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ECONOMIC INDICATORS


THE BUSH JOBLESS/JOBLOSS RECOVERY 

The DETAILS section on this page was last updated on 10/22/04
The SUMMARY section was updated on 3/7/05

The Bush tax cuts did not work anywhere close to what was promised, regardless of hype

SUMMARY
As Election 2004 approaches, it is instructive to review the Bush administration's record on job creation, since this epitomizes their "policy" on a wide variety of issues. Clearly, there has been the re-emergence of jobs since late 2003. Nevertheless, one should not lose sight of some key facts:

(a) [As of 10/22/04] Bush has on the net lost almost a million jobs (940,000 or is it 821,000 - also see footnote) during his tenure (and >1.6 million private sector jobs). [See update in (f)]

(b) The so-called "job growth" based on his tax cuts has been gigantically short of his (administration's) own projections

(c) The so-called "job growth" under his watch has fallen well short of even the minimum needed to keep up with population growth (the lowest standard to judge the effectiveness of Bush's economic policy). As Angry Bear has pointed out: "Bush’s best year of job creation can’t measure up to Clinton’s worst year".

(d) Claims of "low" unemployment rates deceptively hide the fact that large numbers of people have left the job market (which is better reflected in the high "underemployment" rate) and that many of the unemployed have been in that position for record stretches of time

(e) Real (inflation-adjusted) wages are under significant pressure and have been in decline of late, even dropping to where they were at the start of the recovery (or below)

(f) Clearly some degree of job "growth" will continue to exist through Election 2004 but this is insufficient to erase Bush's record as being the first U.S. President since Herbert Hoover (>70 years) to lose jobs during his watch. [eRiposte note on 3/7/05: I stand corrected on this one claim since the job numbers + revisions announced since I posted this (10/22/04) showed that by the end of January 2005, Bush "narrowly escaped becoming the first president since Herbert Hoover to lose jobs on his watch"] This is an astoundingly unimpressive showing (to put it kindly), especially given that Bush is also the record holder for the biggest budget deficits (in $) in American history.

(g) Faced with this poor record, the Bush administration has been continuing to deceive the public incessantly about its tax and jobs policies, including using discredited metrics such as the job projections in the Household Survey (deemed inaccurate by its own Federal Reserve) to claim that job growth is being "understated".

To understand why the Bush administration has (negatively) broken the record of most previous Republican and Democratic presidents in the context of job creation (among numerous other things), it is instructive to take a walk through the details. 


DETAILS

I. Bush administration job projections - Fantasy v. Reality (7/5/04)

I-A: More Fantasy, Less Reality (3/6/04)

I-B: Bush tax cuts not working (10/11/04)

I-C: Bush administration does not believe its own 2004 forecasts (3/6/04)

II. Bush administration job "creation" compares very poorly to that in previous recessions/recoveries (10/11/04)

II.A: The limited job growth seen to-date hides what might have been possible with better economic policy - namely, far better job growth (10/11/04)

II-B: What level of job growth would have been considered good? (10/11/04)

III. GOP/Bush supporters and Bush administration trying desperately to make it appear like there is job growth when there was/is NONE <OR> that job creation is more than it IS/WAS (7/5/04)

III.A: The "Household Survey" job creation myth (10/11/04)

III.B: Redefining manufacturing jobs (3/6/04)

IV. Official unemployment rates understate (a) extent of job losses, (b) length of unemployment and (c) impact on women and minorities (10/11/04)

V. Real wages, not just jobs, under pressure, and in decline of late - while corporate profits skyrocket (10/11/04)

VI. Why hasn't the job market come roaring back like in past recoveries, given the massive tax cuts and spending? (10/11/04)

VI.A: Supply-side tax cutting with massive defense spending fail to effectively stimulate broad-based demand/output

VI.B: Lack of understanding of real problems and lack of interest in real policy

ENDNOTE on PRODUCTIVITY and JOB LOSSES

FOOTNOTE on payroll data revisions

FOOTNOTE on payroll data revisions

 


I. BUSH ADMINISTRATION JOB PROJECTIONS - FANTASY vs. REALITY 

I-A. MORE FANTASY, LESS REALITY (2/24/04)

Not unexpectedly, the optimistic forecasting of job growth (aka economic fakery) by the Bush administration continued into the election year (see this link for some more discussion on why I say this is " optimistic" - even though, from a historical perspective their projections were about average). Economist Brad DeLong has discussed this in a number of posts - see his unemployment archives here. But the bulk of the information on what has been happening and what is likely to happen is best captured in a few papers from the Center for Budget and Policy Priorities (CBPP) and the Economic Policy Institute (EPI) and its employment research arm Jobwatch

CBPP/EPI have published a joint study examining the history and accuracy of the Bush administration's job growth projections over the years, including their latest projections.  The study's report is written by Jared Bernstein, Lee Price and Isaac Shapiro. The PDF version of the report is here and an HTML version is here. Some relevant figures are reproduced below, from this report - followed by key extracts. 

Here are some additional MUST-READ comments taken directly from the report:

...
Job growth would have to improve dramatically to meet the CEA's just-released prediction of an average of 132.7 million jobs in 2004.
The administration's prediction would only be met if job growth averaged more than 450,000 new jobs each month, about four times the level of job growth in January.1
Actual employment levels in recent years have fallen far below administration forecasts. In its 2003 report, for example, the CEA predicted that the average number of jobs in 2003 would be 1.7 million higher than its average in 2002. Instead, it was 400,000 lower. (See Table 1.)
Each successive year, the administration has had to lower its starting point for jobs, but it has forecast strong growth just around the corner. For instance, in its 2002 report the CEA predicted there would be 138.3 million jobs in 2004. Now its prediction of 132.7 million (which is also likely to be too optimistic) is for 5.6 million fewer jobs than its 2002 forecast.
...
In part because job growth has been tepid in the three months since the administration's projections were made, to achieve the estimate of 132.7 million jobs during 2004, an average of 460,000 jobs a month would need to be created from February through December 2004. In other words, about five million jobs will need to be created between now and the end of the year to hit the administration's projection.4
It is quite unlikely that the administration's target will be reached. In January 2004, jobs increased by 112,000—a modest fraction of the necessary level for the next 11 months. Furthermore, the January 2004 level of job creation was the largest single-month gain since 2000.
...
Several news stories have suggested that the administration may already be revising its employment projections downward in the wake of the disappointing job growth that has occurred since its predictions were formulated. A February 10, 2004 story by Alan Beattie in the Financial Times, for instance, said that "The [CEA] forecast, which used data available in early December before figures were released showing disappointing jobs growth at the end of the year, envisaged the average level of payroll jobs rising 2.6 million in 2004 to 132.7 million. That target level has been affected by the weak figures released since, but White House staff admitted their forecast still implied job growth averaging about 325,000 a month this year—well in excess of recent rates."...
If a new forecast becomes official, we will update this analysis accordingly. In the meantime, it is worth noting that job creation of 325,000 a month is also highly optimistic, and would be more than four times the average job creation during the past five months. See the appendix for a detailed analysis of this issue.
...
The CEA projections and the Bush Administration's explanation for job growth trends
The administration has been attributing weaknesses in the economy and the job market to a variety of factors, such as the events of September 11, the economy's downturn, the bursting of the stock market bubble, corporate scandals, and the wars in Afghanistan and Iraq. It has argued that its tax cuts have made job growth and the economy better than it otherwise would have been.
In assessing these arguments, the following points must be considered:
• The first CEA report of the Bush Administration was issued after 9/11, after the bursting of the stock market bubble, after the war in Afghanistan, and after its first (and largest) round of tax cuts, yet their employment projections still proved far too high.
• The second CEA report came after a second round of tax cuts, after Enron and most of the other corporate misreporting scandals were publicized, and with the knowledge that the war in Iraq was, in all likelihood, about to commence. Nevertheless, the Bush Administration's employment projections again proved remarkably optimistic.
• This year's predictions have occurred well after all the factors to which the administration has attributed the weak economy, yet its predictions, at first blush, also seem well off the mark.
In short, the CEA should have been accounting for these factors all along in its job growth projections. Among other conclusions, this suggests that Bush's CEA consistently has been far too optimistic about the positive effects of the administration's tax cuts and other economic policies on job growth [eRiposte emphasis].
...
Why the CEA's estimate implies monthly job growth of 460,000 for February-December of 2004.
As emphasized in the text, the CEA forecasts an average [eRiposte emphasis] employment level of 132.7 million in 2004. In January of this year, the level of payroll employment was 130.2 million. As the Appendix Table A shows, in order to generate a 2004 employment level of 132.7 million, job growth will have to average 463,000 per month from February to December 2004.
Updating CEA's prediction with more recent data.
...
The job levels for January through October 2003 have, for technical reasons, been revised slightly downwards since CEA locked in its prediction...
Column three [of Appendix Table B] takes the new prediction of 2.5 million jobs, which CEA would have made had they been able to account for the technical revisions to the payroll data, and calculates what is needed in terms of monthly job growth to meet that goal, given actual job creation through January of this year. This column shows that CEA's basic underlying assumptions mean that we will need 425,000 jobs per month to hit their adjusted prediction for average payroll employment of 132.5 million in 2004 [eRiposte emphasis].
...
Endnotes
...
4. There has been some confusion in the media on this issue, with many stories incorrectly suggesting that the CEA projects a total of 2.6 million jobs to be created this year. In effect, these reports are stating that the CEA has predicted there will be 132.7 million jobs at the end of 2004 when, in fact, the CEA has predicted that the average number of jobs for all of 2004 will be 132.7 million. To reach this average figure, there will have to be many more jobs than 132.7 million in December 2004, as there are 2.5 million fewer jobs than that right now (see Appendix Table A).

