South By North Strategies, Ltd.

Employment Down Across The Board

Heidi Shierholz of the Economic Policy Institute explains why the nation’s high unemployment rate is “not primarily driven by lost construction jobs.”

We often hear that today’s high unemployment is being primarily driven by workers who were laid off from construction jobs, but it’s not true. It istrue that the bursting of our $8 trillion housing bubble meant an enormous loss of construction jobs and that unemployment in construction is severe. But the bursting of the housing bubble didn’t just cause home builders to radically downsize after overbuilding during the bubble. It also caused a massive drop in demand for goods and services (and therefore a drop in the demand for workers) due to households pulling back on spending because of the loss of wealth due to declining home values, and businesses cutting back on investments in plants and equipment because of a lack of demand for their goods and services. The drop in demand for workers was therefore widespread—which means that today’s unemployment problem is not at all limited to construction.

A Little Math Lesson

Dean Baker does some math on the economic situation facing the United States.

Okay, let’s assume that the growth rate remains ate 3.0 percent, which is somewhat higher than most forecasts. Currently the economy is operating at about 6 percent below its potential. Potential growth is around 2.5 percent annually according to the Congressional Budget Office. This means that we will make up our shortfall at the rate of 0.5 percentage points annually. That puts 2024 as the year when we again reach potential GDP.
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Taking the jobs side of the picture, the economy is currently down by around 10 million jobs from where it would be had we continued on our pre-recession job growth trend. We have to create roughly 100,000 jobs a month to keep pace with the growth of the labor force. This means that if we create 200,000 jobs a month, then we are cutting into this shortfall at the rate of 100,000 jobs a month. That gets back to full employment in 100 months or 8 and a half years.
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Hey, who can call this a depression?

Around The Dial – March 5, 2012

Economic policy reports, blog postings, and media stories of interest:

• The Progressive Pulse analyzes the extent of deep poverty in North Carolina.
• Phil Angelides asks, “Will Wall Street ever face justice?”
• The Baseline Scenario mulls why many Democrats are fond of the Bush-era tax cuts.
• Mark Thoma wonders if  the Federal Reserve “has learned its lesson.”
• Off the Charts discusses how to help workers adjust to permanent job losses.

Making The Case For The Volcker Rule

Writing at The Nation, Mike Konczal outlines the case in favor of establishing a “Volcker Rule” that prevents commercial banks from making risky investments with federally-insured customer deposits. From the piece …

The Volcker Rule seeks to keep activities essential to banking within a safety net, while excluding other, riskier, activities from this safety net. There are a variety of special regulations, and protections, banks get, ranging from federal deposit insurance (known as FDIC) to access to the Federal Reserve’s discount borrowing window, designed to keep the system working through panics. Banks currently engage in a wide variety of non-banking activities with safety net protection. For example, they speculate in currencies and run hedge funds and proprietary trading desks for their own benefit. These activities made the financial crisis worse; one estimate has the major Wall Street firms suffering $230 billion dollars in prop trading losses a year into the crisis. And right now, these activities are subsidized by access to the banking safety net.

Going Too Low

The North Carolina Budget & Tax Center explains why North Carolina shouldn’t lower the income standard used to determine enrollment in state-funded pre-kindergarten programs.

Building a pathway for more of North Carolina’s children to achieve financial security and middle-class status is critical to creating a strong economy. NC Pre-K and early childhood programs provide such a pathway by investing in quality learning experiences at a critical developmental period. Because NC Pre-K’s current “at-risk” eligibility threshold is inclusive of a broader range of children in households experiencing economic hardship with incomes above the flawed federal poverty level, it has the greatest potential to improve the earnings for more North Carolinians and strengthen the economy in turn. Efforts to narrow the number of children able to benefit from NC Pre-K’s learning opportunity will thus decrease the positive long-term learning and economic impacts of the program on North Carolina’s children and our economy.