican who will forego reason for party loyalty? Is he a diehard supply-sider who will forego reason for a lower marginal rate? Is he a coward who's afraid of sounding shrill and unbalanced by telling the truth even when it's ugly? I don't know and I don't care.
Why is the US jobs market lousy? Robert Samuelson of the Washington Post lists three possibilities:
- Bush's taxcut
- Outsourcing
- Rising productivity
He blaims it on the rise in productivity, and quotes Charles Schultze of the Brookings Institution:
The bigger cause of slow job growth, he [Schultze, j.e.] contends, is higher productivity. Companies and workers became more efficient. That's ultimately good; it raises living standards. But higher productivity can temporarily lower employment. Fewer people are needed to do the same work, and new jobs don't instantly materialize. From late 1995 to late 2000, productivity (output per hour worked) grew 2.6 percent annually. During the next three years, annual growth averaged 4.1 percent. If it had stayed at the lower level, there'd be 2 million more jobs, Schultze estimates. Unemployment would be about 5 percent.
Which is fine. Except that it's not. In his own paper, Schultze calls his numbers the result of "an (admittedly mechanical) simulation". What he's done is take fourth quarter 2003 non-farm GDP and calculate how many workers it would have taken to produce that if the productivity growth had stayed at 2.5 percent since 2000 instead of going up to 4 percent (he doesn't use the numbers 2.6 and 4.1 that Samuelson states). But never mind the numbers, it's cheating. Because productivity growth raises living standards by raising the GDP. The workers that are no longer needed to make the stuff they used to make go on to make other stuff (at least, some of them will). A lower productivity growth would have meant a lower fourth quarter 2003 non-farm GDP and something definitely less than 2 million jobs extra. Schultze says so himself: obviously if the alternative scenario had occurred, with its lower productivity growth and higher employment and worker income, the time-path of GDP itself would have been affected, although it is not obvious exactly what the net outcome would have been. Why does Samuelson pretend that Schultze's simple simulation is "an estimate"?
He also quotes Schultze on outsourcing. Again Schultze pulls some numbers out of his ass.
Although outsourcing could be the reason, it probably isn't. The stories about software jobs and call centers moving to India aren't make-believe. But the numbers are small. Charles Schultze of the Brookings Institution concludes that perhaps 155,000 to 215,000 business-service jobs shifted abroad between late 2000 and 2003. Similarly, Schultze reports that government surveys attribute only about 4 percent of mass layoffs in the past two years to "import competition" and "relocation overseas." Even if these estimates are too low, they suggest that the impact of job loss abroad is exaggerated, Schultze writes.
Schultze has to, of course, they're the only hard numbers available to him. That's what he tells you if you'd read his paper: These numbers, however, do not capture all of the layoffs and other effects on U.S. employment from changes in overseas outsourcing and imports. They exclude smaller scale layoffs (less than 50 at a time). In some cases import competition can indirectly result in a loss of sales in ways that may not be apparent to or identified by the losing firm. Moreover the estimates cannot pick up any effects on employment that might show up, not in layoffs but in a reduction of domestic hiring by offshoring firms who would otherwise have been adding to their workforce.[emphasis added, j.e.] Where outsourcing takes the form of contracting (directly or through intermediaries) with independent foreign suppliers, rather than transferring operations to majority-owned foreign affiliates, some respondents may not report this as a “relocation”.
Schultze does make a convincing case that outsourcing has only a small, perhaps negligible impact on the US economy. He looks at data on the US import of services and sees no sudden spike. He looks at Indian tech-related exports (2003: less than 10 billion dollars worth -duh- of which 6 million to the US, of which 2.6 billion is implemented in the US itself. You end up with 3.4 billion dollars worth of tech-stuff done in India for Americans. If Bill Gates just farts the size of the US tech industry will have changed by more). Why does Samuelson quote the less meaningful numbers? Didn't he read Schultze's paper in full? Does he hate his readers?
And if I can add something: the fear of losing one's job to outsourcing might cause people to accept lower wages, even if the percieved threat is much bigger than the real one. The effect of outsourcing on GDP is in all probability negligible, but the effect of how that GDP is divied up (less wages, more profits) might be bigger than expected. And, no, I don't have numbers. Not even meaningless ones.
But luckily, Samuelson also takes on those who think that Bush's tax policy has influenced the job market to any degree. What says he, homo economicus, on tax cuts?
Over the long term, budgets should be balanced. But in an economic downturn, they should move toward deficit to stimulate private spending. Well, you can't fault Bush there. In fiscal 2000, the surplus was $236 billion; for fiscal 2004 the Congressional Budget Office projects a $422 billion deficit. It's possible to condemn (as many Democrats do) Bush's pro-rich tax cuts. A more middle-class tilt might have translated into more consumer spending. It's also possible to retort (as many Republicans do) that Democrats would have moved more slowly toward providing a stimulus. Regardless, the tax cuts bolstered private spending. But the resulting economic growth produced fewer jobs than expected. Why?
Here is fair-and-balanced staring you in the face. Samuelson gives us the Democratic side of the story (the tax cuts were lousy as quick, temporary demand stimulus), and the Republican side (the plans for the tax cuts were in place when the recession hit. The Democrats had no plans, so there).
BUT SAMUELSON DOESN'T TELL YOU WHICH OF THE TWO SIDES IS RIGHT AND WHICH IS WRONG!
And even more egregious: Samuelson doesn't give numbers. Are there numbers? Yes there are!
WHY DOESN'T SAMUELSON PROVE HIS POINT WITH PROOF?
Is that too much to ask? Is it too much to ask that if he looks at 3 factors of employment he doesn't quote the wrong numbers on one, he doesn't mislead his readers by presenting fantasy figures as credible estimates on the other, and doesn't forget numbers (and reason) altogether on the third? Is it too much to ask?
Luckily, for all my loyal readers (hi mom!) I have taken the time and made the effort to Google for five minutes and come up with the answer Samuelson dares not answer. What have the tax cuts and unemployment to do with each other? Now I am no economist, but over at the (left-of-center) Economic Policy Institute they have an abundance of economic policy wonks. These are the types that get to testify before Congress on stuff like tax cuts and unemployment.
First off, the Republican claim that the Democrats had no plan is untrue. It was called Senator Daschle's stimulus bill. Besides, the Bush plan was phased in. This was to make the costs look less than they really were. No matter how early the Bush tax cuts were conceived, what matters is when they were adopted.
Second, the good people over at the Economic Policy Institute have compared the impact of that bill with the impact of Bush's tax cuts. They think the Bush plan sucks. Since it will still cost money when the need for a stimulus is over, it will cost the economy about 750,000 jobs over the next 10 years. It will cost $670 billion over that period (A measly 670 billion, you ask? remember, this is only the first tax cut).
Third, they are not the only ones saying this. They have a statement signed by 10 nobel prize winning economists (and another 450 runners-up) telling everybody that the Bush tax cuts stink. And the numbers done by the government's own Council for Economic Advisers also point to a net job loss in the long term because of the tax cuts. Somehow you can find these numbers in the EPI testimony to Congress (page 6), but you can't find them in the CEA's own list of publications. Funny, but somehow they forgot to add the long term numbers to this paper called Economic Consequences of Stimulus Legislation.
You'd think that Samuelson would be able to point this out. You'd be wrong.
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