NOTE: The original CBPP/EPI projection is also confirmed by economist Brad DeLong. However, Prof. DeLong has updated his figures to include all the known shortfalls to-date in employment and comes up with the requirement that 320,000 jobs per month need to be created if the administration's employment forecast is revised accordingly (see this post of his for further explanation).

 

I-B. THE BUSH TAX CUTS ARE NOT WORKING - NO SURPRISE HERE (10/11/04)

Jobwatch's monthly shortfall chart as of September 2004 is below - which is all one needs to see to understand that Bush's 2003 tax cuts are NOT working. As Jobwatch stated on October 8, 2004:

The Bush Administration called the tax cut package, which took effect in July 2003, its "Jobs and Growth Plan." The president's economics staff, the Council of Economic Advisers (CEA, see background documents), projected that the plan would result in the creation of 5.5 million jobs by the end of 2004—306,000 new jobs each month starting in July 2003. The CEA projected that the economy would generate 228,000 jobs a month without a tax cut and 306,000 jobs a month with the tax cut. Thus, it projected that 4,590,000 jobs would be created over the last 15 months. In reality, since the tax cuts took effect there are 2,882,000 fewer jobs than the administration projected would be created by enactment of its tax cuts. The September job growth of 96,000 fell 210,000 jobs short of the administration's projection. As can be seen in the chart below, job creation failed to meet the administration's projections in 13 of the past 15 months.

 

 

I-C. BUSH ADMINISTRATION DOES NOT BELIEVE ITS OWN FORECASTS (2/24/04)

The Bush administration's jobs forecast was so obviously inflated in their own minds that they took pains to walk away from it (in early 2004). Here are some articles on this.

Matthew Yglesias at TAPPED has reported briefly on CBS Marketwatch's criticism/disbelief on the job forecast.

WATCH THOSE FOOTNOTES. Marketwatch's Rex Nutting seems to have the goods on the administration's dubious job growth projections:

The Council of Economic Advisers says its report isn't political. But then why did the CEA inject itself into partisan politics by unilaterally changing the starting date for the 2001 recession so that it began during Bill Clinton's last weeks in the presidency, rather than during Bush's second month in office, as determined by the nonpartisan National Bureau of Economic Research? The CEA broke the gentleman's agreement that the NBER's rulings are not to be dragged into the mud of campaigns.
Asked whether the administration was really forecasting 5 million new jobs in 2004, a senior administration official speaking on condition of anonymity told us to read Footnote One very carefully.
Footnote One explains that the White House forecast is based on information available to its economists on Dec. 2, a few days before the November jobs report was released.
Asking us to rely on Footnote One means the White House no longer believes the forecast it just released.
Footnote One says, in essence, that the White House doesn't want to be judged on what will happen between now and December, but by events that took place in an alternate universe in which job growth was robust in November, December and January.

CNN

The White House backed away Wednesday from its own prediction that the economy will add 2.6 million new jobs before the end of this year, saying the forecast was the work of number-crunchers and that President Bush was not a statistician.
White House press secretary Scott McClellan, asked repeatedly about the forecast, declined to embrace the prediction which was contained in the annual economic report of the White House Council of Economic Advisers.
...
Asked about the 2.6 million jobs forecast, McClellan said, "The president is interested in actual jobs being created rather than economic modeling."
He quoted Bush as saying, "I'm not a statistician. I'm not a predictor."
"We are interested in reality," McClellan said.
[eRiposte note: Ha ha ha ha! This is so NOT funny!]

Washington Post

President Bush distanced himself yesterday from a forecast made by his economic advisers predicting that the U.S. economy will add 2.6 million jobs this year.
...
Asked Wednesday if he agreed with the prediction, Bush would not endorse the figure, saying, "I think the economy is growing, and I think it's going to get stronger." Treasury Secretary John W. Snow and Commerce Secretary Donald L. Evans were similarly reluctant to back the forecast, which was made by staff from the CEA, the Treasury Department, and the Office of Management and Budget.
White House press secretary Scott McClellan, repeatedly asked about the forecast, played down its significance. "It's an annual economic report that is put out by the administration based on the economic modeling and the data that's available at that point in time," he said. "What the president stands behind is the policies that he is implementing."
It was the second time that last week's report, sent to Congress with Bush's signature, has caused political problems for the president. Bush last week retreated from an argument made in the report and in comments by CEA Chairman N. Gregory Mankiw that the expatriation of service jobs could be beneficial. While economists generally supported Mankiw's argument, Democrats pounced on the administration for appearing to praise job loss.
In an interview yesterday, Mankiw said the 2.6 million job figure was made Dec. 2 and not subsequently updated. "We still expect 2004 to be a robust year for the economy both in terms of economic growth and in terms of jobs creation," he said. "But in terms of our specific quantitative forecast, the forecasting team has not gotten together to produce one since December 2."
...
The annual CEA report has had difficulty in the past with its forecasts for jobs growth. Previous reports predicted the economy would add 1.7 million to 3 million new jobs in 2003, but in fact the nation lost 53,000 jobs.
Federal Reserve Chairman Alan Greenspan said Tuesday that the 2.6 million jobs forecast was "a credible forecast" if productivity gains decrease this year. But the Fed issued a report Tuesday saying rapid productivity gains are "likely to be sustained" this year.
The creation of 2.6 million jobs would require an average of 226,000 per month for the rest of the year. In the past five months combined, the economy has added 366,000 jobs.
J. Bradford DeLong, a Clinton administration economist now at the University of California at Berkeley, said the Bush administration forecast is even more optimistic than it appears because it is based on year-average numbers. In fact, DeLong said on his Web site, the White House is assuming the economy will create 3.8 million jobs by the end of 2004...
[eRiposte note: See Brad De Long's latest post for a summary of his position.]

Billmon has posted a significant part of the transcript of a reporter hounding White House Press Secretary Scott McClellan on the administration's attempted fakery that backfired. Read his post in full!


 

II. BUSH ADMINISTRATION JOB CREATION compared to previous RECESSIONS (10/11/04)

This thorough report by Jared Bernstein and Lawrence Mishel of EPI reveal relevant job figures that tell us about Bush Jr.'s astonishingly poor job-creation legacy (note that Bush Sr. was second worst).

