South By North Strategies, Ltd.

It’s Aggregate Demand, Stupid!

From a recent speech by Christina Romer of the Council of Economic Advisers …

My first and most fundamental point is that when it comes to the economy we are very far from normal.  The unemployment rate is currently 9.7 percent.  I find it distressing that some observers talk about unemployment remaining high for an extended period with resignation, rather than with a sense of urgency to find ways to address the problem.  Behind this fatalism, there seems to be a view that perhaps the high unemployment reflects structural changes or other factors not easily amenable to correction.  High unemployment in this view is simply “the new normal.”  I disagree.
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The high unemployment that the United States is experiencing reflects a severe shortfall of aggregate demand.  Despite three quarters of growth, real GDP is approximately 6 percent below its trend path.   Unemployment is high fundamentally because the economy is producing dramatically below its capacity.  That is, far from being “the new normal,” it is “the old cyclical.”

Regarding long-term unemployment …
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Is This Really Good News?

Mark Thoma asks if a falling deficit really is good news.

But taking a different view, one that focuses on people rather than votes, there is a reason to help households struggling to find employment. Even if there is little political gain to doing so, every job that is created changes the circumstances some household faces for the better, and that alone ought to be enough motivation to do as much as possible to help. But Stan Collender is correct, as I explain here, to conclude that the administration has no plans to even propose doing more to help. No matter what effect that decision has on votes, with households still struggling to find decent jobs, or any job, I think that’s the wrong choice to make.

NC March Employment Report

The March employment report released today by the Employment Security Commission points to few changes in the state’s labor market. Job growth remains insufficient to accommodate all those who wish to work, and unemployment remains at an elevated level.

Last month, North Carolina employers added 3,300 more positions than they eliminated; private-sector and public-sector employers contributed roughly equally to that gain. Since December 2007, North Carolina has lost, on net, 280,200 positions or 6.7 percent of its payroll employment base.

Moderating labor market conditions are reflected in March’s household data. Last month, the labor force expanded by 0.3 percent as 15,300 additional people sought work. The number of employed individuals rose, and the number of unemployed individuals declined. Consequently, the unemployment rate dipped from 11.2 percent to 11.1 percent. Nevertheless, the past year saw the number of unemployed Tar Heels grow by 7.3 percent and the unemployment rate rise to 11.1 percent from 10.3 percent.

Click here for South by North Strategies’ full analysis of the March employment report.

The End of the Graduation Initiative

Writing in The New Republic, Kevin Carey documents the collapse of the American Graduation Initiative.

Listening to the administration, you would think none of these failures had occurred. The White House has focused media attention on student loan reform and how it transferred billions of dollars from rich bankers to poor college students. And this is an unquestionably great accomplishment. But the bill-signing ceremony for loan reform was staged at a community college, and Organizing for America’s website declared that the legislation would help 5 million more students earn degrees by revitalizing community colleges—which is true in the alternate universe where the graduation initiative didn’t implode. Obama has also promised a White House “community college summit,” which is what you get in Washington in lieu of actual resources and reform.
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By allowing Congress to slash higher-education goals from the reconciliation bill, the administration is left with no backup plan to help more students graduate—and no money with which to build one. Just pretending to tackle the graduation problem will undermine this presidency in the long run. Above all, the United States needs strong economic growth and jobs to match. Recession-driven unemployment has brutally discriminated against people without college degrees. Economists across the political spectrum see well-educated workers as the lynchpin of American competitiveness—and note with alarm our declining position relative to other nations. If the administration doesn’t redouble its efforts to help more students graduate, it will look back on the collateral damage of the reconciliation bill with far more regret than anyone imagines today.

Around the Dial – April 15

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

• Paul Krugman wonders about the secrets of banks’ success.
• The Washington Post looks at basic literacy education for adults.
• Andrew Sum documents the disparate impact of job losses.