Jobwatch has additional charts looking at the Bush Jr. record on job creation for 42 months after the recession began. Note that the absolutely abysmal Bush record is shown by the bar in red (negative). 
 

 

II-A LIMITED JOB GROWTH HIDES WHAT MAY HAVE BEEN POSSIBLE WITH BETTER ECONOMIC POLICY - NAMELY, FAR BETTER JOB GROWTH (10/11/04)

Professor Brad DeLong has been saying this repeatedly for some time (bold text is my emphasis). 

That the labor market is finally improving--that it is no longer becoming harder and harder month by month to find jobs--does not mean that the labor market is good. A few months of employment gains are good news: they mean that it is a little less bad out there in the labor market than it used to be. But don't confuse rates of change with levels: there are still perhaps 4 million people either unemployed or out of the labor force who would have jobs if we had a labor market in equilibrium. (And there are 6 million who would have jobs if we were in a boom like the late 1990s.) It's still unusually hard for Americans to find work--just not as unusually hard as it was six months ago.

But I already said this yesterday:

He also points us to this piece by Daniel Gross is Slate that explains this (bold text is my emphasis):

Daniel Gross of Slate's "MoneyBox" writes about the employment situation:

Sunny Side Down - Why 1.4 million new jobs haven't ended the jobless recovery. By Daniel Gross: Posted Tuesday, June 29, 2004, at 1:26 PM PT : Since last fall, when the economy finally began adding payroll jobs consistently, the Bush administration has embraced the monthly Bureau of Labor Statistics release of the employment situation report as evidence that its economic policies are working. "Nationwide, the economy has posted steady job gains for each of the last nine months—creating more than 1.4 million new jobs since August," the White House crowed in early June, when news came that 248,000 payroll jobs were added in May. That figure, 1.4 million new jobs, has become the default answer given by administration officials when confronted with unpleasant economic questions.

To the mystification of the Bush administration and its allies, the American people aren't particularly grateful.... Here's one possible explanation for the disconnect between the administration's cheery rhetoric and the population's gloomy disposition: The labor market is nowhere near its late-1990s heyday.... Consider the employment–to-population ratio.... The ratio rose steadily in the 1990s, from 61.4 percent in January 1993 to 64.7 in the spring of 2000. In January 2001, it stood at 64.4 percent, very close to an all-time high. Since then, it has deteriorated steadily, even after the recession ended in November 2001. In May 2004, it stood at 62.2 percent, more than 2 percentage points below the rate of January 2001....

If 64.4 percent of Americans had jobs today, as they did in January 2001, there would be nearly 4.8 million more Americans employed. Or check out the labor-force participation rate.... the figures are inconsistent with the concept of a Bush Boom. The labor force participation rate stood at 65.9 percent in May 2004. That's down from 67.2 percent in January 2001.... In President Clinton's first term, the labor force grew by about 5.2 percent. With just six months to go in Bush's term, the labor force has risen by just 2.2 percent....

What gives?... [T]he stock answers that conservatives give to employment problems are being proved false. Are Americans lazier today than they were a few years ago?... How about those generous unemployment and welfare benefits, which are supposed to be a disincentive to work? There's less of a safety net today than there was in the 1990s. Could it be John Kerry and his relentless pessimism? If jobs can be willed into existence through a sunny disposition, we should replace Elaine Chao with Kelly Ripa.

The economic numbers show a persistent underutilization of America's greatest asset—its workforce. The addition of 1.4 million jobs in 10 months is paltry by historical standards, and given the size of today's potential workforce, it's anemic. All the happy talk in the world can't hide that.

 

II-B WHAT LEVEL OF JOB GROWTH WOULD HAVE BEEN CONSIDERED GOOD? (10/11/04)

Jobwatch answers this question for us - and a review of this makes it clear that job creation under the Bush administration has been appallingly poor and continues to be below par even by the lowest standards (~135000-150000 jobs a month required just to keep up with the working population growth):

So how much job growth is needed to get "high marks"? Certainly one minimal benchmark is that jobs should grow as fast as the working-age population, a rate that would normally keep unemployment from rising. With the working-age population growing around 1.2% each year, the economy needs to produce between 135,000 and 150,000 jobs each month to hit this minimal benchmark. 1

A second benchmark for evaluating job growth performance would be the number of jobs needed to steadily reduce the current prevailing unemployment and underemployment. Reducing labor slack is necessary to reverse the family income declines of the last few years and to generate wage growth that outpaces inflation. A new study by the Cleveland Federal Reserve Board highlights the decline in the employment-to-population ratio as a useful indicator of the growth in labor slack. Given the employment-to-population ratio in September 2004 (62.3%), restoring this ratio to its 2001 pre-recession level (64.3%) would require payroll job growth of 275,000 to 290,000 per month.2

A third benchmark for judging the rate of job growth would be the employment growth projected by the President's Council of Economic Advisers (CEA) in their annual report issued in February 2004, which projected 300,000 new jobs added per month. The chair of the CEA, Greg Mankiw, referred to this projection as being "about average for a recovery." This benchmark, used monthly by JobWatch.org, is the number of jobs (306,000 per month) that the Bush Administration projected would be created from June 2003 to December 2004 if its proposed tax cuts were legislated in 2003. The CEA projections may seem high relative to the actual performance of the last 42 months, but they reflect the normal pace of job creation in an average labor market recovery.


 

III. GOP/BUSH SUPPORTERS TRYING TO MAKE IT APPEAR LIKE JOB GROWTH IS ROBUST, WHEN THERE IS REALLY NO JOB GROWTH

III-A THE HOUSEHOLD SURVEY "JOB CREATION" MYTH

The Bush administration, at convenient times, has tried to emphasize the Household Survey as opposed to the Payroll Survey - for counting job gains.

Via Atrios, here's Brad DeLong on this:

In this morning's New York Times, I read the headline "A Prettier Jobs Picture?" The headline writers are making a pun. Virginia Postrel is writing about undercounting the number of people who are at work making things (and people) prettier. The headline writers are referring to that and are also saying that this undercount means that the overall jobs picture is "prettier" than standard statistics suggest.
The headline writers are wrong. This is yet another example of something every single reporter swears: that American journalism would be much, much improved if editors would let reporters write their own headlines.
Virginia Postrel writes: "It is tempting, of course, to treat these undercounts as trivial. After all, what do 200,000 massage therapists or 300,000 manicurists matter in a country of 290 million people? But this list of occupations is hardly comprehensive. In every booming job category I looked at, official surveys were missing thousands of jobs. As the economy evolves, however, this bias against small enterprises and self-employment becomes more and more significant...." Virginia Postrel means that the detailed occupational estimates are undercounting growth of employment in aesthetic occupations. But the headline writers think she means more.
Let's go over the three different sources of data we have here:

  1. The first is the Survey of Occupations. the Survey of Occupations mails questionnaires to 200,000 businesses every six months, and uses the responses to construct estimates of employment and wages for specific occupations. This is the survey that undercounts the "200,000 massage therapists... 300,000 manicurists."
  2. The second is the Household Survey. The Household Survey knocks on the doors of 50,000 households every month, and uses the responses to construct estimates of the unemployment rate, the employment-to-population ratio, and other statistics. Household Survey interviewers ask people whether they are at work or not. The Household Survey picks up the massage therapists and manicurists (even though it does not identify them as such). In the Household Survey, moreover, there is no rise in the proportion of workers who are self-employed--there has been an uptick in the proportion of workers who say they are self-employed since its end-of-2001 low point, but the medium- and long-run trend in self-employment is down. 
    [eRiposte note: Chart below borrowed from Brad DeLong]

  3. The third is the Payroll Survey. the Payroll Survey analyzes the monthly payroll records of 400,000 businesses employing 50 million people. The Payroll Survey does not count the self-employed. The Payroll Survey does guess at the number of new businesses that have been started whose payroll records have not yet entered the system, and at least up through the middle of 2003 retrospective analyses suggest that its guesses have been rather good.

Thus there is no reason to think that the totals of nationwide employment--which are derived from these second and third of these data sources--are substantial undercounts because of any significant "bias against small enterprises and self-employment."

Prof. DeLong has more here.

Billmon has more:

The Cleveland Federal Reserve published a very clear, non-jargony paper on this topic just a couple of months ago, if you want chapter and verse. But the short form is roughly this:

  • Because the survey is based on a relatively small sample, the BLS uses a population estimate from the Census Bureau to extrapolate the survey into results for the national population. If the census estimate is wrong, the national results will be wrong, too.
  • Some results, however, will be more wrong than others. Because the unemployment rate (and a related measure, the employment-to-population ratio) have the Census Bureau's population estimate on both sides of the equation (the numerator and the denominator) they're less affected by an error in the census data. The estimate of total employed individuals, however, can be thrown be wildly off..

This, as it turns out, is exactly what happened during the 2001-2003 period, when the payroll survey was showing huge job losses, while the household survey was showing moderate job gains. As the Cleveland Fed explains:

In its most recent review of the population, the U.S. Department of Census determined that it had overestimated the U.S. population for the period from 2000 to 2003 primarily because of unanticipated changes in net international migration patterns.

As a result, the BLS notes that the upward trend in the employment estimates produced by the household survey since the end of the 2001 recession is largely a function of this overestimate.

In fact, through the end of 2003, the accumulated overcount of the estimate of employment in the household survey was nearly half a million workers. (emphasis added).

The household survey, in other words, was giving a reasonably accurate reading on the unemployment rate, a reasonably accurate reading on the employment-to-population ratio, and a completely bogus reading on employment growth. And the conservative economists (or pseudo-economists, in Larry Kudlow's case) who staked their credibility on trashing the payroll survey and praising the household survey (for something it was never designed to do) were shown to be completely wrong. About as wrong as it's possible to be, in fact.

As Atrios says:

And, people, even Uncle Alan Greenspan isn't buying this particular story.

As Billmon notes:

...the accuracy of the household survey as a job creation measure has been disavowed even by Alan Greenspan (who's also willing to put on the fishnet stockings for his political masters, but not at the cost of his own reputation). As the Great One himself told Congress last February:

“Having looked at both sets of data … it’s our judgment that as much as we would like the household data to be the more accurate, regrettably that turns out not to be the case.”

More from the New York Times, via The Big Picture:

...Unfortunately for the optimists, the Federal Reserve has just thrown cold water on the household data. It concludes that the gloomy payroll data is essentially accurate and that the household survey is probably off base.
"I wish I could say the household survey were the more accurate,'' Alan Greenspan, the Fed chairman, said in his testimony at a House hearing on Feb. 11. "Everything we've looked at suggests that it's the payroll data which are the series which you have to follow.''
To test the self-employment theory, the Fed adjusted the household survey by taking out all the kinds of workers who do not show up on the payroll survey - self-employed people, but also farm workers and family workers in family-run companies. Even then, Mr. Greenspan said, the discrepancy remains large.
The Fed's conclusion was that the household survey's results have been inflated by overestimates of population growth.
Because the household survey is a sample, the Bureau of Labor Statistics infers the total change in jobs by multiplying the ratio of employed to unemployed workers in the household survey by its estimate of the total population. If the population estimate is too high, the estimated number of jobs will also be too high.
THE Bureau of Labor Statistics bases its population estimate on the 2000 census, but it updates that estimate yearly with data on births, deaths and immigration. Immigration numbers are largely guesswork, however, because so much immigration is illegal. Fed officials suspect that the immigration estimate is inflated, because it fails to reflect tighter immigration controls after Sept. 11, 2001, as well as declines caused by the economic slowdown.
Indeed, the Bureau of Labor Statistics lowered its population estimate in January. Plugging the new estimate into the previous household surveys, the bureau found nearly half the apparent increase in jobs during the last three years vanished.
Not content, Mr. Greenspan also devised a "synthetic'' population estimate by crossing the household survey's ratio of employed workers to work force data in the unemployment insurance system. The results? "A significantly slower pace" of population growth, according to the Fed chairman...

UPDATE 7/5/04: What is worse, the Bush administration is not even bothering to think twice about using unreliable data to push their case (what's new!). Here's Angry Bear:

Bush & Snow on June Employment Report

Treas. Sec. Snow told CNNFN’s Market Call that he is looking more at the Household Survey because it supposedly picks up self-employed workers more effectively than the separate payroll survey of employers -- an issue on which there is some debate among economists -- and showed a gain of 259,000 jobs in June. It wouldn’t be that the 259,000 reported increase is larger than the 112,000 reported increase from the Payroll Survey – would it? But Snow was more focused on the Payroll Survey for earlier months. Note over the past 5 months, this Household Survey shows an increase of only 465,000 as opposed to the 1.1 million number being hyped by the White House.

I agree with the following statement from President Bush:
We're witnessing steady growth, steady growth. And that's important. We don't need boom or bust type growth. We want just steady, consistent growth so that our fellow citizens will be able to find a job and so that the small business sector will feel confident about expanding.
Compares this to: “The U.S. economy is growing at its fastest rate in 20 years", which is often tossed out in reference to one good quarter – 2003QIII where the ANNUALIZED rate of growth. But real GDP in 2004QI was only 1.082 times real GDP in 2000QIV, which means average annual growth of only 2.47% over the past 3.25 years. Real GDP in 2000QIV was 1.327 times real GDP in 1992QIV so the Clinton years saw an average annual growth rate equal to 3.6%.

But Bush was talking employment. During the Clinton years, average employment rose 240,000 per month. From January 2001 to now, employment increases averaged NEGATIVE 32,000 per month.

I’m glad Bush is emphasizing the longer term as opposed to very brief periods of time, but did his advisors brief him about what the data really say?

 

III-B REDEFINING MANUFACTURING JOBS (2/04)
Given the job losses, especially in manufacturing the Bush administration is also testing out the waters on other 'unconventional' means to make their record seem better. Here's Nick Confessore in TAPPED:

Rep. John Dingell (D-Mich.) has sent N. Gregory Mankiew [sic], chairman of the president's Council of Economic Advisers, a Dingellgram regarding the proposed reclassification of fast-food jobs to the manufacturing sector. I highly recommend reading it. Preview: "Will special sauce now be counted as a durable good?"

Here's Rep. Dingell hilarious letter to Mankiw.

Dear Dr. Mankiw:

I noticed in the recently released Economic Report of the President that there was some consternation in the defining of manufacturing. It could be inferred from your report that the administration is willing to recognize drink mixing, hamburger garnishing, French/freedom fry cooking, and milk shake mixing to be vital components of our manufacturing sector.
I am sure the 163,000 factory workers who have lost their jobs in Michigan will find it
heartening to know that a world of opportunity awaits them in high growth manufacturing careers like spatula operator, napkin restocking, and lunch tray removal. I do have some questions of this new policy and I hope you will help me provide answers for my constituents:

Will federal student loans and Trade Adjustment Assistance grants be applied to tuition costs at Burger College?
Will the administration commit to allowing the Manufacturing Extension Partnership (MEP) to fund cutting edge burger research such as new nugget ingredients or keeping the hot and cold sides of burgers separate until consumption?
Will special sauce now be counted as a durable good?
Do you want fries with that?

Finally, at a speech he gave in Michigan this past September, Secretary Evans announced the creation of a new Assistant Secretary for Manufacturing. While I understand that it takes a while to find the right candidate to fill these positions, I am concerned that five months after the announcement no Assistant Secretary has yet been named. I do, however, know of a public official who would be perfect for the job. He has over thirty years of administrative and media experience, has a remarkable record of working with diverse constituencies, and is extraordinarily well qualified to understand this emerging manufacturing sector: the Hon. Mayor McCheese.

With every good wish...


 

IV. OFFICIAL UNEMPLOYMENT RATES UNDERSTATE EXTENT AND LENGTH OF JOB LOSSES AND IMPACT ON WOMEN AND MINORITIES (10/11/04)

(a) Extent of Unemployment - Underemployment

As Jobwatch pointed out in February 2004:

The number of unemployed workers (currently 8.2 million) and the national unemployment rate of 5.6% in February 2004 do not adequately convey the true labor slack in the economy for several reasons. One major understatement is that the unemployment rate does not reflect the uniquely large 1.2% decline in labor force participation that has occurred since the current recession began in early 2001. This decline represents a stark contrast to the past three business cycles, when labor force participation actually grew by an average of 0.4% of the working-age population over similar lengths of time. Consequently, there is what can be called a "missing labor force" of 2,808,000 workers who might otherwise be in the actual labor force but have either dropped out entirely or failed to enter the labor market because of the lack of jobs. If the unemployment rate in February 2004 took into account this missing labor force, the unemployment rate would have been 7.4%, or 1.8% greater than the official rate of 5.6% (see chart below).

They also pointed out on July 2, 2004 that underemployment is higher now than at the start of the Bush II recovery!

After a few months of healthy job growth, employment grew by just 112,000 jobs in June 2004. The employment growth that began in September 2003 has not been vigorous enough to reduce unemployment, which has remained at 5.6% since January 2004, the same rate as when the recovery began in November 2001 and far higher than the 4.2% level when the recession began in March 2001. Unfortunately, underemployment in the form of involuntary part-time work, discouraged workers, and other marginally attached workers (i.e., those who have looked for work in the last year but are not counted as unemployed) has increased. Specifically, the total underemployment rate was 9.6% in June 2004, up from 9.4% in November 2001 when the recovery began, and far higher than the 7.3% in March 2001 when the recession began.

Here's their accompanying chart:

Another measure of unemployment is the employment-to-population (working) ratio, which reflects whether everyone who wants a job has a job.

Angry Bear summed this up aptly:

Maybe the only way for Bush to spin the employment report is to mention that the unemployment rate stayed at 5.4%. But this is because the civilian labor force fell by 221,000 as the household survey of employment fell by 201,000. The labor force participation rate fell to 65.9 percent and the employment-to-population ratio fell to 62.3%. By contrast, the employment-to-population ratio was 64.4% when Bush took office.

(b) Length of unemployment

In October 2004, EPI pointed out the length of time that the unemployed have remained in that position:

The lack of job creation is also evident in the data on long-term unemployment, which show that 21.8% of the unemployed have been jobless for at least half a year, up from 20.7% last month.  Since October 2002, more than one-fifth of the unemployed have fallen into this long-term jobless category, a range typically seen during periods of much higher unemployment rates. This represents the longest stretch on record in which at least one-fifth of the unemployed are long-termers. 

EPI, had pointed this out in June 2004 as well:

Continued slack in the job market is evident in a number of indicators from today's BLS report.   First, even with the sharp gains of the past few months, payroll employment remains down 1.3% from its level at the end of the last business cycle in March 2001.  The share of the unemployed out of work for at least half a year remains at recessionary levels: 21.9% in May, an increase of 0.5% from a year ago. The average spell of unemployment ticked up last month, from 19.7 to 20 weeks, meaning it is taking five months for the average unemployed worker to find a job. Finally, the number of part-time workers who would rather have full-time jobs rose by 91,000, and at 4.7 million, remains 55,000 over its level one year ago.  This measure too is indicative of some problems with the quality of the available jobs.

(c) Impact on women and minorities

Additionally, in June 2004, Jobwatch noted that:

The missing labor force includes workers from all demographic groups but disproportionately consists of black men and women and Hispanic women.

Here's their chart:

The impact on women has been particularly bad in the Bush II recession and "recovery". As Jobwatch showed in June 2004 (report here):


 

V. REAL WAGES UNDER SIGNIFICANT PRESSURE, AND RECENTLY IN DECLINE
(AND DEBT IS INCREASING) - WHILE CORPORATE PROFITS SKYROCKET (10/11/04)

Wages have seen significant downward pressure in the Bush II recession and recovery. Jobwatch initially covered this here, and the Center for American Progress (CAP) covered it here. One set of useful statistics to remember are the figures that EPI put out here:

Average wages in growing and contracting industries, end of recession through November 2003

Country Average Wage 
Growing Industries
Average Wage 
Contracting Industries
Difference
UNITED STATES $35,410 $44,570 -21%

Here's a story in the Washington Post:

"Despite the well-advertised pick-up of job growth, recent trends in real wage income remain very disappointing," lamented Stephen S. Roach, chief economist at Morgan Stanley, in a June 7 memo to clients. "This, in my view, underscores one of the most serious shortcomings of this recovery -- an unprecedented shortfall of the most important piece of personal income growth," wages and salaries.

Over the first 29 months of the economic recovery, total wages and salaries have risen less than 3 percent after adjusting for inflation -- a fraction of the 9 percent gains of the previous six upturns, Roach said. That works out to a $280 billion income gap between where workers are and where they should be, he concluded.

Here's another, via Dan Froomkin (Washington Post):

Terry Weber writes in the Toronto Globe and Mail: "The U.S. labour market – while finally experiencing increases in job creation – has also seen a dramatic drop in employment quality, with low-paying jobs elbowing aside higher-paying ones, CIBC World Markets [a major Canadian investment bank] said yesterday."

"The brokerage's employment quality index – which measures the overall tone of the market by looking at things such as compensation, job stability and the mix of full-time and part-time employment – fell by eight points between 2001 and 2004, a decline CIBC called dramatic."

Brad Delong links to this story:

Barry Ritholz directs us to:

Displaced workers’ earnings at new jobs, MLR: The Editor's Desk: Of the 3.2 million reemployed displaced workers who lost full-time wage and salary jobs during the 2001-03 period, 2.6 million were working in such jobs in January 2004. (The remaining reemployed workers had part-time wage and salary jobs or were self-employed or unpaid family workers.)

Of the reemployed full-time wage and salary workers, 43 percent were earning as much or more in their new jobs as they had earned on the job they lost. About one-sixth experienced an increase in earnings of 20 percent or more.

Fifty-seven percent of workers who were displaced from full-time wage and salary jobs and who were reemployed in such jobs had earnings that were lower than those on the lost job. About one-third experienced earnings losses of 20 percent or more.

These data come from the Current Population Survey (CPS). To learn more about displaced workers, see “Worker Displacement, 2001-03,” USDL 04-1381. Displaced workers are defined as persons 20 years of age and older who lost or left jobs because their plant or company closed or moved, there was insufficient work for them to do, or their position or shift was abolished. The data cited here are for "long-tenured workers"—those who had worked for their employer for 3 years or longer at the time of displacement. 

EPI has clarified some apparent confusion in the interpretation of wage decline data, here:

There are three factors contributing to the decline of real wages in the current labor market.  The first and most important factor is the lingering effect of the formerly jobless recovery.  Though employment is growing again, considerable slack remains in the labor market.  The unemployment rate, for example, at 5.6% in June 2004, is at the very same rate as in November 2001 when the current recovery began.  Under these labor market conditions, with an oversupply of workers relative to employers’ demands, there is little pressure to bid wages up.
 
Second, the quality of the net new jobs appears to be putting downward pressure on wage growth.  Specifically, industries and occupations that are adding jobs most quickly pay less than those growing more slowly.  There is considerable confusion on this point.  For example, analysis published by factcheck.org reported that more job growth has occurred in sectors paying above the median wage than below that wage level.1   But this is not what drives wage growth.  Instead, the average wage is driven up when high-wage sectors grow faster than average and vice versa.  Over the past year, industries and occupations growing faster than average pay 7% less than those that are growing more slowly.
 
Finally, faster inflation in recent months has meant that nominal wages need to grow faster to beat price growth.  Yet, because of the factors noted above, nominal wage growth has slowed sharply, from an annual average of 2.9% in the second quarter of last year to 2.1% in the same quarter this year.  Inflation over this same period has accelerated from 2.2% to 2.8%.  Thus, even if inflation were back to its level of a year ago, wages would still be stagnant at best, with real wage growth far behind the growth rate of productivity. 

EPI responded in detail to FactCheck.com's misleading analysis on wage decline and job quality:

Factcheck.org's shortfalls
There are several reasons why Factcheck.org's analysis is not an appropriate metric for job quality:

Factcheck.org analyzes changes in employment, not employment shares.
Factcheck.org examines changes in the absolute level of employment in sectors. Thus, if a higher-wage sector adds a few jobs but is still shrinking as a share of total employment (i.e., job growth was below average), then the Factcheck.org analysis would show that sector improving job quality, even though its declining share was actually putting downward pressure on overall wage growth. As we have shown with our analysis, examining the same data in terms of changing employment shares gives the opposite conclusion, and one that is far more reliable since this method weights each sector's pay by its contribution to the overall wage. The difference is that Factcheck.org analyzes sectors according to whether employment grew or did not grow, when the appropriate question for job quality is whether sectors grew faster than average or slower than average.

Industry sectors are too aggregate.
The BLS data used by Factcheck.org are at too aggregate a level to provide a thorough assessment of job quality. For one, there are only 14 industry categories. We have analyzed the industry dimension of job quality and have found that the erosion of job quality is underestimated with such aggregated industry sectors. This underestimation occurs because there are important shifts occurring within the large industry sectors, such as "temp work" within the broader category of "professional services." For example, when we perform our job quality calculation on the eight most aggregated industries from June 2003 through June 2004, we find that expanding industries pay slightly more than contracting ones, that is, the opposite result than the one we've stressed throughout. When we disaggregate to 20 industries, we find the expanders pay 10.4% less than contracting industries.

Factcheck.org's use of the data is too limited.
Examining job changes above and below one threshold is an inadequate way to summarize changes in the economy. After all, there may be (and are) large gains that occur among the sectors that have wages above (or below) the median wage. Factcheck.org's analysis will not capture such changes across the pay spectrum. Our method, however, relies on changes in every sector and summarizes job quality changes economy-wide. One way to illustrate this is to examine changes in job quality within the two large sectoral groupings that are the basis of Factcheck.org's analysis: all sectors with wages either below or above the median. As shown in Table 3, the expanding and contracting sectors with wages below the median had roughly the same wage ($408 versus $403). However, there is a very large wage gap of $164, or -19.3%, between the expanding and contracting sectors whose wages are above the median. Thus, the jobs being created in the sectors with wages above the median (about 54% of all jobs) are declining in job quality. Factcheck.org's analysis does not capture this important dynamic.
...
Real wages are declining within certain sectors.
All of the sector-based analysis, including that of Factcheck.org and our own, misses the movement of real wages within the sectors. Obviously, a job that pays less this year than last year is of lower quality. So far, we have been looking at changing employment levels or shares within industry/occupation sectors, but there has been a striking decline in average hourly wages over the last year. In the same period of time Factcheck.org frames their analysis, June 2003 to June 2004, real average hourly wages have fallen from $15.83 to $15.65. Similarly, real average weekly wages have fallen from $533.58 to $525.84. This decline is due to a combination of: (a) the lingering effects of the jobless recovery and the considerable existing labor slack that has lowered workers' bargaining power; (b) rising inflation that lowers workers' purchasing power; and (c) the fact that faster-growing industries pay less, on average, than shrinking or slower-growing industries.

Though inflation has picked up in recent months, this negative trend in real wages is driven largely by the marked slowdown in the growth of wages throughout the U.S. labor market. Nominal wage growth has slowed sharply, from an annual average of 2.9% in the second quarter of last year to 2.1% in the same quarter this year. Inflation over this same period has accelerated from 2.2% to 2.8%. Thus, even if inflation were back to its year-ago level, wages would still be stagnant at best.

[Brad DeLong has more on FactCheck's "analysis".]

In mid-July, EPI also highlighted how corporate tax collections have plummeted and corporate profits have skyrocketed in the Bush "recovery", even though real wages have been flat to down since the beginning of the recovery

EPI pointed out this worrisome trend in late May 2004 (bold text is eRiposte emphasis):

Corporate profits have risen 62.2% since the peak, compared to average growth of 13.9% at the same point in the last eight recoveries that have lasted as long as the current one. This is the fastest rate of profit growth in a recovery since World War II.
Total labor compensation has also turned in a historic performance: growing only 2.8%, the slowest growth in any recovery since World War II and well under the historical average of 9.9%.
Most of this growth in total labor compensation has been accounted for by rising non-wage payments, like health care and pension benefits.
Rapidly rising health care costs and pension funding requirements imply that these higher benefit payments are not translating into increased living standards for workers, but are rather just covering the higher costs of health care and pension funding. Growth in total wage and salary income, the primary source of take-home pay for workers, has actually been negative for private-sector workers: -0.6%, versus the 7.2% gain that is the average increase in private wage and salary income at this point in a recovery.
These are ominous signs, suggesting a new march toward greater inequality in the American economy. Worse, the growth in profits combined with a drop in wage and salary incomes suggest that the recovery has a narrow base, with most American consumers only able to increase their purchasing power through debt. Wage growth is not just fair, it is also necessary for a more sustainable recovery.

This chart from EPI told the story graphically:

Significant gains from the Clinton years have, not surprisingly, been reversed (a sample chart from the CAP report showing wages as a function of GDP is shown below). At a time like this, the Bush administration's proposal to allow illegal immigrants to legally work as temporary workers and encouragement of outsourcing without free-trade-consistent balancing actions - which will force wages down even more - is ridiculous.

EPI points out that benefits costs are rising as wages decline, and this impacts those with lower incomes more severely since they tend to have less benefits paid by their employers.


 

VI. WHY AREN'T JOBS ROARING BACK LIKE IN PAST RECOVERIES GIVEN THE MASSIVE TAX CUTS AND MILITARY SPENDING WHICH HAVE PRODUCED NEAR-RECORD BUDGET DEFICITS?

VI.A. SUPPLY-SIDE TAX CUTTING WITH MASSIVE DEFENSE SPENDING FAIL TO EFFECTIVELY STIMULATE BROAD-BASED DEMAND/OUTPUT

Jared Bernstein and Lawrence Mishel of EPI suggested what I believe is a part of the answer - in September 2003 - and it is largely unrelated to high productivity (more on productivity here). The real reason is weaker demand; the Bush fiscal policy of massive tax cuts that are predominantly focused on the rich (so-called "supply-side" policy) with defense-heavy spending, has been poor in EFFECTIVELY stimulating broad-based demand. 

A clarification: tax cuts and spending - two things that Bush has been good at - are two of the traditional responses to recessions. However, their effectiveness really depends on the type of tax cuts and the type of spending. The appropriate tax cutting and spending would be that which is tailored to the recessionary environment and the causes of that. The Bush team brazenly sold a tax cut largely dreamed up for a boom as a cure for a recession (after modifying it a bit to slightly increase the short-term bang-for-the-buck, based largely on the persistence of Democrats in Congress). Is it any surprise that all the "predictions" on its effectiveness didn't come true?

[Economist] Kash at Angry Bear said this recently:

As we all know, Bush pushed through two massive tax cuts -- "the largest tax relief in history," according to the Bush campaign. Yet the current recovery is among the weakest in history, as illustrated in the previous post. Shouldn't the largest tax cuts in history have had more effect? How could such massive tax cuts have such little impact on the economy?

The answer is that it matters a great deal exactly how you cut taxes. Some tax cuts have bigger effects on the economy than others, for a given dollar amount of taxes cut. And clearly, the specific types of taxes cut by the Bush administration had just about the smallest bang for the buck imaginable.

Why? There are several ways in which those tax cuts were terribly designed to stimulate the economy. I won't go into all of them here, but let me address a couple of ways. First of all, the lion's share of the tax cuts went to the richest housholds. Since the marginal propensity to save is so much higher among high-income households than lower and middle-income households, this meant that a large proportion of the tax cut was simply saved, adding no demand to the US economy. The graph below illustrates.
...
Much of the tax cut's 2003 effect was lumped into the third quarter of 2003. According to the BEA, the 2003 tax cut, which took effect in July of 2003, reduced personal income taxes by nearly $100 bn in the third quarter of 2003 compared to the same quarter a year earlier. The graph above suggests that the majority of that tax giveback was saved, not spent.

A recent piece in Slate notes another way in which the specific tax cuts Bush enacted were not helpful to the recovery, as described by Barry Ritholtz of the Maxim Group. (Thanks, Barry.) His point is that because the tax cuts gave preferential treatment to purchases of capital goods through the end of 2004, some businesses may be buying new machines instead of hiring back workers as demand picks up. Casual observation of the continuing growth in industrial capacity despite weak demand over the past two years suggests that this analysis is plausible.

The Bush tax cuts were indeed big, and very, very expensive. But as many economists predicted, they were ineffective. Bush made the Wrong policy choices to try to get the economy moving, just as he has made so many other Wrong choices.

The Bernstein/Mishel report said this in Sep 2003:

Q: Many commentators have argued that the biggest problem holding back job growth right now is the fact that productivity is growing quickly. Is that the problem?

A: No, faster productivity growth is not the problem. The fact that we are producing more efficiently now than we were a few years ago does mean that the U.S. workforce can create the same amount of output in fewer hours, but that is a positive development that should lead to higher living standards than would otherwise be the case.12 The economy's current problem is weak demand by consumers and investors.

Appendix Figure A shows that productivity growth in the recovery has been only slightly (0.3%) above the average of that of the past eight expansions. Employment growth, on the other hand, has been much stronger in past recoveries (3.3% vs. -0.5%). Productivity often accelerates as an expansion gets underway, as output growth is typically faster than growth in hours, and employers slowly expand their workforce to meet the return of demand for their firms' goods and services. But in this recovery (and in the last), demand has been too weak, outside of a few sectors, such as health care, housing, and autos, to prompt employers to begin hiring. As the last set of bars in Figure A shows, demand (output in the nonfarm sector) grew more than twice as fast in past expansions compared to this one.

Q: Why has the jobless recovery persisted for so long?

A: Again, the main constraint has been the persistence of weak demand for the goods and services the U.S. economy produces, outside of those few sectors noted above. Though consumption in these areas has kept the economy afloat, consumers have not been spending as aggressively as they usually do after a recession, and this in turn has made investors more cautious. This vicious cycle has been reinforced by high debt levels. The result is historically very weak hiring by employers who are reluctant to build up their workforces in such an environment. As stressed in this Briefing Paper's analysis, all of these trends are undermining wage growth, which further constrains demand...

Instead of stimulating demand in the most effective way, either through better targeted tax cuts especially emphasizing the poor to middle class, or more appropriate spending, or a combination of both, the Bush economic policy has been a miserable failure owing to its reliance on discredited supply-side ideology. Not to mention that all of this is happening at a time when the budget deficits are exploding, thereby reducing the flexibility of bringing more sanity without tax increases

As some economists cited in this Salon.com article point out (bold text is my emphasis):

Part of why we should expect tepid employment growth, says Mark Zandi, the chief economist at Economy.com, is that there are "some major constraints on employment" in the current economy. Zandi believes that some of Bush's economic policies have made it more attractive for businesses to invest in equipment rather than new people. The Bush tax cuts were "improperly focused," Zandi says. "They're focused on making it cheaper for businesses to invest. They're not designed to lower the cost of labor, to make the labor force more skilled, or to rein in the rising costs of healthcare premiums. One of the fruits of that is job loss."
William Dickens, an economist at the Brookings Institution who worked at the CEA under Bill Clinton, also faults the tax cuts. "There's no doubt in my mind that the tax cuts had an effect" on economic growth, he says. But "by directing the tax cuts at wealthy people who don't spend as much money, the short-run impact was a lot less than it could have been" if the tax cuts had been more targeted toward poor and middle-class people.

Economist Max Sawicky (part of EPI) wrote the following on his website in Feb 2004, and it provides a pictorial confirmation of the ineffectiveness of the Bush administration's fiscal/tax policy in actually stimulating demand (bold text is my emphasis). 

I was prepared to do battle with Kevin Hassett on the question of whether the past three years of tax cuts were great for investment, but he never made that claim. The graph below compares investment recovery (fixed non-residential, for connosseiurs) in the past two recessions. It shows annual growth rates, adjusted for inflation. The vertical lines indicate the nadir of the recession, a.k.a. the trough, as dated by National Bureau of Economic Research.
You can see the trend in the chart on the left entitled "Bush I." The recovery began in the second quarter of Poppy Bush's last year in office. The axe I'm grinding is that there were no tax cuts to goose the investment recovery in 1992. In fact there was a tax increase in 1993 thanks to Bill Clinton and the Democratic Congress. Recovery and a Republican Congress ensued, notwithstanding prophecies of doom from the Republicans, proving the adage that no good turn goes unstoned.
Investment has taken a bit longer to resume positive growth in the current recovery, notwithstanding great claims of new incentives implied by the reduction of marginal tax rates focused on high-income persons and income from capital
.
Note that the vertical scales in the charts are different, giving an appearance biased against my argument. The jump in the earlier recovery was larger, as you can see if you look at the numbers on each scale, and it happend sooner after the trough period, as stated above.

There's a lot that could be done to improve tax treatment of investment, but claims that the tax cuts are some kind of wonderful in this regard remain to be demonstrated.

To add to this, you have even well-meaning people like Noam Schreiber pretending to understand economics deeply (and straining ridiculously to keep The New Republic's "contrarian" bent), but in fact writing articles that fail miserably to even ask the right questions, let alone attempt to know the right answers. As Brad DeLong says:

The usually-reliable Noam Scheiber drifts off base. He argues that because Bush administration fiscal policies contributed perhaps 1.5% to growth last year, that the Bush administration managed to "do enough" and should not be blamed for stagnant employment:

The New Republic Online: Whack Job: ...Liberals in Congress and at places like the Economic Policy Institute complain that the Bushies should have targeted the bulk of their tax cuts toward the working poor and middle class, who were more likely to spend their tax savings than more affluent beneficiaries were. They also argue that more of the tax cut's benefits should have been delivered in the short-term rather than over five or ten years, and that the administration should have sent more help to the states, which were cutting spending and raising taxes even as the federal government was doing the opposite.
But, of these three criticisms, only the last one really holds water if the goal is stimulating the economy. For one thing, there is evidence that affluent people spend a higher proportion of their income than economic models have traditionally predicted. And, Democrats' complaints notwithstanding, the tax cuts provided plenty of stimulus when it counted. In all, according to Stephen Roach, Morgan Stanley's chief global economist, the tax cut provided about 1.5 percentage points of economic growth last year (which amounts to about $150 billion in a $10 trillion economy). Meanwhile, though the states did suck some of the stimulus out of the economy, that effect was probably far overshadowed by the effect of the war, which most liberals opposed. Roach estimates that war-related spending should probably be credited with another 1 percentage point of economic growth last year. (Though, as mentioned above, war-related anxiety probably hurt the economy prior to the invasion.)
The broader point is that almost no serious economist argues that the economy has lacked for stimulus during the last three years. Between the tax cuts, additional spending, the falling dollar (which makes U.S. exports more attractive abroad), and, perhaps most importantly, the Fed's historically low interest-rates, the concern, if anything, was that the Bushies and the Fed have done too much...

But why is 1.5% "enough stimulus"? Why isn't "enough stimulus" defined as "enough to get us back to full employment"? Why isn't "enough stimulus" defined as "enough to insure us by preventing the possibility that further bad shocks will leave the Federal Reserve powerless"? The usual definition of "enough stimulus," in fact, is "enough so that people start worrying that inflation will accelerate." By that yardstick we're far below "enough stimulus."
A fiscal policy that redirected tax-cut-for-the-rich money to the states, that compressed the deficit and delivered more short-term stimulus, and that did target more tax cuts at the non-rich would have had no trouble delivering twice as much stimulus. Why--given the lousy state of unemployment--wouldn't that have been a good thing?

 

VI.B. LACK OF UNDERSTANDING OF REAL PROBLEMS AND LACK OF INTEREST IN REAL POLICY

Economist James K. Galbraith wrote an interesting piece in Salon.com exploring the question of why Bush's jobs forecast has been repeatedly way off. He points out that the reason is NOT that the forecast is optimistic based on historical trends (indeed the historical trajectory based on past recoveries would make the forecast seem consistent with or even slightly pessimistic), but rather that it was based on a lack of interest in understanding the real problems that precipitated the 2001 recession and the real policy solutions required to tackle it effectively. Galbraith's opinion is that the tax cuts passed by Bush were not the major cause of the jobless recovery although it contributed in part. I basically agree with his position, as I have stated earlier

Here is Galbraith:

Bush did cut taxes on the rich -- relentlessly, recklessly, wrongly. But most of those tax cuts have yet to be phased in. They are part of the revenue losses still to come in the decades ahead. They aren't the big thing behind deficits we're seeing now. Therefore, reconfiguring the tax cuts already in place to benefit only the middle class and poor would have helped some -- but not that much.

Moreover, in 2001 and 2003, taxes were cut for the middle class. Those cuts were the sweetener for the enormous future giveaways to the rich. They happened first through cash rebates and then through an expanded child credit. Taken entirely alone, these cuts weren't bad policy. Without them -- and without the short-term deficits they caused -- the recession and job losses would have been much worse. And in 2003 the middle-class tax cuts did deliver a burst of spending, leading to an 8 percent economic growth rate in the third quarter.

But it didn't lead to new jobs.

And then too: In 2001 and 2003 Bush took us to war. That entailed large increases in public spending, boosting demand and economic growth. The macro effects of the Iraq war were roughly sufficient to double the growth rate in the second quarter of 2003, getting (as many thought) recovery underway.

But that didn't lead to new jobs either. 

[NOTE: I will briefly reiterate here that my own characterization of the Bush administration's jobs forecast as "optimistic" is based on my opinion that their forecasting was based on poor economic policy prescriptions which are unlikely to have (had) the effectiveness they claimed.]

Galbraith (bold text is my emphasis):

We need only extend the historical tail of the Krugman chart back in time, say to 1991 -- as in the chart below. Our new chart shows that the Bush forecast did not imply unusually rapid job growth for an economic expansion. To the contrary. The growth track in the first set of Bush forecasts, published in 2002, is a bit lower than the actual rate of job growth under Clinton. And it is considerably lower (though probably for good reason) than the average growth rate of payroll jobs in non-recession years since 1952.

(Source: Economagic.com and my calculations.)

And so, the failure of the jobs forecast did not occur because economic recovery forecasts were abnormal. They were not. So far as we can tell, it did not occur because someone cooked the books, under instruction or otherwise. No. The true reason is worse than that.
...
Truth: The conditions for this disaster were set by the tech debacle, by the enormous and unsustainable accumulation of household debt, by the decline in our trade competitiveness and trade balance (under the "high dollar policy"), and by the unsustainability of regressive and opportunistic state and local tax structures. Not since the 1920s had growth been so dependent on speculative investment and mortgage finance. Not in history has our trade position been so weak.

Most economists missed the significance of this. Back in 1991, most of them just assumed that we were facing an ordinary recession and that an ordinary recovery would follow. Those who felt that way repeatedly made forecasts no less wrong than those adopted by Bush's Council of Economic Advisers. And that is why the official forecasts -- apart from their natural obscurity -- attracted little attention at the time.

But a few did not go along. It was possible to figure things out. The British economist Wynne Godley has been writing strategic analyses for years on the Web site of the Levy Institute.

What's the difference? In general terms, it is that Godley is not engaged in the facile maneuver of the forecasting trade, which is mechanically to predict an "average recovery" starting some time in the near future. Rather, he presents the implications of a very specific theory of financial relations and behavior. And this approach, because it could pick up the unique financial signature of the late 1990s, got the essentials of our problem right.

(Godley was not alone, either -- though very few cared to listen. I lectured on Godley's thesis in the summer of 2001 -- though in China, where no one could hear.)

The failure of Bush and his economists does not lie in faking a prediction. It lies in failing to understand what the underlying problems are. It lies in failing to propose policies suitable to their cure. It lies in the wanton pursuit of a strategy of tax cuts for the long term aimed at the political, not economic, objective of exempting plutocrats and their fortunes from federal tax. In lies in the rush into military adventures -- from missile defense to Iraq -- that achieve little, waste vast resources and make a proper jobs-and-security policy even more difficult down the road. Most of all, it lies in failing to care, one way or another, what might happen.

...

ENDNOTE ON PRODUCTIVITY AND JOB LOSSES

As economist Max Sawicky points out, just because productivity is high does not mean that job growth needs to be poor. After all the productivity in the Clinton years was high compared to historical trends, but job growth was remarkably good during that time. Another point to remember is higher productivity is historically expected to be accompanied by higher wages - which is not being seen in the Bush II recovery.

Here's Max:

Comes the revelation from Business Week, picked up by Drezner and channeled by Sully, that the reason job growth is slow is high productivity growth. These guys really should steer clear of economics. We suggest the topic of anti-semitism in modern films by aging Australian action heroes.

Their assertion has the same explanatory power as Calvin Coolidge's "When a great many people are unable to find work, unemployment results." Productivity is output divided by labor input. To say one increased more than the other says nothing. Why did one increase more than the other? Because employers got more output from fewer workers? More nothing.
...
Another question: if productivity growth is so great, how come wage growth is not? If you want to play sandbox economics, the worker gets paid more when she becomes more productive since markets are competitive. There's always another employer to bid up the worker's wages to the point where marginal productivity equals marginal cost to the boss (chiefly, compensation). Except when there isn't, like right now for instance.

Max clarifies one of his remarks in his comments:

...the question is why output relative to input should change. To say that fewer workers produce more is to say output has increased relative to input. It doesn't explain anything. It merely restates a fact. It's like saying the patient died because he ceased to live.


FOOTNOTE - PAYROLL DATA REVISION

The Bush administration will surely tout the potential "upward revision" in the payroll numbers for the March 2003 to March 2004 timeframe (announced in the BLS report released in October 2004). When absorbing the spin on this, keep the following facts in mind.

EPINET:

As is their practice, the BLS announced in today's report the preliminary estimate of the so-called benchmark revision for the payroll survey.  According to this estimate, the employment level for March 2004 will be 236,000 higher than the current published levels, meaning that this many more jobs were added between March 2003 and March 2004 (the Bureau "wedges" the revision in at a rate of just below 20,000 per month—236,000 jobs divided by 12 months—from April 2003 through March 2004).  Thus, if this preliminary estimate holds up (and such estimates can change significantly by the time the final value is derived), payroll comparisons that cross the affected period will reflect this higher level of job growth.  For example, the number of jobs lost since the recession began in March 2001 will equal about 700,000, not 940,000.  The latter number, noted above, is still the official BLS estimate until the revision is officially incorporated in the payroll series early next year.

Jobwatch:

The BLS commissioner announced today that, based on preliminary analysis of first quarter unemployment insurance tax reports, payroll employment for March 2004 will be revised upward approximately 236,000. That is smaller than the average revision. It does not materially change the picture for job growth between March 2003 and March 2004. Revisions tend to go upward when job growth is improving and downward when job growth is slowing or negative. Given the weakness of job growth in the last four months, one cannot assume that the level of employment for September will ultimately be raised as much as 236,000.

As also noted by JohnKerry.com:

Benchmark revisions are a poor guide to actual revisions. In 2002 the preliminary revision was -284,000 and the actual revision was -565,000. In 2003 the preliminary revision was -145,000 and the actual revision was -6,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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